Market Mechanisms for Emissions Reduction

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California Proposes Clean Power Based on Existing Cap-and-Trade Scheme

In August of 2016, the California Air Resources Board (CARB) issued a proposal to comply with the Clean Power Plan (CPP), making California the first state to forge ahead with implementation efforts despite pending judicial review of the CPP. The proposal would entail a mass-based, “state measures” approach based on California's landmark cap-and-trade program, along with complementary programs, such as renewable fuel standards and energy efficiency requirements. The proposal adds momentum for the use of market-based mechanisms as a means to advance emissions reduction measures.

Under this approach, CPP-affected electric generating units (EGUs) participating in the cap-and-trade program would have a federally-enforceable obligation to meet key program requirements, while non-EGU participants would keep only state-enforceable obligations. The CARB proposal includes a backstop trading program for affected EGUs to achieve the CPP targets in the event its existing programs fail to drive the required emission reductions. 
 
Relying on the cap-and-trade program for CPP compliance would support the state’s carbon market and the related policies, minimize additional regulatory requirements for stakeholders, and integrate state and federal climate programs for the sector. While the Regional Greenhouse Gas Initiative (RGGI) has gained more attention for its power-sector focused approach compared to California’s economy wide approach, the new CARB proposal will serve to better inform “state measure” plans with regard to integrating a broader program with CPP.
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