Emissions Trading Worldwide

The California Cap-and-Trade Program
Looking Back on the First Phase
David Clegern & Mary Jane Coombs, California Air Resources Board
Background on California’s program
Groundbreaking legislation passed in 2006 by the California
State Legislature requires that the state return to 1990 levels of
greenhouse gas (GHG) emissions by 2020. The economy-wide
California Cap-and-Trade Program (the Program) is a key element
of California’s climate plan. It sets a statewide limit on sources
responsible for 85% of California’s GHG emissions, and establishes
a price signal in order to drive long-term investment in cleaner
fuels and a more efficient use of energy.
The Program is designed as part of a comprehensive set of
policies. It works in concert with California’s Low Carbon Fuel
Standard which reduces the carbon intensity of transportation fuels,
California’s Advanced Clean Car Program which forces the transition
to a largely zero-emission vehicle fleet, and California’s Renewables
Portfolio Standard which obliges electricity utilities to increase purchases
of renewable electricity to 33% of their total by 2020, and to
50% by 2030. Together, these policies drive down emissions while
spurring economic growth and technology development.
This combination of policies also spreads the costs and benefits
of fighting climate change across the economy. They not only
reduce emissions, but also encourage the development of new
and more efficient businesses and generate a growing number of
jobs. Since these policies have come into effect, California’s carbon
emissions have continued to drop while the economy has
grown at a pace well beyond the national average.
“This high compliance rate demonstrates
that industry can fulfill the key role it must
play in California’s effort to curb the
impacts of climate change. It also shows
that our staff has designed a program
which is manageable for those who must
participate.”
1 The emissions cap for 2013 was 162.8 million metrics tons of CO2e (MMTCO2e), and for 2014 was
159.7 MMTCO2e. With greater sectoral coverage, the cap more than doubled to 394.5 MMTCO2e
in 2015.
2 Large sources emitting at least 25,000 MMTCO2e per year.
3 Including an optional limited number of offset credits.
4 California actually holds two auctions simultaneously: the current auction that sells allowances
from the year in which the auction is held, and the advance auction that sells 10 percent
of the allowances of the budget year (vintage) three years ahead.
25%
20%
15%
10%
5%
0%
–5%
–10%
–15%
–20%
–25%
Change since 2000
2000
2001
2002
2003
2004
Metric
GDP
Population
GHG Emissions
GHG Emissions per Capital
GHG Emissions per GDP
2005
2006
2007
2008
2009
The California Program has a number of design features that offer
covered entities flexibility as to when, how and where emissions
are reduced, including the use of offsets and multi-year compliance
periods. At the same time, a progressively declining cap further
serves to drive emissions reductions in line with California’s
climate change targets. From 2015 onwards, the cap is scheduled
to be reduced by about 3% each year. 1
The extensive coverage of the Program drives emissions reductions
across the whole economy. In the first compliance period
(CP1, 2013–2014), the Program covered around 450 entities, including
both stationary sources 2 and importers of electricity. Last year,
California became one of the few jurisdictions in the world to
include the transport sector. As a result, suppliers of transportation
fuels, natural gas and other fuels now have compliance obligations.
The first two-year compliance period began on 1 January 2013.
Across this period, covered entities were required to meet their
obligations in two stages. Firstly, in November 2014, entities had
to surrender allowances 3 for 30% of their 2013 emissions. This
mid-period compliance event (now an annual provision) was
implemented to ensure entities keep track of their compliance
obligations and to act as a kind of ‘down payment’ to safeguard
against default. The following year (2 November 2015), entities
were required to submit allowances for the remaining 70% of their
2013 emissions, and all of their 2014 emissions. Virtually all entities
(402 of 404 covered facilities and importers) complied with the
Program in its first period. As California Air Resources Board Chair
Mary D. Nichols notes, “This high compliance rate demonstrates
that industry can fulfill the key role it must play in California’s effort
to curb the impacts of climate change. It also shows that our
staff has designed a program which is manageable for those who
must participate.”
2010
2011
2012
2013
Associated 2013 Value
2.05 trillion (2009 $)
38.2 million
459.3 MMTCO2e
12 metric tons CO2e per person
224 metric tons CO2e per million dollars
GDP
Population
GHG Emissions
GHG Emissions per Capital
GHG Emissions per GDP
Figure 1: Change in California GDP, population and GHG emissions since 2000.
Source: California Air Resources Board Emissions Inventory;
http://www.arb.ca.gov/cc/inventory/data/graph/trends/ghg_trends_00-13_20150504sm.png
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