Compare ETS
Use this function to compare the design elements and characteristics of up to three ETSs from around the world.
New Zealand Emissions Trading Scheme
General Information
The New Zealand Emissions Trading Scheme (NZ ETS) was launched in 2008 and is a central climate change mitigation policy for the country. It covers roughly half of New Zealand’s GHG emissions. The “Climate Change Response Act 2002” sets the legislative framework for the NZ ETS and incorporates all of New Zealand’s key climate legislation under one Act.
The cap is set in a top-down process to align with New Zealand’s 2050 net zero targets and associated emissions budgets. Covered entities must surrender allowances for all their reported emissions.
The NZ ETS has broad sectoral coverage, including forestry, stationary energy, industrial processing, liquid fossil fuels, waste, and synthetic GHGs. Allocation is based primarily on auctioning, which began in March 2021. Free allocation is granted only for emissions-intensive, trade-exposed (EITE) activities and is based on output- and intensity-based benchmarks. Uniquely to the NZ ETS, the forestry sector has both surrender obligations and the opportunity to earn units for emissions removals. The agricultural sector used to face processor level reporting obligations with the future possibility of facing compliance obligations under the NZ ETS, but this is no longer the case.
From 2011 until November 2024, companies carrying out certain agricultural activities had an obligation to report their emissions to the NZ ETS at the processor level. The He Waka Eke Noa partnership between the government and the agricultural sector had been established to deliver a pricing mechanism outside of the NZ ETS for the sector, with a ‘backstop’ measure to price agricultural emissions through the NZ ETS at the processor level in 2025, followed by pricing at the farm-level in 2027.
This legislation was repealed in 2024, removing agriculture activities from the NZ ETS. A new Pastoral Sector Group will replace the He Waka Eke Noa partnership. The government plans to price agricultural emissions (through a mechanism other than the NZ ETS) by no later than 2030.
In June 2024, the government commissioned an independent ministerial advisory panel of experts to review the latest science about biogenic methane and provide an up-to-date evidence base about methane’s warming impact. This report was delivered in December 2024 and ministers will consider the findings alongside the Climate Change Commission’s advice on New Zealand’s 2050 targets in 2025.
Unit supply settings, as well as auction reserve price settings for 2025 to 2029, were updated in September. The cap (which limits the number of units from auctioning, industrial allocation, and the cost containment reserve - CCR) was reduced from 27.9 million in 2024 to 19.1 million in 2025. The 2025 auction reserve price floor is NZD 68 (USD 41.17), and the first CCR trigger price is NZD 193 (USD 116.86).
Four auctions were undertaken in 2024, with 14.1 million units for sale, as well as another 7.7 million units available from the CCR. Two of the auctions cleared, with 3 million units sold in March 2024 and 4 million in December 2024, all at the floor price of NZD 64 (USD 38.75). In line with the NZ ETS auctioning regulations, any units that were unsold after the last auction of 2024 are not available for sale at any subsequent auction.
In December 2024, the government updated baselines for activities eligible for industrial allocation, to better reflect the actual emissions intensity of those activities. The regulations containing the new baselines came into force as of January 2025 and will impact the final allocations firms receive for 2024. The updates bring the industrial allocation system more in line with its purpose.
Emissions & Targets
78.4 MtCO2e (2022)
By 2030: 50% reduction of net emissions below gross 2005 levels (NDC); 10% reduction of biogenic methane emissions below 2017 levels (Climate Change Response Act 2002, through an amendment in 2019)
By 2050: Reduce net emissions of all GHGs (except biogenic methane) to zero; reduce biogenic methane emissions to 24-47% below 2017 levels (Climate Change Response Act 2002, through an amendment in 2019)
Average auction price: NZD 64 (USD 38.75)
Average secondary market price: NZD 59.31 (USD 35.91)
Updated prices available here
Size & Phases
The NZ ETS cap limits the number of New Zealand Units (NZUs) that may be released to the market from auctioning, industrial allocation, and from the CCR, as well as from any international units (not currently allowed). There is no limit on NZUs generated from removal activities. The NZ ETS cap thus limits the volume of net emissions that are emitted by ETS regulated entities, without imposing a limit on gross emissions within the ETS.
In 2025, the cap is 19.1 MtCO2e.
The Climate Change Response Act 2002 requires the government to set a cap on emissions covered by the NZ ETS, based on the five-yearly emissions budgets and announced over a rolling five-year period with annual updates.
The government updated regulations for unit supply settings in September 2024, setting the annual cap for the years 2025 to 2029. In setting supply limits, the government also considers the stockpile of banked allowances already in circulation and projected unit supply from removal activities.
NZUs generated from removal activities are forecast to be 13.8 million units in 2025, mainly generated in the forestry sector.
The NZ ETS was originally designed to operate without a specific domestic cap, as this accommodated carbon sequestration from forestry activities and a full link to the international Kyoto Protocol carbon markets. Allowance supply was restricted to NZUs in 2015. No decisions have been made on potential future access to and use of international units.
SECTORS: Sectors were gradually phased in between 2008 and 2013.
- Forestry (mandatory: deforesting pre-1990 forest land; voluntary: post-1989 forest land)
- Stationary energy
- Industrial processing
- Liquid fossil fuels
- Waste (except for small and remote landfills)
- Synthetic GHGs; synthetic GHGs not covered by the NZ ETS are subject to an equivalent levy
From 2011 until November 2024, companies carrying out certain agricultural activities had an obligation to report their emissions to the NZ ETS at the processor level. The He Waka Eke Noa partnership between the government and the agricultural sector had been established to deliver a pricing mechanism outside of the NZ ETS for the sector, with a ‘backstop’ measure to price agricultural emissions through the NZ ETS at the processor level in 2025, followed by pricing at the farm-level in 2027.
This legislation was repealed in 2024, removing agriculture activities from the NZ ETS. A new Pastoral Sector Group will replace the He Waka Eke Noa partnership. The government plans to price agricultural emissions (through a mechanism other than the NZ ETS) by no later than 2030.
Types of fuel covered: petrol, diesel, aviation gasoline, jet kerosene, light fuel oil, heavy fuel oil. Emissions from fuel used for international aviation and marine transport are exempt.
INCLUSION THRESHOLDS: Thresholds for participation are typically low.*
- Forestry (mandatory: deforesting pre-1990 forest land; voluntary: post-1989 forest land)
- Stationary energy (various thresholds)
- Industrial processing (various thresholds)
- Liquid fossil fuels (various thresholds)
- Waste (except for small and remote landfills)
- Synthetic GHGs (various thresholds); synthetic GHGs not covered by the NZ ETS are subject to an equivalent levy
* Detailed threshold information can be found in Schedule 3 of the Climate Change Response Act 2002 and in the Climate Change (General Exemptions) Order 2009
Upstream (power, aviation, buildings, forestry, forestry fuel use, transport); point source (industry, waste).
For all fossil fuels, the point of obligation is generally upstream. Some large businesses that purchase fossil fuels directly from mandatory NZ ETS participants can choose to opt into the NZ ETS rather than have the costs passed down from their suppliers.
4,617 entities were registered as participants in the NZ ETS as of the end of December 2024, of which:
- 165 entities have mandatory reporting and surrender obligations for 176 activities*
- 4,452 entities have voluntary (opt-in) reporting and surrender obligations for 4,650 activities*, 4,427 entities are registered as forestry.
*Some entities have obligations under multiple activities.
Note that some organizations have both mandatory and voluntary reporting and surrender obligations.
Allowance Allocation & Revenue
Proportion of allowances offered at auction in 2024: 51%
14.1 million units were made available at auction in 2024, and seven million were sold.
FREE ALLOCATION:
Leakage protection/Industrial free allocation: Free allocation is provided, based on output and intensity-based benchmarks, for 26 eligible industrial activities. Activities are deemed eligible if both EITE criteria are met. Highly emissions-intensive activities (over 1,600 tCO2e per NZD 1 million [USD 605,494] of revenue) receive 90% free allocation. Moderately emissions-intensive activities (over 800 tCO2e per NZD 1 million [USD 605,494] of revenue) receive 60% free allocation. An activity is deemed to be trade-exposed if there is transoceanic trade in the good produced.
In 2023, 5.7 million NZUs were allocated for industrial EITE activities.
In December 2024, the government updated the baselines for activities eligible for industrial allocation, to better reflect the actual emissions intensity of those activities. The regulations containing the new baselines came into force from January 2025 and will impact the final allocations firms receive for 2024. The updates bring the industrial allocation system more in line with its purpose.
Industrial free allocation is being phased down. A minimum annual phase-down rate of 0.01% across all industrial activities applies from 2021 to 2030. That rate will increase to 0.02% for the years 2031 to 2040, and to 0.03% for 2041 to 2050. The minimum phase-down rate could be adjusted for activities that are considered at lower risk of carbon leakage alongside other criteria as set in legislation.
AUCTIONING:
Auctioning was introduced in 2021. The volume of NZUs made available for auctioning is set on an annual basis, five years in advance (see ‘Cap’ section). The annual quantity is split between the quarterly auctions. In 2024, 14.1 million allowances were made available for auctioning, plus an additional 7.7 million allowances in the CCR. Seven million NZUs were sold in 2024.
Auctions follow a sealed-bid, single-round format. The clearing price is set at the lowest successful bid and NZUs are sold to all successful bidders at this price, providing it is not below the confidential reserve price (see ‘Market Stability Provisions’ section). Otherwise, the auction fails and all allowances on offer are rolled forward to the next auction within the same calendar year. Any units that remain unsold after the last auction of the year are not available for sale at any subsequent auction.
ALLOWANCES GRANTED FOR REMOVALS:
Post-1989 forestry sector and other removal activities: NZUs are granted to participants that voluntarily register in the scheme for removal activities.
Forestry removal activities: Participants are entitled to receive one NZU per tCO2 removed for registered post-1989 forest land. If the forest is harvested* or deforested, units must be surrendered to account for the emissions. If the participant chooses to deregister from the scheme, NZUs equivalent to the number received must be returned. 20 million NZUs were issued for forest removal activities in 2023.
Other removal activities: 2.1 million allowances were granted in 2023 for other removal activities, such as producing a product with embedded GHGs.
* Under the new “averaging” method for post-1989 forests, allowances are granted only up to the long-term average carbon stock, but therefore do not need to be surrendered at harvest.
NZD 5.6 billion (USD 3.7 billion) since the beginning of the program
NZD 480.9 million (USD 291.2 million) in 2024
Flexibility & Linking
Banking is allowed. NZUs do not expire.
Borrowing is not allowed.
The use of offset credits is not allowed.
Units from Kyoto Protocol flexibility mechanisms were eligible for use in the system with no restrictions until June 2015 but have since been ineligible. Access to high-integrity international carbon markets may be part of New Zealand’s strategy to meet its 2030 target. The government can decide to allow international units as part of the annual unit supply-setting process. However, only units from government-approved sources and those meeting environmental integrity standards would be eligible and subject to quantitative limits.
The NZ ETS is not linked with any other system.
Until June 2015, the NZ ETS was indirectly linked to other systems (e.g., the EU ETS) via the international Kyoto Protocol flexible mechanisms. Since then, the NZ ETS has been an exclusively domestic system.
Carbon tax: Synthetic GHG levy
Compliance
For most sectors, the NZ ETS has annual surrender obligations. For post-1989 forestry participants, annual reporting of emissions and removals is optional, with five-year mandatory reporting periods. As a result, unit allocations and surrenders for these participants occur in the year they choose to report their emissions.
REPORTING: Most sectors are required to report annually; the deadline is the end of March to submit an Annual Emissions Return (emissions report).
VERIFICATION: MRV follows a system of self-reporting supplemented by a program of official government audits. Each year, a sample of NZ ETS participants are selected for compliance review. Third-party verification is not typically required for emissions reports. However, participants must seek third-party verification if they apply for the use of a unique emissions factor, as opposed to using the default factors supplied by the government.
An entity that fails to submit an emissions report by the due date must pay a fine equal to the number of units involved, multiplied by the current unit price and a “culpability factor”.
An entity that fails to surrender or repay emissions units when required must surrender the units and pay a cash penalty of three times the current market price for each unit that was not surrendered by the due date. Entities can be fined up to NZD 24,000 (USD 14,531.86) on conviction for failure to collect emissions data or other required information, calculate emissions and/or removals, keep records, register as a participant, submit an Annual Emissions Return when required, or notify the administering agency or provide information when required to do so.
Entities can also be fined up to NZD 50,000 (USD 30,274.70) on conviction for knowingly altering, falsifying, or providing incomplete or misleading information about any obligations under the scheme, including in the Annual Emissions Return report. This penalty and/or imprisonment of up to five years also applies to entities that deliberately lie about obligations under the NZ ETS to gain financial benefit or avoid financial loss.
Market Regulation
MARKET PARTICIPATION: Any individual or organization can own and trade NZUs, if they hold an account with the NZ ETS Registry.
MARKET TYPES:
Primary: Auctions are operated jointly by NZX (New Zealand Exchange) and the European Energy Exchange (EEX) and are held four times a year. Any NZ ETS Register Account Holder can participate in the auctions.
Secondary: Most NZUs are traded on the secondary market. Trades can take place directly between companies (OTC) or via a trading platform. Trades can be on a spot basis or through forward contract.
LEGAL STATUS OF ALLOWANCES: Allowances are not financial products in New Zealand law and, as a result, there is currently no single integrated market governance framework that would manage risks of misconduct in the NZ ETS. The government has work underway on options to improve market governance.
COST CONTAINMENT RESERVE (CCR)
Instrument type: Price-based instrument
Functioning: If a predetermined trigger price is reached at auction, a specified number of allowances from the CCR are additionally released for sale. The CCR follows a two-tier system, with a specific number of allowances available for auction at each trigger. The government updates the CCR trigger prices each year, together with other auction supply settings (see ‘Cap’ section).
At the start of 2025, the first CCR trigger price is NZD 193 (USD 116.86), with a total of 2.6 million units available. The second trigger price is NZD 242 (USD 146.53), with 4.5 million units available. These triggers will rise annually to reach NZD 235 (USD 142.29) and NZD 294 (USD 178.01) respectively in 2029.
In 2024, the volume of the CCR was set at a total of 7.7 million allowances for both triggers. The trigger price was not reached during 2024, so none of these were released to market. Currently, the volume of the reserve is set at 7.1 million in 2025, dropping annually to 4.7 million in 2029.
PRICE FLOOR
Instrument type: Price-based instrument
Functioning: With the start of auctioning, the government introduced a price floor operating through a reserve price or minimum accepted bid at auction.
In addition to the hard auction reserve price floor, the government introduced a confidential reserve price. This is set by referencing prices from the secondary market and uses a confidential methodology to determine a reserve price below which units cannot be sold. If it is set higher than the hard auction reserve price, then it becomes the new reserve price floor for that auction.
The hard auction reserve price floor is NZD 68 (USD 41.17) in 2025, rising annually to NZD 82 (USD 49.65) in 2029.
Other Information
Ministry for the Environment: Responsible for establishing the regulatory framework of the NZ ETS.
Environmental Protection Authority: Responsible for the NZ ETS registry and compliance.
Ministry for Primary Industries: Responsible for the forestry sector under the NZ ETS.
Climate Change Commission: Independent body providing official annual advice on NZ ETS settings.
The Climate Change Response Act 2002 includes provisions for reviews of the operation and effectiveness of the NZ ETS. These reviews were originally required every five years, but the timing is now discretionary. The first review took place from 2011 to 2012, and the second review took place from 2015 to 2017. A third review of the NZ ETS was opened in early 2023. Following the 2023 General Election, this was closed by the new government.
Climate Change Response Act 2002—Part 4 New Zealand greenhouse gas emissions trading scheme*
* To keep New Zealand’s key climate change legislation under one act, the Climate Change Response Act incorporates both the “Climate Change Response (Emissions Trading Reform) Amendment Act 2020”, and the “Climate Change Response (Zero Carbon) Amendment Act 2019”. The “Zero Carbon Act” details domestic targets to 2050, establishes the Climate Change Commission, and mandates a process of setting and meeting five-year national emission budgets.
USA - California Cap-and-Trade Program
General Information
The California Cap-and-Trade Program began operation in 2012 with the opening of its tracking system for allocation, auction distribution, and trading of compliance instruments. Compliance obligations started in January 2013. The program covers ~76% of the state’s GHG emissions.
The program covers fuel combustion emissions in the mining, power, buildings, transport, industrial, agriculture, and forestry sectors, as well as industrial process emissions of about 400 covered facilities. Fuel use in buildings, transportation, and in agricultural, forestry, and fishing operations is covered upstream at the fuel supplier. Covered entities must surrender allowances for all their covered emissions. Allowances are distributed via a combination of auction, free allocation, and free allocation with consignment. The proceeds from auctioning are reinvested in projects that reduce emissions, strengthening the economy, public health, and the environment, especially in disadvantaged communities.
The California Cap-and-Trade Program is implemented under the authority of the California Air Resources Board (CARB). California has been part of the Western Climate Initiative (WCI) since 2007 and formally linked its program with Québec’s in January 2014.
2024 marked significant progress towards the adoption of amendments to the California “Cap-and-Trade Regulation”. The purpose of the proposed 2030 and 2045 climate targets is to reduce anthropogenic GHG emissions to 48% below 1990 levels by 2030 and 85% below by 2045, and to ensure that the program’s design features continue to support the achievement of these goals. The scope of amendments is expected to include the reduction of the cap over the 2026 to 2045 period, a one-time increase in the prices of the cost containment provisions, measures to enhance market oversight, base offset provisions on the latest information and science, and update allowance allocation rules, among other things.
Public workshops seeking feedback on the amendments started in 2023 and continued in 2024. In April 2024, CARB released the Standardized Regulatory Impact Assessment (SRIA), which provided an initial economic evaluation of potential changes to the Cap-and-Trade Program.
In terms of international collaboration, California released a joint statement in March 2024 with Québec and Washington expressing interest in exploring program linkage.
Emissions & Targets
371.1 MtCO2e (2022)
By 2030: 40% reduction from 1990 GHG levels (“SB 32”)
By 2045: Carbon neutrality and 85% reduction from 1990 anthropogenic GHG levels (“AB 1279”)
Updated prices available here
Size & Phases
FIRST COMPLIANCE PERIOD: Two years (2013 to 2014)
SECOND COMPLIANCE PERIOD: Three years (2015 to 2017)
THIRD COMPLIANCE PERIOD: Three years (2018 to 2020)
FOURTH COMPLIANCE PERIOD: Three years (2021 to 2023)
FIFTH COMPLIANCE PERIOD: Three years (2024 to 2026)
A cap limits the total emissions allowed in the system.
FIRST COMPLIANCE PERIOD: The system started in 2013 with a cap of 162.8 MtCO2e, declining to 159.7 MtCO2e in 2014, at a rate of ~2% annually.
SECOND COMPLIANCE PERIOD: With the program expanding to include fuel distribution, the cap rose to 394.5 MtCO2e in 2015. The cap decline factor averaged 3.1% per year in the second compliance period, reaching 370.4 MtCO2e.
THIRD COMPLIANCE PERIOD: The cap in the third compliance period started at 358.3 MtCO2e and declined at an average annual rate of 3.3% to 334.2 MtCO2e in 2020.
FOURTH COMPLIANCE PERIOD AND BEYOND: During the 2021 to 2030 period, the cap declines by about 13.4 MtCO2e each year, averaging ~4%, to reach 200.5 MtCO2e in 2030. The Cap-and-Trade Regulation sets a formula for declining caps after 2030 through 2050.
FIRST COMPLIANCE PERIOD: Covered sectors included those that have one or more of the following processes or operations: large industrial facilities (including cement, glass, hydrogen, iron and steel, lead, lime manufacturing, nitric acid, petroleum and natural gas systems, petroleum refining, and pulp and paper manufacturing, including cogeneration facilities co-owned/operated at any of these facilities); electricity generation; electricity imports; other stationary combustion; and CO2 suppliers.
SECOND COMPLIANCE PERIOD AND BEYOND: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulatedblendstock for oxygenateblending (i.e., gasoline blendstock) and distillate fuel oil (i.e., diesel fuel), suppliers of liquefied petroleum gas in California, and suppliers of liquefied natural gas are covered by the program.
INCLUSION THRESHOLDS: Facilities emitting greater than or equal to 25,000 tCO2e per year. All electricity imported from specified sources connected to a specific generator with emissions greater than or equal to 25,000 tCO2e per year is covered. Emissions associated with imported electricity from unspecified sources have a zero threshold, and all imported electricity emissions are covered using a default emissions factor.
OPT-IN COVERED ENTITIES: A facility in one of the covered sectors that emits less than 25,000 tCO2e annually can voluntarily participate in the Program. Opt-in entities are subject to all registration, reporting, verification, compliance obligations, and enforcement applicable to covered entities.
Upstream (buildings, transport, agriculture, and forestry fuel use); point source (mining and extractives, industry, in-state power generation); imported electricity at the point of first delivery onto California’s electricity grid
~400 facilities
Allowance Allocation & Revenue
Allowances are distributed via free allocation, free allocation with consignment, and auction.
FREE ALLOCATION: Industrial facilities receive free allowances to minimize carbon leakage. For nearly all industrial facilities, the amount is determined by product-specific benchmarks, recent production volumes, a cap adjustment factor, and an assistance factor based on assessment of leakage risk.*
Leakage risk is divided into “low”, “medium”, and “high” risk tiers based on levels of emissions intensity and trade exposure for each specific industrial sector.
FIRST COMPLIANCE PERIOD: The Cap-and-Trade Regulation as adopted in 2011 set assistance factors of 100% for the first compliance period, regardless of leakage risk.
SECOND COMPLIANCE PERIOD AND BEYOND: For facilities with medium leakage risk, the original regulation included an assistance factor decline to 75% for the second compliance period and to 50% for the third. For facilities with low leakage risk, it included an assistance factor decline to 50% for the second compliance period and to 30% for the third. However, amendments to the Cap-and-Trade Regulation in 2013 delayed these assistance factor declines by one compliance period. Pursuant to “AB 398” adopted in 2017, all assistance factors were changed to 100% through 2030, citing continued vulnerability to carbon leakage. There is no cap on the total amount of industrial allocation, but the formula for allocation includes a declining cap adjustment factor to gradually reduce allocation in line with the overall cap trajectory.
Free allocation is also provided for transition assistance to public wholesale water entities, legacy contract generators, universities, public service facilities, and, during the period from 2018 to 2024, waste-to-energy facilities.
FREE ALLOCATION WITH CONSIGNMENT: Electrical distribution utilities and natural gas suppliers receive free allocation on behalf of their ratepayers.** These utilities must use the allowance value for ratepayer benefit and for GHG emissions reductions. All allowances allocated to investor-owned electric utilities and an annually increasing percentage of allowances allocated to natural gas suppliers must be consigned for sale at the state’s regular quarterly auctions. Publicly owned electric utilities can choose to consign freely allocated allowances to auction or use them for their own compliance needs.
AUCTIONING:
- Auction share: ~65% of total California-issued vintage 2024 allowances made available through auction in 2024, which included allowances owned by CARB (~36%) and allowances consigned to auction by utilities (~29%).
- Auction volume: 181,214,582 (2024 vintage) 24,060,000 for advance auction (2027 vintage).
- Share of the 2024 cap auctioned as vintage 2024 CARB-owned allowances so far: 46%
Unsold allowances in past auctions are gradually released for sale at auction after two consecutive auctions are held in which the clearing price is higher than the minimum price. However, if any of these allowances remain unsold after 24 months, they will be placed into CARB’s price ceiling reserve or into the two lower reserve tiers (see ‘Market Stability Provisions’ section). To date, 37 million allowances originally designated for auction have been placed in reserves through these provisions.
* See Section 95891(c) of the Regulation for a minor exception.
** See Section 95892 and Section 95893 of the Regulation for further details on the approach to free allocations for electrical distribution utilities and natural gas suppliers, respectively.
USD 31.38 billion since beginning of program
USD 5.13 billion* in FY 2023-2024
* Does not include revenues from the auction of consigned allowances.
Revenue from auction of California-owned allowances: Most of California’s auction revenue goes to the Greenhouse Gas Reduction Fund, of which at least 35% must benefit disadvantaged and low-income communities. The funds are then distributed as California Climate Investments, which support projects that deliver significant environmental, economic, and public health benefits across the state. As of November 2023, USD 11 billion had been invested in 578,568 projects, with expected GHG reductions of 109.2 MtCO2e. Over USD 8.1 billion has reached disadvantaged and low-income communities.
Revenue from auction of utility-owned allowances: Investor-owned electric utilities and natural gas suppliers are allocated allowances, a portion of which must be consigned to auction. Auction proceeds must be used for ratepayer benefit and for GHG emissions reductions.
Flexibility & Linking
Banking is allowed but is subject to a holding limit on allowances to which all entities in the system are held. The holding limit is based on the year’s cap and decreases annually. Entities may also be eligible for a limited exemption from the holding limit based on their emissions levels to support meeting annual compliance obligations or obligations at the end of a three-year compliance period.
Borrowing is not allowed.
The use of compliance offset credits is allowed. Such credits, issued by CARB or by the authority of a linked cap-and-trade system, are compliance instruments under the California Cap-and-Trade Program.
QUALITATIVE LIMIT: Currently, offset credits originating from projects carried out according to one of the following six compliance offset protocols are accepted as compliance instruments:
- US forest projects;
- urban forest projects;
- livestock projects (methane management);
- ozone-depleting substances projects;
- mine methane capture projects; and
- rice cultivation projects.
Compliance offset credits issued by jurisdictions linked with California (i.e., Québec) are eligible, subject to the quantitative limits described below.
To ensure environmental integrity, California’s compliance offset program has incorporated the principle of buyer liability. The state may invalidate an offset credit that is later determined not to have met the requirements of its compliance offset protocol due to double counting, over-issuance, or regulatory non-conformance. The entity that surrendered the offset credit for compliance must then substitute a valid compliance instrument for the invalidated offset credit.
QUANTITATIVE LIMIT: The share of offsets that can be used by an entity to fulfill its compliance obligation is 4% per year for 2021 to 2025 emissions, and 6% for 2026 to 2030 emissions.
In addition to setting new quantitative limits on the use of offset credits, AB 398 set new limits on the types of offset credits that can be used to fulfill compliance obligations. Starting with compliance obligations for 2021 emissions, no more than 50% of any entity’s offset usage limit can come from offset projects that do not provide direct environmental benefits to the state (DEBS).
Projects located within California are automatically considered to provide DEBS. Offset projects implemented outside of California may still result in DEBS, based on scientific evidence and project data provided. For example, a forest project outside California has been determined to provide benefits within California by improving the quality of water flowing through the state. Recent regulatory amendments specify the criteria used to determine DEBS.
In November 2022, California entities surrendered ~2.2 million offset credits for a portion of 2021 emissions. In November 2023, California entities surrendered ~2 million offset credits for a portion of 2022 emissions. In November 2024, California entities surrendered an additional 22 million credits for the remainder of their emissions during the fourth compliance period. In November 2024, Quebec entities surrendered 13.3 million California-issued offset credits for emissions during the fourth compliance period. Of the 35.2 million credits surrendered in 2024, 26.5 million were from US forest offset projects and 5.3 million from mine methane capture projects.
California’s program linked with Québec’s in January 2014. The two expanded their joint market by linking with Ontario in January 2018 until the termination of Ontario’s system in mid-2018. In March and September, 2024 joint statements from the governments of Québec, California, and Washington affirmed their commitment to explore potential linkage.
Compliance
Except for the year following the last year of a compliance period, compliance instruments equal to 30% of the previous year’s verified emissions must be surrendered annually, by the start of November. Compliance instruments equal to all remaining emissions must be surrendered by the start of November of the year following the last year of a compliance period.
REPORTING FREQUENCY: Annual
VERIFICATION: Emissions data reports and their underlying data require annual verification by an independent third party for all entities covered by the Program.
FRAMEWORK: Reporting is required for most emitters at or above 10,000 tCO2e per year. They must implement internal audits, quality assurance, and control systems for the reporting program and the reported data.
A covered entity that fails to surrender sufficient compliance instruments to cover its verified GHG emissions at a relevant compliance deadline is automatically assessed an untimely surrender obligation. It is required to surrender the missing compliance instruments as well as three additional compliance instruments for each compliance instrument it failed to surrender.
Failure to meet this untimely surrender obligation would subject the entity to substantial financial penalties for its noncompliance, pursuant to “California Health and Safety Code Section 38580”.
Separate and substantial penalties apply to mis-reporting or non-reporting under the “Regulation for the Mandatory Reporting of Greenhouse Gas Emissions”.
Market Regulation
MARKET PARTICIPATION: Covered entities, opt-in covered entities, and voluntarily associated entities can participate in the program. Voluntarily associated entities are approved individuals or entities that intend to:
- purchase, hold, sell, or retire compliance instruments but are not covered under the program;
- operate a compliance offset project registered with CARB; or
- provide clearing services and derivative clearing services as qualified entities.
Voluntarily associated entities must be in the United States and have an approved account in the system registry, the Compliance Instrument Tracking System Service (CITSS). Additional eligibility criteria apply, including for individual market participants.
MARKET TYPES:
Primary: Allowances are made available through sealed-bid auctions. State-owned and consigned allowances are offered through quarterly allowance auctions organized jointly with Québec. Auctions are administered by WCI, Inc.
Secondary: Allowances, offset credits, and financial derivatives are traded in the secondary market on the Intercontinental Exchange (ICE), CME group, and Nodal Exchange platforms. Any company qualified to access these platforms can trade directly or through a future commission merchant. Companies can also trade directly over the counter but must have a CITSS account to take delivery of compliance instruments.
LEGAL STATUS OF ALLOWANCES: Allowances are defined as limited tradable authorizations to emit up to one tCO2e. According to the “California Code of Regulations”, an allowance does not constitute property or bestow property rights and cannot limit the authority of the regulator to terminate or limit such authorization to emit.
AUCTION RESERVE PRICE
Instrument type: Price-based instrument
Functioning: The auction reserve price is set at USD 25.87 and CAD 24.73 (USD 18.06) per allowance in 2025.
It was initially established at USD 10.00 for the auction in 2012, and it increases annually by 5% plus inflation, as measured by the Consumer Price Index. The auction reserve price for each joint auction with Québec is determined using the minimum prices set annually by California in USD in accordance with Section 95911 of the California Cap-and-Trade Regulation and by Québec in CAD on accordance with Article 49 of the “Regulation respecting a cap-and-trade system for greenhouse gas emission allowances” (Québec Regulation). To manage multiple currencies, an Auction Exchange Rate is determined prior to each joint auction. The Auction Reserve Price for a joint auction is then determined as the higher of the Annual Auction Reserve Prices established in USD and CAD after applying the established Auction Exchange Rate (USD to CAD FX Rate).
ALLOWANCE PRICE CONTAINMENT RESERVE (APCR)
Instrument type: Price-based instrument
Functioning: In 2025, the two APCR tiers are set at USD 60.47 and USD 77.70. Tier prices increase each year by 5% plus inflation, as measured by the Consumer Price Index.
At the start of the program, about 4.9% of allowances from the 2013 to 2020 budgets were placed in an APCR. Prior to amendments mandated by AB 398 in 2017, these allowances were spread across three tiers. Pursuant to AB 398, from 2021 onward, these allowances have been moved into two price tiers and a price ceiling. Currently, there are approximately 66.8 million and 89.5 million allowances in the Tier 1 and 2 reserves, respectively.
Although no APCR sale has been held so far, CARB will offer one if auction settlement prices from the preceding quarter are greater than or equal to 60% of the lowest APCR price tier. CARB also always offers the third quarter APCR sale before the November compliance obligation deadline.
ALLOWANCE PRICE CEILING
Instrument type: Price-based instrument
Functioning: In 2025, the price ceiling is set at USD 94.92. The price ceiling increases each year by 5% plus inflation, as measured by the Consumer Price Index.
At the price ceiling, a covered entity can purchase allowances (or, if no allowances remain, “price ceiling units”) up to the amount of its current unfulfilled emissions obligation. The revenues from the sale of price ceiling units will be used to purchase real, permanent, quantifiable, verifiable, enforceable, and additional emissions reductions on at least a tonne for tonne basis. Sales at the price ceiling will only be conducted if no allowances remain at the two lower APCR tiers and a covered entity has demonstrated that it does not have sufficient compliance instruments in its accounts for that year’s compliance event. Currently, there are approximately 77.7 million allowances in the Price Ceiling Account.
Other Information
California Air Resources Board: Responsible for the design and implementation of the Cap-and-Trade Program.
Western Climate Initiative, Inc.: Non-profit organization that provides cost-effective administrative and technical solutions for supporting the coordinated development and implementation of participating jurisdictions’ GHG emissions trading programs, such as administering auctions and maintaining the system registry (CITSS).
Pursuant to requirements in existing legislation (AB 32, AB 197, and AB 398), CARB must update the “California Climate Change Scoping Plan” at least every five years and must provide annual reports to various committees of the Legislature and the Board. The Scoping Plan provides updates on progress toward climate targets and lays out strategies to achieve them, including the role and level of effort accorded to different programs in the state’s portfolio approach to climate mitigation. The latest update to the Scoping Plan was adopted in December 2022.
Global Warming Solutions Act of 2006 (AB 32)
2018 amendments to the 2021 to 2030 period
Current regulation can be found on the CARB website