California explores a state-wide cap-and-trade system for air emissions

Stakeholders were given the opportunity to provide specific technical input concerning various elements of the program design that may become part of the Assembly Bill (AB) 32 Scoping Plan. AB 32 includes specific criteria that the Californian Air Resources Board (ARB) must consider before using market-based measures to implement AB 32, and ARB will evaluate a possible cap-and-trade system against those criteria before deciding whether to include such a system in the Scoping Plan.

To establish a basic framework for our discussion, here are basic definitions for “allowance” and “allocation” within a cap-and-trade program:

In a cap-and-trade program an “allowance” is a permit to emit a certain amount of pollution; typically in a greenhouse gas (GHG) context this would be equal to one ton of carbon dioxide (CO2). The number of allowances issued within a cap-and-trade program equals the total permitted level of emissions and is referred to as the “cap.”

“Allocation” is how the government or program representative distributes the allowances. Each allowance has a value, which depends on the supply of allowances and the demand to emit pollution. In order to achieve emission reductions, the number of allowances issued is reduced over time. These allowances can be distributed by various methods including: auctioning, benchmarking, and grandfathering.

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