OPEC Monthly Oil Market Report – August 2017
California extends cap-and-trade programme to 2030
The US state of California voted in July to extend its cap-and-trade programme until 2030. The programme
was previously only authorized to run until 2020. The measure passed by a two-thirds majority in both the
state’s Assembly and Senate, ensuring that it will avoid potential legal challenges from businesses claiming
that it is an illegal tax.
Prior to the passage of the bill, the state had a goal of reducing Greenhouse Gas (GHG) Emissions to 1990
levels by the year 2020 and an 80% reduction by 2050. The new bill – titled AB 398 – establishes a medium-
term target for 2030 of 40% below 1990 levels. According to the state’s Air Resources Board, the cap-and-
trade programme will contribute at least 25% of the emission cuts needed by 2030.
The programme, established in 2012, aims to encourage emission reductions at the lowest possible cost by
placing a statewide, annual cap on emissions, allocating emissions permits to the target entities, and then
creating a market for these permits through an auction process. Under the programme, the emissions cap
declines each year – by 2% in the initial years of the programme and by 3% since 2015 – creating a financial
incentive for businesses to determine themselves how to achieve GHG reductions.
The cap and trade rules first applied in 2011 to electric power plants and industrial plants emitting 25,000
metric tons of carbon dioxide equivalent per year or more. In 2015, this was expanded to fuel distributors
emitting above the same threshold.
Additionally, the bill cuts the use of out-of-state carbon offsets, as well as decreases free carbon allowances
over 40% by 2030. It also designates the California Air Resources Board (ARB) as the regulatory body
responsible for ensuring the state meets its GHG reduction targets, pre-empting local regulatory control.
At the same time, the bill provides tax cuts for rural homeowners and some California manufacturers and
free allowances for trade-exposed industries. Additionally, the bill requires the Californian regulator to set a
ceiling price for allowances to avoid any disruptive spikes in prices.
The legislature also passed a companion bill (AB 617) aimed at creating a uniform state-wide system of
monitoring and annual reporting of air pollutants and toxic air contaminants from stationary sources, such as
factories and refineries. The bill also places them under the authority of the state’s Air Resource Board,
which is already responsible for regulating mobile-source air pollution, including specification of vehicular fuel
composition and the adoption of rules for reducing vehicle emissions.
Efforts at the state-level come at a time when the US government under the Trump Administration has
changed its approach to climate issues. On 4 August, the Trump administration submitted formal notice of its
intent to withdraw from the Paris Climate Agreement “as soon as it is eligible to do so”, according to a
statement released by the US State Department. The statement goes on to say that the US will “continue to
participate in international climate change negotiations and meetings, including the 23
Conference of the
Parties (COP-23) of the UN Framework Convention on Climate Change, to protect US interests and ensure
all future policy options remain open to the administration.” The earliest that the US could completely
withdraw from the agreement is 4 November 2019.