Prop 23 fails and Cap-and-Trade moves forward

By CMTA Staff

Capitol Update, Nov. 5, 2010 Share this on FacebookTweet thisEmail this to a friend

California Air Resources Board (CARB) released the long-awaited cap-and-trade regulation on October 29 with plans to adopt the regulation at the December 16 Board meeting.  For large manufacturers emitting more than 25,000 tons of carbon per year, the rule requires holding allowances (permits) for all emissions to be surrendered to the CARB at the end of each compliance period.  The first compliance period is 2012 through 2014, the second is 2015 through 2017, and last is 2018 through 2020.

Proposition 23 would have stalled the cap-and-trade regulation until the economy improved. CMTA supported Prop 23 but voters on November 2 rejected it by a wide margin.

CMTA is disappointed that Prop 23 did not pass.  The extra costs to be imposed on manufacturers through this rule will hurt jobs, tax revenues, and dampen growth in the future.

In an effort to be sensitive to economic considerations, in the first compliance period, CARB plans to freely allocate permits rather than sell them to raise revenue for state programs.  The free allocation will be up to a “benchmark” for each industry, representing an efficiency level that is 10 percent better than the industry average.  Since some companies will be less efficient than the industry benchmark, they will not get all the allowances they need to operate as usual.  They will be able to buy more on the open market or purchase permits from CARB. Very efficient companies may receive more permits than they need to operate, so they can sell the excess on the market, or bank them for future use.

Some industries will have a benchmark set related to the efficiency of their production of particular products.  This approach works when similar commodities are made by many companies and an apples to apples comparison can be made.  In other cases, when products are unique, CARB is using a “fall back” approach that considers the efficiency of steam or heat production in the manufacturing process. The benchmark level will provide companies that have the most efficient and modern systems enough permits to operate, while the less efficient processors will likely need to purchase more.

In future compliance periods starting in 2015, CARB will begin to lower the level of free permits for most industries, excepting only the industries in the “high leakage” category.  Purchasing the extra permits companies will need to operate will occur through a state-sponsored auction.  The revenue raised in the auction will be used for purposes to be determined by the legislature.

Join the CMTA Climate Change Advisory Committee for more frequent updates and conference calls about this important regulation. Contact Loretta Macktal at LMacktal@CMTA.net.

CARB’s Cap-and-Trade website, including the regulation and related appendices: http://www.arb.ca.gov/regact/2010/capandtrade10/capandtrade10.htm

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