CARB Compresses First Cap and Trade Compliance Schedule from Three Years to Two Years

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At the June 29 hearing of the Senate Select Committee on the Environment, the Economy, and Climate Change in Sacramento, Mary Nichols, chairwoman of the California Air Resources Board (CARB or Board), announced a one-year delay in the enforcement of the cap-and-trade program, until 2013. Companies will not be required to meet the compliance obligation in 2012 however; the total obligation for the first compliance period must still be met as CARB has essentially compressed the three year period into two years.

Follow up with CARB staff indicated that the cap-and-trade program will start in 2012 with allowance allocations expected to move forward in that year on a quarterly basis. However, firms with compliance obligations will need to make the same reductions by 2013 and 2014 that would have had to make 2012, 2013, and 2014 in order to meet the programs reduction targets. The only structural difference is that firms will be given a temporary "breather" for their 2012 compliance obligations. Facilities that pass on their 2012 compliance obligations will be required to comply with a compressed time period to make the reductions by the end of the first period (2014). So, despite the non-enforcement in the first year of the three-year compliance period, the program is expected to remain on track to meet the 2020 target required by AB32.

In simple terms, the reductions forced by the declining cap that were originally scheduled to occur over a three-year period, will now occur over a two-year period.

The program was passed in December by the board, which still hopes that other states would follow suit since Congress had failed to pass national climate change legislation.

The delay announced Wednesday comes about three months after a San Francisco Superior Court judge halted work on the program, saying that CARB had not properly considered alternative programs, as required by state law. But a state appeals court on June 24 allowed the board to resume work on the program, pending an appeal. As a result, the board has scheduled two public hearings on July 8 and 15 to discuss the plan.

Nichols said the state would still initiate the regulatory framework for cap-and-trade in 2012, pending the outcome of an appeal of a lawsuit challenging the program. According to CARB, cap-and-trade is the key piece of the California's 2006 climate law and will cover 85 percent of the state's emissions reductions.

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