California Cap-and-Trade Program

The California Cap-and-Trade Regulation is a market-based mechanism that is a component of California’s overall strategy to reduce greenhouse gas (GHG) emissions to 1990 levels by 2020, as established in Assembly Bill (AB) 32. The intention of the Cap-and-Trade program is to ensure that California reaches this mandate by setting an annual maximum cap on statewide GHG emissions that declines over time. California’s investor-owned electric and utilities are required to comply with the Cap-and-Trade Regulation by turning in GHG Allowances or GHG Offsets to the California Air Resources Board (CARB) for each ton of carbon dioxide equivalent (CO2e) they emit. The Cap-and-Trade program is designed to allow entities the flexibility to implement measures to reduce their GHG emissions when those measures are less-costly than the cost of procuring GHG Allowances or GHG Offsets for compliance. Under the Cap-and-Trade program, the electric investor-owned utilities (IOUs) will also generate GHG revenue from selling GHG Allowances that were freely allocated to them by CARB for the benefit of their ratepayers and to achieve AB 32 goals.   

Diagram: “How Cap-and-Trade Works in the Electricity Sector

In March 2011, the CPUC opened a Proceeding to address the cost and revenue issues associated with GHG emissions and the electric utilities’ compliance with the Cap-and-Trade Regulation, including the development of the California Climate Credit and related education and outreach.  

In June 2012, Senate Bill (SB) 1018 (codified as Public Utilities Code 748.5) required the CPUC to direct the utilities to return GHG revenue from the Cap-and-Trade program directly to residential ratepayers, small business ratepayers, and emissions-intensive and trade-exposed (EITE) industries in California. SB 1018 also allows utilities to invest up to 15% of the revenue in clean energy and energy efficiency programs that will reduce GHG emissions and further the goals of AB 32.  

The CPUC is addressing the reduction of GHG emissions in the following key areas: 

California Climate Credit

The CPUC requires utilities to submit annual application to incorporate the GHG costs and revenues of the Cap-and-Trade program into customers’ electricity rates and calculate the amount of GHG revenue that is to be returned to residential and small business ratepayers via the California Climate Credit.

Education and Outreach  

The CPUC will work with stakeholders to develop and implement a customer education and outreach program related to Cap-and-Trade and the California Climate Credit.    

Long-Term Procurement Planning (LTPP) 

The electric utilities must incorporate their compliance with the Cap-and-Trade program and their procurement of GHG Allowances and GHG offsets into their long-term planning forecasts, which are updated every 2 years.

 

Natural Gas Cap-and-Trade Program

Beginning January 1, 2015, natural gas utilities must comply with Cap-and-Trade regulation by surrendering to CARB an amount of allowances and offsets equal to their regulated emissions, during each compliance period.

 

Resources

ORA Presentation on Overview of Cap-and-Trade Program 

CARB 2013 ARB Annual Report on AB 32 to the Legislature on progress of AB 32 related to addressing Climate Change. 

CARB January 2013 Workshop webpage on sharing information from the California Cap & Trade program.  

Proposed First Update to the CARB Climate Change Scoping Plan 

2013 CARB Annual Report on AB 32 

CARB's Cap and Trade Webpage