California Air Resources Board Approves Final Regulation to Implement Cap-and-Trade Scheme

On October 20, 2011, the California Air Resources Board (ARB), part of the California Department Environmental Protection Agency, adopted the Final Regulation Order, California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms.  The regulation implements the carbon reduction mandate contained in Assembly Bill (AB) 32, the California Global Warming Solutions Act of 2006, signed by Governor Arnold Schwarzenegger in September 2006.  The bill requires the state to reduce greenhouse gas emissions to its 1990 level by 2020.  Specifically, AB 32 calls for the ARB to “determine what the statewide greenhouse gas emissions level was in 1990” and approve “a statewide greenhouse gas emissions limit that is equivalent to that level, to be achieved by 2020.”  The legislation also directs the ARB to “adopt rules and regulations … to achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions[.]”

The ARB press release, California Air Resources Board adopts key elements of state climate plan, explains that under the newly-adopted regulation, “[c]ompanies are not given a specific limit on their greenhouse gas emissions but must supply a sufficient number of allowances … to cover their annual emissions.  As the cap declines each year, the total number of allowances issued in the state drops, requiring companies to find the most cost-effective and efficient approaches to reducing their emissions.”  The regulation applies to the entities that collectively emit eighty-five percent of greenhouse gases in the state.

The Final Regulation Order states that its purpose is to reduce emissions “by applying an aggregate greenhouse gas allowance budget on covered entities and providing a trading mechanism for compliance instruments.” These “covered entities” include operators of facilities, such as cement, glass, and hydrogen producers; operators of in-state electricity generating facilities or electricity importers; and suppliers of other products including carbon dioxide and certain gases and fuels.  The cap-and-trade plan will be implemented in two phases, and covers some entities starting in 2013 and others, in 2015.  California will hold its first auctions to sell greenhouse gas emissions allowances in August and November 2012.

In the press release, ABR Chairman Mary D. Nichols explains that the Final Regulation Order not only serves as an instrument to achieve California’s environmental and economic goals, but also will provide the framework for a nationwide plan to address climate change.  According to Nichols, “[c]ap-and-trade is another important building block in California’s effort to create a clean and vibrant economy.  It sends the right policy signal to the market, and guarantees that California will continue to attract the lion’s share of investment in clean technology.  When the nation addresses the growing danger of climate change, as I believe it must and will, California’s climate plan will serve as the model for a national program.”

Finally, the design of the California cap-and-trade program is meant to enable California to partner with other U.S. states and Canadian provinces to reduce greenhouse gas emissions under the auspices of the Western Climate Initiative (WCI).


ARB Press Release, California Air Resources Board adopts key elements of state climate plan, October 20, 2011, available at

ARB Final Regulation Order, California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms, available at

Text of Assembly Bill (AB) 32, California Global Warming Solutions Act of 2006, available at

Additional information on the California cap-and-trade program, including fact sheets and background information, is available at

Written by: Cherie Tremaine, GIELR Staff