california ghg cap and trade program

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California GHG Cap California GHG Cap and Trade Program and Trade Program Clare Breidenich Western Power Trading Forum

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California GHG Cap and Trade Program. Clare Breidenich Western Power Trading Forum. Overview. Background Program Scope Electricity Imports Allowance Distribution Market Rules Looking Ahead. Background. AB32. Reduce GHG emissions to 1990 levels by 2020 - PowerPoint PPT Presentation

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Page 1: California GHG Cap and Trade Program

California GHG Cap and California GHG Cap and Trade ProgramTrade Program

Clare Breidenich

Western Power Trading Forum

Page 2: California GHG Cap and Trade Program

OverviewOverview

Background

Program Scope

Electricity Imports

Allowance Distribution

Market Rules

Looking Ahead

Page 3: California GHG Cap and Trade Program

BackgroundBackground

Page 4: California GHG Cap and Trade Program

AB32AB32 Reduce GHG emissions to 1990 levels by 2020

• Emissions to be further reduced after 2020• Emission reduction measures to be in place by

1/2012

Mandatory reporting and verification of GHG emissions • Must cover emissions from all electricity consumed

in state

Authorizes market-based mechanisms, but does not require

Contains safety-valve

Page 5: California GHG Cap and Trade Program

Implementation StatusImplementation Status

Regulation in force as of 2012• Reporting• Registration • Auction• No emission obligation until 2013

Page 6: California GHG Cap and Trade Program

Cap and Trade ScopeCap and Trade Scope

Page 7: California GHG Cap and Trade Program

Program ScopeProgram Scope Declining annual cap on:

• Electricity generation & imports, stationary combustion, energy-intensive manufacturing, petroleum refineries

As of 2015: Transportation fuels, & residential & commercial fuel consumption

• CO2,CH4, N20, SF6, NF3, HFCs & PFCs 25,000 MTCO2e annual emission threshold except non-specified

power imports Reported under Mandatory Reporting Rule

Voluntary participants:• Opt-in covered entities (incurs compliance obligation)• Voluntary associated entities (e.g. marketers, offset

developers)

Page 8: California GHG Cap and Trade Program

Compliance ObligationCompliance Obligation Capped entities must surrender compliance instruments to

cover emissions • 3 year compliance intervals (first period 2 years)

Retire instruments equal to 30% of previous year emissions in first two years

Remainder after 3rd year

Failure to surrender sufficient compliance instruments by deadline:• Compliance instrument penalty equal to 4 times the excess

emissions One fourth of penalty instruments may be offset credits May be additional financial penalties, which escalate after 45 days

Page 9: California GHG Cap and Trade Program

Treatment of Electricity Treatment of Electricity ImportsImports

Page 10: California GHG Cap and Trade Program

Electricity ImportsElectricity Imports All power generated and imported to state

subject to program, except• Specified imports from facility that is below 25,000 MMT

annual threshold• Wheel-throughs and exports that can be netted against

imports within same hour

Compliance obligation falls on entity that delivers power to California (“First Jurisdictional Deliver”)• PSE on NERC tag between balancing areas• Facility operators or scheduling coordinator if no tag

Page 11: California GHG Cap and Trade Program

Attribution of Emissions to Attribution of Emissions to ImportsImports

• Unspecified power assigned default emission rate• Initially set at .428 MT/MWH

• Importers can claim facility - specific emission rate if Facility is owned by or under contract to importer and

registered as specified source, and Power is directly delivered

• Resource-shuffling prohibited Defined as any plan, scheme or artificial to receive credit

based on emission reductions that have not occurred, involving the delivery of electricity to the California grid.

Importers must submit annual attestation

• Special emission rate for ‘asset-controlling suppliers’

Page 12: California GHG Cap and Trade Program

Renewable ImportsRenewable Imports

• Direct delivery of renewable power treated as specified import

• “RPS Adjustment” for firming and shaping power, if:

Importer has contract for procurement of renewable generation or importing on behalf of entity that does

RECs generated must be used for compliance with RPS in same year firm and shaped power is claimed

Renewable resource is not located in a capped jurisdiction

Firmed and shaped power has emission rate less than default

• Else power gets difference between default rate and facility specific rate

Page 13: California GHG Cap and Trade Program

Allowance DistributionAllowance Distribution

Page 14: California GHG Cap and Trade Program

Allowance Distribution by Allowance Distribution by Purpose Purpose

Annual Caps distributed to separate pools:• One-time Carve-out for Price Containment Reserve• Allocation to electric utilities • Allocation to natural gas utilities ( as of 2015)• Allocation for covered industry sectors• Set-aside for voluntary renewable energy purchases• Any remainder to auction

Page 15: California GHG Cap and Trade Program

Electric Sector AllocationElectric Sector Allocation

Allowances freely allocated to IOUs and POUs

IOUs must consign allowances received to ARB auction• Revenue must be used for consumer benefit, consistent with

AB32 goals

POUs may consign to auction or retain to cover own compliance obligation

Generators, importers (including IOUs and other retail providers) must purchase allowances through auction or secondary market

Page 16: California GHG Cap and Trade Program

Allowance Auctions and SalesAllowance Auctions and Sales Consignment auction:

• Utility-allocated allowances• Advance auction of future vintages

Price Containment Reserve (PCR) Sales:• Set-aside from annual caps• Penalty allowances

Auctions & PCR sales held quarterly• First consignment auction planned for August 15, 2012• PCR sale 3 weeks after consignment auction

Page 17: California GHG Cap and Trade Program

Consignment AuctionConsignment Auction Format:

• Sealed bid, single-round, uniform clearing price• Lots of 1000 MT• Different vintages auctioned separately

Auction Reserve price: $10/ ton initially• increases 5% annually + inflation

Open to all market participants Must register 30 days prior Financial assurance through bid guarantee

Purchase limits• 15% of auction volume for capped entities

Does not apply to IOUs• 4% for voluntary associated entities

Page 18: California GHG Cap and Trade Program

Price Containment ReservePrice Containment Reserve

Allowances sold from three equal-sized tiers:• Prices initially set at $40, $45 and $50 per ton• Increases 5% annually plus inflation

Only entities with compliance obligation may purchase• Allowances must be used for compliance• No purchase limits

Proceeds from PCR sales go to Air Pollution Control Fund

Page 19: California GHG Cap and Trade Program

Market RulesMarket Rules

Page 20: California GHG Cap and Trade Program

Transaction Rules Transaction Rules

Holding limit on allowances (not offsets) for all participants• Set relative to annual cap; 6.02 MMT in 2012• Does not apply to allowance in compliance accounts up

to level of compliance obligation (emissions to date)

No restrictions on secondary transfers of allowances

Unlimited banking of allowances and offsets (subject to holding limit)

Page 21: California GHG Cap and Trade Program

Use of OffsetsUse of Offsets

Limited use of offsets from California and other programs• 8% of compliance obligations• Of which ¼, increasing to ½, can be sectoral

Offsets subject to potential invalidation (buyer liability) up to 8 years after issuance

Currently approved offset categories• forestry; urban forestry; livestock

management; and removal of ozone-depleting substances

Page 22: California GHG Cap and Trade Program

Market OversightMarket Oversight

All participants must register in tracking system:

Disclosure of direct or indirect corporate associations & beneficial holdings

Applies for auction purchase limits and holding limits

General prohibition of manipulative or fraudulent behavior

Independent entity to be hired to monitor and report to CARB on functioning of market and behavior of participants

Page 23: California GHG Cap and Trade Program

Looking AheadLooking Ahead

Page 24: California GHG Cap and Trade Program

Expectations for 2012Expectations for 2012 Formal Rule-making

• Linkage of the California and Quebec systems• Revisions to cap and trade regulation

Resource-shuffling?

• Additional offset protocols

Infrastructure development & implementation• Tracking system registration, testing and training• Market simulation• Allowance allocation and auction

Legal Challenges?• Peabody Energy• Treatment of Electricity Imports• Other