Overview of California 

Cap-and-Trade Program

RAJINDER SAHOTA

JUNE 2021
California’s Trends

CALIFORNIA AIR RESOURCES BOARD 2

Source: 2020 Edition, California Greenhouse Gas Emission Inventory: 2000-2018
Cap-and-Trade Program Background & Goals

 Critical part of State strategy to achieve AB 32 and SB 32 GHG reduction targets

 Ensure GHG reduction targets are realized through a limit

 2017 Scoping Plan that includes Cap-and-Trade is four times less costly than alternatives 

 Works in concert with other complementary air quality and climate policies

 Program designated in AB 398 to reduce GHG emissions for oil and gas extraction and refinery sectors 

 Provide compliance flexibility to achieve cost-effective reductions

 Facilitate integration of regional, national, and international GHG reduction programs

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Declining Caps Steadily Increasing 

Price Signal

Targets Lowest Cost 

Reductions First

Long-Term Price Signal 

for Clean Technology 

Investments
Cap-and-Trade: Facts and Figures

 Covers ~80% of State’s emissions

 ~450 covered entities in the Program

 Large industrial sources & electricity generators with emissions ≥ 25,000 MTCO2e per 

year

 Electricity importers, natural gas suppliers, and transportation fuel suppliers

 35 auctions held to-date (27 joint-auctions)

 First joint auction with Québec was held in November 2014

 Over $14 billion generated for California Climate Investments

 ~50% of investments are benefiting disadvantaged communities

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Cap-and-Trade Allowance Budgets

CALIFORNIA AIR RESOURCES BOARD

0

50

100

150

200

250

300

350

400

450

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Millions of Allowances

Allowance Price Containment Reserve Allocation to Electrical Distribution Utilities and Natural Gas Suppliers

Industrial and Other Allocation (estimate) State-Owned Allowances

5

Source: CARB, 2018
Allowance Value for Public Benefit

 CARB allocates to electricity and natural gas utilities on behalf of their 

ratepayers in accordance with the goals of AB 32

 Allowances allocated to electric and natural gas utilities must be used for the 

primary benefit of retail ratepayers

 Majority of value is returned to ratepayers in the form of biannual climate credits 

 Other uses include: compliance, energy efficiency, renewable energy, building and 

transportation electrification

Greater than 50% of monies from state owned allowances is invested in 

communities heavily burdened by air pollution

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Compliance Flexibility

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 Allowances

 CARB issued Compliance 

Offset Credits (4% limit)

 Banking subject to 

holding limits

 Multi-year compliance periods

Source: CARB, May 2021

Offset credits issued, May 2021

U.S. Forest

181.3 million, 82%

Livestock

7.9 million, 4%

Mine Methane Capture

7.8 million, 3%

Ozone Depleting Substances

23.6 million, 11%
Cap-and-Trade Accounting

 Cap-and-Trade Program and Mandatory Reporting Regulation (MRR) 

collect emissions data and calculate compliance obligations annually 

based on covered emissions

 California power plants report facility-level emissions

 Electricity importers report imports based on physical delivery of electricity by 

source

 Renewable energy is generally assigned a zero emission factor, as are some 

other electricity sources

 Cap-and-Trade Program compliance is based on compliance instruments 

retired 

 One allowance = one offset credit = permit to emit one MTCO2e

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Market Integrity

 Mechanisms for ensuring market integrity

 Purchase and holding limits 

 Registration and disclosure requirements 

 Tracking system

 Financial penalties

Regulatory Oversight (early stages, lapses, need to re-establish)

 Coordinate with the U.S. Commodity Futures Trading Commission (CFTC) and 

Federal Energy Regulatory Commission (FERC)

 Enforcement

 Coordinate with California Department of Justice 

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Unsold Allowances at Auction

 “Self-ratcheting” mechanism to remove allowances if low demand at 

auction

 Withhold unsold allowances from auctions until two consecutive auctions 

clear above the auction reserve price 

 Previously unsold allowances slowly returned to market if demand increases

 Maximum number of unsold allowances that can be returned is 25% of the 

total allowances offered for auction

 Allowances that remain unsold after 24 months are removed from circulation 

and set aside for price containment reserve

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Secondary Market Activities

 CARB’s Market Monitoring Section provides market program oversight and analysis

 Independent Market Monitor performs market analysis of auctions and secondary markets 

 Commodity exchanges help provide price transparency for carbon allowances and offsets 

(ICE, Nodal, etc.) 

 Price reporting services (Argus, Bloomberg, OPIS, etc.) offer daily price reporting on 

exchange and over-the-counter carbon market prices and other secondary market analyses 

(price forecasts)

 Over-the-counter transactions and exchange deliveries are required to be recorded in our 

centralized tracking system

 Information recorded includes the number and type of instruments, agreement and settlement 

date, price paid, and currency type

 Quarterly and annual market summary transfer reports are made public on the Cap-and-Trade 

Program Data Page

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Cap-and-Trade Allowance Prices

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Western Climate Initiative, Inc. & Linkage

 California and Quebec linked carbon markets

 Same market rules, including unsold allowance mechanism

 Mutual recognition of each others issued allowances and offsets

 No limits on origin of compliance instruments used for compliance

 Western Climate Initiative, Inc.

 Non-profit

 Provide carbon market administration services

 Single registry system

 Same auction platform

 Market monitor services

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Resources

 Cap-and Trade Website: 

https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program

 Mandatory Reporting Website: 

https://ww2.arb.ca.gov/our-work/programs/mandatory-greenhouse-gas-emissions-reporting

Rajinder Sahota

California Air Resources Board

Rajinder.Sahota@arb.ca.gov

CALIFORNIA AIR RESOURCES BOARD 14