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California Carbon Allowance (CCA)

California’s Global Warming Solutions Act of 2006 (AB32) set a series of policies and programs across all major sectors to return California emissions to 1990 levels by 2020. The California Air Resources Board updates a Scoping Plan every 5 years to outline California's strategy to meet AB32 goals. The Cap and Trade Program caps greenhouse gas (GHG) emissions from key sectors in California, ensuring that AB32 GHG reductions are met.

The California Cap and Trade Program is designed to achieve cost-effective emissions reductions across the capped sectors. The Program sets maximum, statewide greenhouse gas (GHG) emissions for all covered sectors each year (the “cap”), and allows covered entities to sell off allowances An allowance is a tradable permit that allows the emission of one metric ton of CO2e. (permits) that they do not need (the “trade”). The California carbon price is driven by allowance trading.

By 2020, the Cap and Trade Program is expected to drive approximately 22% of targeted greenhouse gas reductions still needed in capped sectors after reductions from AB32’s complementary policies.

The Cap and Trade Program covers the power and industrial sectors starting in 2013 and will expand to cover natural gas and transportation fuels in 2015 (see here for a helpful timeline). Once fully in effect, the program will cover roughly 85% of California’s GHG emissions. The California Air Resources Board auctions allowances to covered entities. Allowances are allocated freely to electric utilities to mitigate costs on customers. Utilities must use the value associated with the allowances to benefit ratepayers. Free allocation decreases over time. Regulated entities can also meet 8% of their obligations by buying CARB-approved offsets — emissions reductions from uncapped sectors.

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