The California Air Resources Board (CARB) cap-and-trade program rulemaking is likely to weather further delays, according to one of the agency's top officials.
The agency's "immediate" responsibility is to work with covered entities impacted by the ongoing Los Angeles County wildfires across its programs, according to deputy executive officer Rajinder Sahota. This means that the rulemaking is not "imminent or in the next few weeks."
In addition, the agency needs to move carefully given the federal administration change, along with the negative response to proposed updates to the state's Low Carbon Fuel Standard received last year. CARB continues to evaluate program changes, with a focus on affordability, ambition and compliance costs.
"We want to take time to ensure we get out foundational facts about the program especially as the legislature takes up the post-2030 role of the program," Sahota said.
The cap-and-trade rulemaking has been marked by a series of delays, as regulators initially in 2023 estimated it would finish last year. In December, CARB said it would delay the publication of draft amendments until early 2025.
CARB began to prepare for the rulemaking nearly two years ago, floating the idea of moving the cap-and-trade program to a more-stringent 2030 greenhouse gas (GHG) reduction target of a 48pc, compared with 1990 levels, rather than the current 40pc mandate. The agency's 2022 Scoping Plan prompted the idea as it showed a need for increased program ambition for California to remain on track for its target of net-zero by 2045.
In line with this increased ambition, CARB will need to remove at least 180mn metric tonnes (t) of allowances from the 2026-2030 auction and allocation annual budgets to start with, and up to 265mn t in total from the program budgets from 2026-2045, agency staff have said.
Quebec, California's partner in the Western Climate Initiative (WCI) carbon market, previously delayed publishing its draft package from the originally planned September 2024 to the first quarter of this year, with implementation expected in the spring.
While the regulation was nearly complete in late September, the Quebec Environmental Ministry decided to postpone, citing the need to wait for California.
If California delays its work through the first quarter of the year, this will likely require Quebec to also push back its rulemaking. This will also shorten the runway for both market partners to formally implement changes by 2026.
The news has punctured the bullish sentiment for market participants on a timely end to the rulemaking. California carbon allowances for December delivery initially traded as high as $35.25/t on the Intercontinental Exchange (ICE) ahead of the announcement. The contract traded as low as $33.01/t after midday on Nodal Exchange following the news, before sliding lower in later trade.
Outside of the WCI, Washington is also likely to see a slowdown in its carbon market ambitions. The state Department of Ecology is conducting its own rulemaking to align Washington's "cap-and-invest" program to facilitate linkage with the larger WCI market. But it will require California and Quebec to finalize their expected changes.
California has indicated over last year that it does not intend to focus fully on linkage until its current rulemaking is complete.
California's and Quebec's cap-and-trade programs cover major sources of the state's GHG emissions, including power plants and transportation fuels.
