Advisory Panel Makes Recommendations for a California Cap and Trade Program
The California Air Resources Board has posted recommendations from its Economic and Allocation Advisory Committee (EAAC) on a range of economic issues related to the design of a California Cap-and-Trade system to reduce greenhouse gas emissions.
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ARB states that the report will help inform its development of a Cap and-Trade regulation, a draft of which is due in Spring 2010, as required by the Global Warming Solutions Act of 2006 (AB 32).
Committee Recommends Assistance to Firms, Auctioning Allowances, Etc.
The Committee's final report makes the following recommendations (partial list):
Provide "border adjustment" assistance to firms - prevent leakage, through "border adjustments" or allocation. Firms that rely most heavily on carbon-based energy, and that compete directly with firms that do not face carbon regulation, should be provided assistance to avoid loss of market share that doesn't result in emissions benefits. Where possible, California should account for the carbon in imported products so that in-state producers and out-of-state producers face the same costs. Where that is not possible, allowance value should be given to affected California firms to reduce their costs.
Return most allowance value to households - return nearly 75% of the allowance value to households, through direct financial transfers or tax decreases. The report recommends that 75% of the monetary value of allowances received, after low-income assistance and some industry protections are accounted for, be returned to households, with the other purposes accounting for the remaining 25%.
Use auctions - use auctions as the primary method for distributing allowances. EAAC finds that almost any purpose that could be achieved through free allocation could also be achieved through auction, and that auctions would be more transparent and provide additional advantages including price discovery and market liquidity. EAAC also recommends adopting an auction design very similar to that of the Regional Greenhouse Gas Initiative (RGGI) with one addition: allowing the public to sell allowances in its auctions along with the state.
(See ITT's Online Archives or 12/01/09 news, 09120140, for BP summary of the ARB's "preliminary draft" cap-and-trade regulation.)
ARB press release (dated 01/11/10) available at http://www.arb.ca.gov/newsrel/nr011110.pdf