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A Summer of Decision for CARB

As we head into the California Air Resources Board's summer of rulemaking activity, California's Greenhouse Gas (GHG) Cap-and-Trade program is at a crossroads as aspirational goals meet reality. The political and activist ambitions for California's climate goals far outpace the program's current design, rendering it unable to meet the state's imposed environmental targets without regulatory changes.

In a recent article, "Raising the Price of Emission in California," Professor Meredith Fowlie writes that California's approach to tightening its GHG emissions regulations through its cap-and-trade program "won't be cheap, so we should be chasing down the most cost-effective strategies."

CARB will discuss a post-2030 reauthorization of the Cap-and-Trade program, which could include tightening the cap on GHG emissions and reducing the supply of allowances, thus increasing the carbon price.

As CARB looks at emissions reduction, programs should be balanced with promoting competitiveness and affordability. In 2023, CARB released an "Information Regarding Cap-and-Trade Regulatory Updates" memo where they listed some of the critical issue areas:

  • Re-evaluation of potential implications of 5% overall banked allowances with a report back to the Legislature by the end of the year

  • Evaluation of caps in the context of the increased ambition in the 2022 Scoping Plan

  • Retrospective electricity sector leakage study

  • Industrial sector leakage study to help inform the AB 398 leakage evaluation study due to the Legislature by the end of 2025

  • Updates to offset protocols based on the latest science

  • Potential updates to reflect the Extended Day Ahead Market as being developed by CAISO

  • Mechanisms to protect low-income households from disproportionate impacts of energy prices

  • Inclusion of carbon dioxide sequestration and removal projects developed under an approved SB 905 Carbon Capture, Removal, Utilization, and Storage Program

  • Some other critical challenges for CARB will be reallocating allowances, the role of "banked" permits (allowances saved for future use), and how modifications to banking rules could impact the market.

As CARB examines some of these critical issues, our industry and the rest of California will also have to consider the complexities of navigating these considerations. We will have a lot more to report in the near future.

For more information, contact Sean Wallentine.


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