California and Quebec Start Up Cap and Trade Regulations and Auctions

carbon

As of Jan­u­ary 1, cap-and-trade reg­u­la­tions to reduce car­bon and green­house gas (GHG) emis­sions have been enacted in Cal­i­for­nia and Que­bec. The Cana­dian province aims to reduce emis­sions to 25% below 1990 lev­els by 2020 and Cal­i­for­nia wants to meet 1990 lev­els by that same year to address cli­mate change. In Cal­i­for­nia, the first phase of the pro­gram gov­erns elec­tric­ity sup­pli­ers and large indus­trial sources includ­ing oil refiner­ies like Chevron’s Rich­mond facil­ity, which is the largest emit­ter of GHG in Cal­i­for­nia. The sec­ond phase of the pro­gram will include dis­trib­u­tors of gaso­line, diesel, and nat­ural gas. It’s all part of a larger statewide ini­tia­tive, called the “Scop­ing Plan,” with per­for­mance stan­dards for cleaner cars, fuels, energy effi­ciency, and renew­able energy require­ments. All of it falls under the Global Warm­ing Solu­tions Act, or AB 32, that was pro­moted and signed by then-Gov. Arnold Schwarzeneg­ger in 2006. It’s going to take a while to become com­mon­place, but car­bon cred­its could become a met­ric that affects automak­ers and pub­lic and pri­vate fleets in years to come.

The Cal­i­for­nia Air Resources Board has over­seen the state’s first cap-and-trade car­bon credit auc­tion, which took place on Nov. 14, 2012. The sec­ond auc­tion is sched­uled to take place on Feb. 19, 2013. It’s the sec­ond car­bon mar­ket in the US, fol­low­ing the Northeast’s Regional Green­house Gas Ini­tia­tive. Cal­i­for­nia and Que­bec may set up their own car­bon trad­ing exchange, which could be adopted by other inter­ested states and provinces. Dur­ing California’s first auc­tion, bid­ding and buy­ing of pol­lu­tion allowances took place online dur­ing a three-hour win­dow. There was no fren­zied bid­ding, as you can occa­sion­ally see on Wall Street – bids were placed qui­etly from com­put­ers around the coun­try. Dur­ing the first day of trad­ing, 23.1 mil­lion allowances offered at the auc­tion to cover 2013 emis­sions were purchased.

The Obama administration’s cap and trade bill fiz­zled out in Wash­ing­ton dur­ing 2010. It’s not likely that a cap and trade bill will be adopted in Wash­ing­ton any­time soon, but the Cal­i­for­nia mar­ket will be fol­lowed closely. The Euro­pean Union enacted its own car­bon reg­u­la­tions years ago, and has been strug­gling to see its car­bon trad­ing mar­ket sta­bi­lize more recently as energy costs have remained high. Car­bon cred­its are being tested in gov­ern­ment and cor­po­rate pilot pro­grams in major mar­kets around the world, includ­ing China, India, and Viet­nam. Automak­ers are rou­tinely fac­tor­ing in reduced car­bon and GHG gas emis­sions into their engi­neer­ing, design, and mar­ket­ing strate­gies; this is very typ­i­cally pro­moted now by Ger­man automak­ers. In the US mar­ket, the fed­eral fuel econ­omy stan­dards to reach 54.5 miles per gal­lon by 2025 are the bench­mark; how­ever GHG emis­sions reduc­tion is built into these poli­cies and automak­ers do have the abil­ity to trade cred­its in the recently final­ized fed­eral stan­dards. For exam­ple, Chrysler could pur­chase cred­its from Tesla Motors for its zero emis­sion vehi­cles, to com­ply with the fed­eral mandate.

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