The 2014-15 Budget: Cap-and-Trade Auction Revenue Expenditure Plan

The 2014-15 Budget: Cap-and-Trade Auction Revenue Expenditure Plan

California’s Cap–and–Trade Program

In conjunction with the AB 32 Scoping Plan, ARB adopted a cap–and–trade
regulation that places a cap on aggregate GHG emissions from entities
responsible for roughly 85 percent of California’s total GHG emissions.
While these entities are not assigned an individual reduction target,
entities that emit at least 25,000 metric tons or more of carbon dioxide
equivalent (CO2e) per year are subject to the cap–and–trade
regulation and are therefore considered to be “covered entities.” When
the program is fully operational, approximately 600 of the state’s
largest emitters of GHGs will be subject to the regulation, including
oil producers, refiners, and electricity generators. In order to comply
with the regulation, a covered entity must obtain one allowance (or
equivalent thereof) for every metric ton of CO2e that it emits during a
given compliance period.


Under ARB’s cap–and–trade program, covered entities have an opportunity to obtain allowances in multiple ways. The ARB has designed its cap–and–trade
program to provide a portion of allowances for free, while another
portion are available for purchase at quarterly auctions. Covered
entities also have the opportunity to trade allowances in the open
market. Over time, the cap on aggregate annual emissions will gradually
decline from 409 million metric
tons of CO2e in 2012 to 341 million metric tons of CO2e in 2020. As the
cap declines, the number of allowances ARB makes available will decline
proportionately. Thus, a covered entity will need to determine if it is
more cost–effective to purchase allowances or to reduce its emissions (such as by making energy efficiency upgrades in its facility).