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BGC Update: CARB Revises California Carbon Rules

BGC Update: California Air Resource Board Revises California Carbon Rules

Friday, March 30, 2012, the California Air Resources Board (ARB) released draft amendments to the California cap on greenhouse gas emissions and market-based compliance mechanism to allow for the use of compliance instruments issued by linked jurisdictions. The first entity to be linked to the program will be Quebec. Furthermore, the draft amendment is open for additional jurisdictions to be linked to the program within the United States and Canada. This released draft amendment comes on the heels of the delay of the first allowance auction. In addition to addressing linkage there are a number of clarifications to the following sections:

***Please note this is just a general summary of some proposed changes to the regulation, for detailed information please contact BGC at 646.346.6899***

Designation of Authorized Account Representative:
A registered account may designate between one and four alternative authorized account representatives and up to five account viewing agents.

Know-Your-Customer Requirements:
The draft amendment states that this section is still under development, however, some of the initial guidelines and forms of information which will have to be provided to the ARB are listed as: name, address, valid government identity documentation, employer, passport, drivers license, an open bank account in the US or Canada, proof of employment or other relationship to the entity which has registered with the ARB, and photo ID. All documentation must be verified by presenting hardcopy documentation in person or having documentation certified as true by a notary public.

Modification to Corporate Association and Consolidated Set of Accounts:
The Executive Officer will consolidate the accounts held my entities that are part of a direct corporate association into a consolidated set of accounts. An entity is defined to have a corporate association with another entity if either one of these entities:
(A) Holds more than 20 percent of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity;
(B) Holds or can appoint more than 20 percent of common directors of the other entity;
(C) Holds more than 20 percent of the voting power of the other entity;
(D) In the case of a partnership other than a limited partnership, holds more than 20 percent of the interests of the partnership; or
(E) In the case of a limited partnership, controls the general partner.
By January 1, 2013, accounts will be consolidated with direct corporate association. Documentation supporting the association or opting out of the consolidation must be submitted to ARB by October 1, 2012.

Adjustment to Allowance Distribution to Electrical Distribution Utilities:
The Executive Officer will allocate allowances to electrical distribution utilities on September 14, 2012 or the first business day thereafter, for vintage 2013 allowances and November 1, or the first business day thereafter, of each calendar year from 2013-2019 for allocations from 2014-2020 annual allowance budgets.

Modifications to Auction Procedures:

Purchase limit for electrical distribution utilities will be 40 percent of the allowances offered for auction.

An allowance may be designated for auction prior to or after its vintage year. This allows previous year’s vintage allowances to be placed into the current auction. The modified document reiterated the Auction Reserve price for 2013 allowances auctioned in 2012 will be $10 per allowance. In addition, for advance auction conducted in 2012, the Reserve Price shall be $10 per allowance for vintage 2015 allowances. The auctions will start at 1:00pm Eastern Standard Time and close at 4:00pm Eastern Standard Time.

In the event of a tie in the bidding process at auction, the auction administrator will calculate the share of the remaining allowances to be distributed to each entity bidding at the auction settlement price by dividing the quantity bid by that entity and accepted by the auction administrator by the total quantity of bids at the settlement price which were accepted by the auction administrator. The auction administrator will calculate the number of allowances distributed to each bidding entity by multiplying the bidding entity’s share calculated by the number of allowances in the tier, rounding the number down to the nearest whole number.

Currency: At noon Eastern Standard Time on the day of the auction, the auction administrator will announce the exchange rate which will be used to determine the Auction Reserve Price, between California Allowances and Canadian Linked Allowances. The auction administrator will use the announced exchange rate to convert to a common currency for both the US and Canadian auction prices.

Auction Proceeds: The use of the auction proceeds will be reported no later than June 30, 2014 and each calendar year thereafter, each electrical distribution utility shall submit a report to the Executive Officer describing the disposition of any auction proceeds and allowance value received in the prior calendar year.

Allowance Price Containment Reserve: Only entities registered into the California GHG cap-and-trade system shall be eligible to purchase allowances from the Reserve. This modification has been made so linked entities cannot tap into the Allowance Price Containment Reserve.

Changes to the Holding Limit for Future Vintage Allowances:
The holding limit will be calculated separately for each vintage year for allowances by the following formula:

Holding Limit = 0.1*Base + 0.025*(Annual Allowance Budget– Base)

In which:
“Base” equals 25 million metric tons of CO2e.
“Annual Allowance Budget” is the number of allowances issued for the current budget year. It is calculated as the sum for the current budget year of the compliance budgets of California and all ETS programs to which California has linked.

Once Linkage is Approved:
A compliance instrument issued by California may be used to meet compliance obligations within the approved external GHG trading system. In addition, a compliance instrument issued by the linked jurisdiction may be used to meet compliance obligations in California. The administrator for the approved linked program must agree to inform the Executive Officer of the serial number of the California compliance instruments that the linked program accepts for compliance. The same is true, that California will inform the appropriate officials of the linked program of the compliance instrument’s serial numbers that are being used for compliance within California.

Trading
If an entity purchases allowances over their holding limit, and the violation is not caught prior to the transfer, the violator will have five business days to bring the account balance within the holding limits.

Trade Conduct
Three authorized account representatives must sign off on submission a trade. Entities will have 48 hours to submit a transfer request of credits to ARB confirmed by two authorized representatives of the transferor. The transferee will have 24 hours to confirm receipt.

Transfers Involving Exchange Clearing Holding Accounts
Transferring of compliance instruments into an exchange clearing holding account will list the exchange clearing holding account as the destination account. All compliance instruments in an exchange clearing holding account must be transferred to one or more destination accounts within five days.


For additional information please contact your BGC Broker at 646-346-6899.