Environmental Trading

For many years, economists around the world have argued that market-based pollution control programs are more efficient, promote more invention and innovation, and are easier to manage than so-called command-and-control regulatory programs.  Today, many countries have developed energy-related and environmental-related trading programs. 

California has more regulatory experience with trading-based air pollution control programs than any state, region or country.

Daily news updates:

International GHG trading:  For daily and weekly commercial and policy news regarding international greenhouse gas trading, click here to see a summary of different web-sites.

California GHG trading:  For daily-updates on news for AB 32 and WCI:  Click here

California renewable credit trading:  For daily-updates on RECs:  click here


AB 32 (Assembly Bill 32)

In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which set the 2020 greenhouse gas emissions reduction goal into law.  It directed the California Air Resources Board (ARB) to begin developing discrete early actions to reduce greenhouse gases while also preparing a scoping plan to identify how best to reach the 2020 limit.

AB 32 is being implemented through a cap-and-trade approach.  The program is a central element of AB 32 and covers major sources of GHG emissions in the State such as refineries, power plants, industrial facilities, and transportation fuels.  The regulation includes an enforceable GHG cap that will decline over time.  ARB will distribute allowances, which are tradable permits, equal to the emission allowed under the cap.

The cap-and-trade program includes a compliance offset program.  ARB offset credits are greenhouse gas (GHG) emission reductions or sequestered carbon that meet regulatory criteria and may be used by an entity to meet up to eight percent of its triennial compliance obligation under the cap-and-trade program.  Each ARB offset credit is equal to 1 metric ton of carbon dioxide equivalent (MTCO2e) and can only be generated through implementation of an offset project for which ARB has adopted a compliance offset protocol.  

Sub-article 13 of the cap-and-trade regulation provides the legal requirements for compliance offset protocols, implementation and verification of offset projects, and issuance of ARB offset credits.  Once an ARB offset credit is issued, it may be traded just like an allowance in the cap-and-trade program.

Go to: www.arb.ca.gov


WCI (Western Climate Initiative)

The WCI is a collaboration of independent jurisdictions working together to identify, evaluate, and implement emissions trading policies to tackle climate change at a regional level. This is a comprehensive effort to reduce greenhouse gas pollution.

WCI provincial and state partners include British Columbia, California, Manitoba, Ontario, and Quebec

Go to:  www.westernclimateinitiative.org


RECs (Renewable Energy Credits)

RECs, or sometimes call TRECS, are  generally defined as renewable energy credits that can be traded separate and apart from the energy associated with their creation, in contrast to bundled transactions in which both the renewable energy credits and the associated power are sold together.

The California Energy Commission is responsible for requiring retail sellers of electricity to increase the amount of renewable energy they procure each year.  The Commission is responsible for certifying eligible renewable resources and tracking the procurement of such resources to ensure compliance with the RPS. The CPUC is responsible for establishing targets for the amount of eligible renewable energy resources that retail sellers of electricity must procure to comply with the RPS and verifies compliance with the requirements.

The Commission also has imposed a cap on the use of TRECs on Energy Service Providers in California, although it has declined to impose a $50 price cap on these providers.   As of January 2012, the legislature is considering a bill that would increase California's renewable portfolio standard (RPS) to 33% from the current 20%.

Go to: www.cpuc.ca.gov or www.energy.ca.gov


NSR offsets

New source review (NSR)  applies to new major sources or major modifications at existing sources for pollutants where the area the source is located is not in attainment with the National Ambient Air Quality Standards (NAAQS).  Nonattainment NSR requirements are customized for the nonattainment area.  All nonattainment NSR programs have to require (1) the installation of the lowest achievable emission rate (LAER), (2) emission offsets, and (3) opportunity for public involvement.

Offsets are emission reductions, generally obtained from existing sources located in the vicinity of a proposed source which must (1) offset the emissions increase from the new source or modification and (2) provide a net air quality benefit. The obvious purpose for requiring offsetting emissions decreases is to allow an area to move towards attainment of the NAAQS while still allowing some industrial growth.

California has had the most active offset market in the United States.

Go to: www.epa.gov for US EPA’s guidance on offsets and go to www.arb.ca.gov for California’s guidance