CalEPA Unveils Cap & Trade Options

By Published On: October 28, 2005

The California Environmental Protection Agency unveiled draft options for a greenhouse gas emissions cap-and-trade program October 24. The agency plan would start squarely with the electric power industry. The options paper – – developed by the state?s interagency Climate Action Team – – is aimed at implementing Governor Arnold Schwarzenegger’s climate change policy. It calls for rolling back greenhouse gas emissions to 2000 levels by 2010 and then to 1990 levels by 2020. After that, it calls for an additional 80 percent reduction by 2050. Joining CalEPA are representatives of the California Public Utilities Commission, CalTrans, the Department of Food and Agriculture, and the California Energy Commission. The latter released its own paper on a potential cap-and-trade program last week (Circuit, Oct. 21, 2005). CalEPA is seeking comments on three options for regulating power industry climate change contributions, which account for 20 percent of the state?s greenhouse gas emissions. The first option would control direct emissions from 313 in-state generating plants with a capacity of 25 MW or more. The second would regulate investor-owned utilities by limiting emissions from the power they deliver from both in-state and out-of-state plants. The third option would regulate all load-serving entities, including public power agencies and electricity service providers. The draft also discusses covering other major industries, such as oil refining, oil and gas production, landfills, cement kilns, and other manufacturing operations. Another option envisions capping emissions according to the flow of fossil fuel at key distribution points, such as the state?s 10 major natural gas pipeline transfer points and 100 major transportation fuel racks. All greenhouse gases may be covered – – including methane and other chemicals emitted in small quantities – – or perhaps just carbon dioxide. The state may grant emissions allowances to companies for free based on their baseline emissions or auction them off to raise the money needed to administer and enforce the cap-and-trade program. Banking allowances to cover future emissions and borrowing from banked allowances might be possible. The paper envisions the California Climate Action Registry as the repository for annual emissions reports that would be used to determine compliance with emissions caps. Companies that do not comply would face penalties, the options paper said.

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