Outstanding Design Flaws in California’s Cap-and-Trade Program

Latham & Watkins LLP

On January 1, 2013, California embarked on a grand experiment with the launch of the world’s most complex cap-and-trade program. Under this program, companies operating in California, such as food processors, power producers and importers, manufacturers, cement producers and refiners, must purchase carbon permits called “allowances” from the Air Resources Board (“ARB”) to cover their emissions of greenhouse gases (“Compliance Entities”).

As of today, ARB has held eight auctions during which it has sold more than 240 million allowances at prices ranging between $10 and $142 per allowance. Participants in ARB auctions have included Compliance Entities, but also a number of financial intermediaries and speculators that purchase allowances for resale at a profit. For example, financial intermediaries and speculators have purchased more than 20 million allowances so far in ARB auctions.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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