Voluntary Participation in California’s Cap-and-Trade Market

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Under the Air Resources Board cap-and-trade regulation, any entity whose emissions exceed the 25,000 MMTCO2e threshold during any year of a compliance period has a compliance obligation for that period and the next compliance period, unless it has shut down all sources of its emissions.

However, for an entity that falls within the covered categories but does not meet the threshold for inclusion under the cap-and-trade the option to "opt-in" is an available choice for the program during any of the compliance periods.

An opt-in covered entity is defined as an entity that voluntarily elects to be covered under the cap-and-trade program and surrender allowances for each metric ton of greenhouse gas it emits. Opt-in covered entities may be eligible to receive free allowances based on the same criteria as covered entities, and can elect to opt out of the program at the end of a compliance period if its greenhouse gas emissions remain under the inclusion threshold.

There are advantages and disadvantages to opting in to the program. While an opt-in entity can receive free allowance allocations on the same terms as the other participants they will also be subject to all of the other obligations imposed on those entities who must comply with the regulation.

However, for entities that do not exceed the threshold but are close (between 24,999 and 20,000 metric tons annually) the opt-in option should be carefully considered. Beginning 2015, natural gas and transportation fuel providers will be covered in the cap-and-trade. Suppliers of natural gas will be covered to the extent that their total deliveries in the state less those amounts covered by other covered entities (i.e., electricity generators or industrial facilities) exceed 25,000 MMTCO2e. Transportation fuel suppliers will be covered for the total emissions from the fuel that they sell or distribute for consumption in California.

The Air Resources Board fully expects that the natural gas providers will pass the cost of cap-and-trade compliance to fuel purchasers. While opting–in won’t reduce the increase in costs for fuel, it may allow a company to manage its compliance obligation and associated costs directly. For instance, a highly efficient entity may have surplus allowances to sell on the market allowing it to offset increased fuel costs.
In order to become an opt-in covered entity, the entity must be in one of the sectors covered under the cap-and-trade program, but must not already be required to comply with the regulation because it emits less than 25,000 MTCO2e annually. If an entity decides to voluntarily participate in the Cap-and-Trade Program as an opt-in covered entity, it must submit an Opt-in Request Form to the Air Resources Board’s Executive Officer for approval.

For more information, go to:
http://www.arb.ca.gov/cc/capandtrade/guidance/guidance.htm (Chapter 4) or contact David Allgood in ARB’s Climate Change Program Evaluation Branch at (916) 445-8238.

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