Under California’s cap-and-trade program, free allowances are allocated and issued to companies based on the emissions standard of each industry. For industries that generate low carbon emissions and cannot relocate easily, free allowances issued will be progressively reduced from 100%, 50% to 30%; and a penalty of four allowances for each additional unit of emissions will be imposed if failing to comply with the emissions standard. It is worth noting that free allowances are available for electricity transmission and distribution companies, while electricity suppliers have to obtain them through purchases.
The scheme started operating in 2013 and entered the fourth phase in 2021.
Table 1 / Source: International Climate Development Institute (ICDI)
Industries, electricity sectors (including power plants that transmit electricity to California from other states), distributors of fuels for transport, residential, and commercial use with emissions over 25,000 tonnes of CO2e, all of which account for 85% of greenhouse gas emissions in California.
The trading takes place in the allowance auctions.
As of November 22, 2021, the carbon price came in at 34.64 U.S. dollars, up 94.72% from $17.79 in January 2021.
Allowance Price Containment Reserve (APCR): APCR is a mechanism under the cap-and-trade program. Sales of allowances will be offered from the APCR in any quarter that the current auction held in the preceding quarter resulted in a settlement price greater than or equal to 60% of the lowest Reserve tier price. The price is fixed and increased from $65 in 2021.
Currently, there is no unified carbon trading system in the United States. However, more regional carbon trading mechanisms are expected to be introduced and will be unified and applied nationwide, or further integrated into the global carbon trading system, so as to stimulate the overall trading volume and incentivize the market to reduce emissions.
- “Climate and Finance”, International Climate Development Institution (ICDI), Aug. 2021
- Carbon credits