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AB-720 California Global Warming Solutions Act of 2006: market-based compliance mechanisms.(2015-2016)

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CALIFORNIA LEGISLATURE— 2015–2016 REGULAR SESSION

Assembly Bill
No. 720


Introduced by Assembly Member Cooley

February 25, 2015


An act to add Sections 38575 and 38576 to the Health and Safety Code, relating to greenhouse gases.


LEGISLATIVE COUNSEL'S DIGEST


AB 720, as introduced, Cooley. California Global Warming Solutions Act of 2006: market-based compliance mechanisms.
The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020, and to adopt rules and regulations in an open public process to achieve the maximum, technologically feasible, and cost-effective greenhouse gas emissions reductions. The act authorizes the state board to include the use of market-based compliance mechanisms.
This bill would require the state board, for any market-based compliance mechanism that the state board might adopt, to allow participating entities to freely sell or transfer greenhouse gas emissions allowances held in a holding account, as defined, or compliance account, as defined, except for allowances that have been expressly retired to meet a compliance obligation, as defined.
This bill would require the state board, for any market-based compliance mechanism that the state board might adopt, to set a price cap on any allowances offered for purchase through the state board.
This bill would exempt from the Administrative Procedure Act and the California Environmental Quality Act a regulation adopted by the state board pursuant to this act.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) The California Global Warming Solutions Act of 2006 (Division 25.5 (commencing with Section 38500) of the Health and Safety Code) was adopted to reduce carbon emissions associated with the state’s economy. Section 38560 of the Health and Safety Code charges the State Air Resources Board with the duty of adopting rules and regulations “to achieve the maximum technologically feasible and cost-effective greenhouse gas emissions reductions from sources or categories of sources.”
(b) One measure that the state board has implemented in furtherance of the act is a market-based compliance mechanism, known as the cap-and-trade regulation.
(c) For a market-based compliance mechanism to operate effectively and allow entities covered by the market-based compliance mechanism the efficiency and flexibility to achieve emissions reductions at the lowest possible cost, the market for emissions allowances must promote liquidity while also preventing market manipulation.
(d) As part of the market-based compliance mechanism, the state board has adopted a holding limit, placing a limitation on the total number of allowances that any entity participating in the program can hold at one time, subject to certain exceptions. The current holding limit could adversely affect the liquidity and efficiency of the emissions allowance market in that the holding limit functions to require some entities participating in the market-based compliance mechanism to surrender compliance instruments for compliance prior to established regulatory compliance deadlines, thus creating artificial scarcity in the market.
(e) Revising the holding limit to permit entities participating in the market-based compliance mechanism to freely transfer allowances from a compliance and holding account to meet their obligations under the market-based compliance mechanism will promote market efficiency and fairness while maintaining the state board’s ability to preserve market integrity and prevent market manipulation.

SEC. 2.

 Section 38575 is added to the Health and Safety Code, to read:

38575.
 (a) For purposes of this section, the following terms have the following meanings:
(1) “Compliance account” means an account, created by the state board for an entity participating in a market-based compliance mechanism that has a compliance obligation, to which the entity transfers allowances and offsets to meet its compliance obligations.
(2) “Compliance obligation” means the quantity of verified reported greenhouse gas emissions or assigned greenhouse gas emissions for which an entity participating in a market-based compliance mechanism is required to submit compliance instruments to the state board.
(3) “Holding account” means an account created for each entity participating in a market-based compliance mechanism, or a voluntarily associated entity, to hold allowances or offsets.
(4) “Offset” means a greenhouse gas emissions reduction or greenhouse gas emissions removal enhancement verified by the state board that may be used by an entity participating in a market-based compliance mechanism to satisfy a compliance obligation.
(b) For any market-based compliance mechanism that the state board might adopt pursuant to this part, the state board shall allow participating entities to freely sell or transfer greenhouse gas emissions allowances held in a holding account or compliance account, except for allowances that have been expressly retired to meet a compliance obligation. This subdivision also applies to allowances held jointly by a group of entities with a direct corporation association.
(c) No later than June 30, 2016, the state board shall promulgate a regulation for the purposes of this section. A regulation adopted pursuant to this section shall be exempt from the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).

SEC. 3.

 Section 38576 is added to the Health and Safety Code, to read:

38576.
 (a) For any market-based compliance mechanism that the state board might adopt, the state board shall set a price cap on any allowances offered for purchase through the state board.
(b) No later than June 30, 2016, the state board shall promulgate a regulation for the purposes of this section. A regulation adopted pursuant to this section shall be exempt from the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).