california ghg cap and trade program
DESCRIPTION
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 PresentationTRANSCRIPT
California GHG Cap and California GHG Cap and Trade ProgramTrade Program
Clare Breidenich
Western Power Trading Forum
OverviewOverview
Background
Program Scope
Electricity Imports
Allowance Distribution
Market Rules
Looking Ahead
BackgroundBackground
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
Implementation StatusImplementation Status
Regulation in force as of 2012• Reporting• Registration • Auction• No emission obligation until 2013
Cap and Trade ScopeCap and Trade Scope
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)
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
Treatment of Electricity Treatment of Electricity ImportsImports
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
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’
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
Allowance DistributionAllowance Distribution
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
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
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
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
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
Market RulesMarket Rules
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)
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
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
Looking AheadLooking Ahead
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