CARB Proposed Amendments to Extend the Cap-and-Trade Program Beyond 2020 Overshadow Significant Revisions to the Program Itself
On August 2nd, the California Air Resources Board (CARB) formally released its Proposed Amendments to the California Cap-and-Trade Program. CARB’s proposed amendments are meant to extend the program through 2030 and ensure continued emissions reductions through 2050. Notably, the amendments are also intended to broaden the program through linkage with the Ontario program beginning in January 2018. CARB is also attempting to better align California’s Cap-and-Trade Program with the Federal Clean Power Plan.
Extending the cap and trade program beyond 2020—which includes new emission caps, establishes future auctions, and allocates future allowances—was big news when it was announced nearly a month ago. But CARB’s proposed changes to the program go even further.
CARB has proposed a number of adjustments/refinements to the program that may have significant impacts on a number of regulated industries and industry sectors. These revisions did not create the same headlines because the proposed changes affect a myriad of industries in very different ways, and the potential “winners” and “losers” are not readily apparent given the complexity of the subject area.
For example, CARB is proposing to eliminate product-based benchmarks for the paper mill and roasted nuts and peanut butter manufacturing sectors, to revise product-based benchmarks for dairy product manufacturing, and to add product-based benchmarks for sulfuric acid regeneration (important for fertilizer production and petroleum refineries). Each of these changes are significant, and companies in related industries will need to determine the specific positive or negative effect of the proposed revisions.
Another example of a possibly significant change is that CARB is proposing to directly allocate allowances to industrial covered entities to cover the carbon cost associated with their purchased electricity. This would potentially eliminate the middleman (i.e., the electric utility), and will hopefully provide the effective transition assistance that has always intended for the California industrial sector. Going forward, however, the question will be whether CARB can better and more efficiently allocate these allowances than the electric utilities across the State.
As one final example of a potentially significant change, CARB is proposing to change which entities and emissions are covered by the Cap-and-Trade Program. CARB is proposing that waste-to-energy facilities that directly combust municipal solid waste should be exempt from the program for 2016-2017, while proposing that natural gas hydrogen fuel cells should no longer be exempt from the Cap-and-Trade Program. The ramifications for each of these fledgling industries could be huge.
Industry participants will need to carefully analyze the proposed amendments to determine the potential impact of these changes on their sector. Written comments are due on the proposed amendments are due by September 19.