California Proposes Revised Cap-and-Trade Regulations Providing for Linkage with International Cap-and-Trade Market; Joint California/Quebec Auction Scheduled for November 2012

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California is on the verge of opening a greenhouse gas/carbon trading market that may ultimately rival the European Union’s carbon trading market as the largest organized carbon market in the world. The state has recently proposed modifications to the regulations governing its nascent carbon cap-and-trade market that would clarify a number of processes, and would also establish a formal link between California’s cap-and-trade program and a similar carbon cap-and-trade program in Quebec, Canada. Comments on the newly proposed regulations are required to be filed by June 28, 2012 with the California Air Resources Board of the California Environmental Protection Agency (“CARB”).

California’s long-awaited cap-and-trade program was mandated in 2006 as part of California’s landmark Global Warming Solutions Act of 2006, generally known as “AB32.” AB32 requires that greenhouse gas (“GHG”) emissions in California be reduced to 1990 levels by 2020, and the state aims to reduce emissions to 80 percent of 1990 levels by 2050. In accordance with AB32, CARB adopted final regulations instituting a GHG cap-and-trade program in October 2011.

The cap-and-trade program emissions limitations will cover 360 businesses representing 600 facilities that are collectively responsible for 85 percent of California’s GHG emissions. The limitations will be imposed in two phases: (i) in 2013 the regulations will limit GHG emissions of major industrial sources and electric utilities, and (ii) in 2015 distributors of transportation fuels, natural gas and other fuels will also become subject to the regulations.

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