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California Doubles Offset Use in Cap-and-Trade Plan

Oct. 29 (Bloomberg) -- California environmental regulators plan to let power plants, oil refineries and factories use more carbon offsets to meet pollution targets in the state’s cap-and-trade program for greenhouse gases.

Companies in the cap-and-trade program could use the offsets, which are pollution cuts from unregulated sources such as farms and forests, to meet up to 8 percent of their “compliance obligation,” the California Air Resources Board said in a report on its website. The air quality agency had earlier proposed a 4 percent offset limit.

Between 2012, the first year of the proposed cap-and-trade program, and 2020, “a maximum of 232 million offset credits may be used,” the agency said in the report. Each offset credit represents one metric ton of carbon dioxide. Only U.S. offsets are likely to be accepted at first, although the agency says it may later accept carbon cuts from developing countries.

The carbon trading proposal is authorized under California’s Global Warming Solutions Act, which requires the state to cut its greenhouse gases to 1990 levels by 2020. The agency’s 11-member board will meet Dec. 16 to vote on the plan.

Details of the state’s cap-and-trade program are being released four days before California voters decide whether the global-warming law should be delayed until the economy improves. Proposition 23 on the Nov. 2 ballot would suspend the carbon-cutting law until California’s unemployment rate falls from its current level of 12.4 percent to 5.5 percent for at least a year.

Offset Sources

U.S. forests, farms that capture methane from livestock manure and projects that destroy ozone-depleting industrial gases, such as hydrochlorofluorocarbons, would be the approved sources of carbon offsets at the beginning of the cap-and-trade program, according to the agency. The offsets must meet the “protocols,” or standards, set by the Los Angeles-based Climate Action Reserve, the agency said.

California may later accept carbon offsets from developing countries, such as Brazil and Indonesia, after “intensive review,” the agency’s report said. Carbon offsets from preventing the destruction and degradation of tropical rain forests are “likely to be the first type of sector-based crediting program brought to the Board for consideration,” the agency said in the report.

In a cap-and-trade program, power plants, factories and refineries buy and sell a declining number of carbon dioxide pollution permits, also called allowances. In 2012, “most allowances will be distributed for free to help provide a soft start for the program,” the California air quality agency said in its report.

Permit Auction

Some permits will be sold by the state government at auction, and a minimum bid will be set to put a “price floor” under the California carbon market, according to the agency.

The reserve price for the cap-and-trade program’s first year in 2012 is $10 a permit. It will be raised each year by the rate of inflation plus 5 percent, the agency said.

Like offset credits, each permit represents one metric ton of carbon dioxide.

The agency said it expects carbon dioxide prices to range from $10 to $20 in 2012, and $15 to $30 by 2020.

To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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