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China National ETS
General Information
China’s national ETS began operating in 2021, with the objective of contributing to the effective control and gradual reduction of CO2 emissions. China’s national ETS is the world’s largest in terms of covered emissions, estimated to cover around 5.2 billion tCO2 – or more than 40% of the country’s CO2 emissions.
The China national ETS regulates more than 2,000 companies from the power sector with annual emissions in excess of 26,000 tCO2, including combined heat and power plants, as well as captive power plants in other sectors. Covered entities must surrender allowances for all their covered emissions. Allocation is based on intensity, with allowances freely allocated using benchmarks and based on actual production levels. Compliance obligations are currently limited and vary between different types of power generation. The system’s coverage will expand to other sectors over time.
In January 2024, China launched its national GHG voluntary emission reduction trading market, the Chinese Certified Emissions Reduction scheme (CCER). This came after six years of suspension, during which time it was undergoing reform. This reform could contribute to the implementation of an offsetting scheme in the domestic ETS (see ‘Offset Credits’ section).
The national ETS builds on the successful experience of regional carbon markets implemented in seven regions. These pilots continue to operate in parallel with the national ETS, covering sectors and entities not included in the national system.
In January 2024, the State Council of China promulgated the “Interim Regulations for the Management of Carbon Emissions Trading” (Interim Regulations) that establishes a robust legal foundation for the national ETS, which took effect as of May 2024. It further enhances enforcement measures and non-compliance penalties for different stakeholders.
In September, the Ministry of Ecology and Environment (MEE) published for public consultation a draft work plan for extending the sectoral coverage of the national ETS. It proposes expanding the ETS to cement, steel, and aluminum smelter industries, over two phases. Phase 1 (2024 to 2026) aims to familiarize companies in these sectors with the national ETS and enhance emissions data quality. Phase 2 (starting in 2027) aims to tighten and further improve the functioning of the system. This scope expansion, if approved, will bring an additional 1,500 companies into the Chinese national ETS, increasing the system’s emissions coverage by 3 billion tCO2e. Further details, including on allowance allocation methods, are expected to be published in the future.
In October, the MEE released the allocation plan and compliance work plan for the power sector for 2023 and 2024. The allocation plan updates benchmarks and excludes indirect emissions. It also sets a limit on banking and cancels borrowing. According to this plan, the compliance is shifting from a two-years cycle to a one-year cycle.
After the launch of the CCER program in January 2024, the Certification and Accreditation Administration (CNCA) announced the list of accredited verifiers in June 2024. In August, the MEE started accepting new project applications and verifications. As of December 2024, 63 projects had been submitted, and one had been registered.
Emissions & Targets
14,314 MtCO2e (2021)
By 2025: Reduction in carbon emissions per unit of GDP of 18% compared to 2020 levels (14th Five-Year Plan)
Before 2030: Peak CO2 emissions; reduction of CO2 emissions per unit of GDP by over 65% from 2005 levels ('1+N’ policy framework; updated NDC)
Before 2060: Carbon neutrality (‘1+N’ policy framework; updated NDC)
Average secondary market price: CNY 95.96 (USD 13.33)
Size & Phases
There are currently no specific phases for the Chinese national ETS.
The cap is the sum of the bottom-up total allowance allocation to all individual covered entities. The cap is adjusted according to the actual production levels.
The national ETS is estimated to have had an annual cap of ~4,500 MtCO2 in 2019 and 2020, ~5,100 MtCO2 in 2021 and 2022, and ~5,200 MtCO2 in 2023.
Power sector (including combined heat and power, as well as captive power plants of other sectors). Compliance obligations are currently limited (see ‘Enforcement’ section).
The scope is expected to be gradually expanded to cover seven other sectors: petrochemicals, chemicals, building materials, steel, nonferrous metals, paper, and aviation. Entities in these sectors have MRV obligation since 2015.
In 2024, the MEE released for public consultation a draft work plan to expand the system to the cement, steel, and aluminum smelter sectors. The draft proposed to cover emissions in these sectors from 2024.
INCLUSION THRESHOLDS:
For 2019 to 2020: Entities with annual emissions of 26,000 tCO2 or greater in any year from 2013 to 2019.
For 2021 to 2022: Entities with annual emissions of 26,000 tCO2 or more in any year from 2020 to 2021.
From 2023: Entities with annual emissions of 26,000 tCO2 or more in the previous year.
Point source (power)
2,096 (2023)
Allowance Allocation & Revenue
Allowances are distributed for free, using benchmarking. A pre-allocation method is adopted for the annual allowance allocation. Allocation is then adjusted ex-post to reflect the actual production in the respective compliance year.
FREE ALLOCATION: Output-based benchmarking is used as the main allocation method, with four distinct benchmarks: conventional coal plants below 300 MW; conventional coal plants above 300 MW; unconventional coal; and natural gas.
In October 2024, the MEE proposed benchmark values for allocation for the 2023 to 2024 compliance period.
Entities received allowances at 70% of their verified emissions in the previous year. Allocation was subsequently adjusted to reflect actual generation in 2023 and 2024. A unit load (output) adjustment factor distributed more allowances for coal-fired entities operating at load rates below 65%. This may have provided more allowances for less efficient power units.
According to the 2023 to 2024 allocation plan, compliance obligations are limited. Gas-fired plants only need to surrender allowances up to their level of free allocation as per the benchmarks. Coal-fired plants with free allowance below 80% of their verified emissions will have their allocation adjusted upwards to 80% of their verified emissions. This means that 20% remains the maximum shortfall, similar to the previous compliance periods.
AUCTIONING: Allocation currently takes place through free allocation, but the Interim Regulations clarify that auctioning is to be introduced and gradually expanded. There is currently no timeline for this.
There is currently no arrangement for the use of revenues generated by the scheme.
Flexibility & Linking
Borrowing was temporarily allowed in 2021 to 2022.
Banking was allowed with no limit in the first three compliance periods. In the following compliance period, covered entities are allowed to bank up to 10,000 tonnes plus 1.5 times their net sales over 2024 and 2025.
The use of offset credits is allowed.
QUANTITATIVE LIMITS: Covered entities can use CCERs generated from projects not covered by the national ETS for up to 5% of their verified emissions.
QUALITATIVE LIMITS: There were no additional project or vintage restrictions.
In 2012, the National Development and Reform Commission (NDRC) issued the “Interim Measures for the Management of Voluntary GHG Emissions Reduction Transactions”, which provided guidelines for the issuance of CCERs. The registration of CCER projects started in 2015 but the program was suspended in 2017 while regulations were reviewed. MEE launched the CCER system in 2024 with new methodologies, registry, verifiers and exchange.
Only credits from projects registered in the new CCER program are eligible for offset use in China’s national ETS after January 2025.
The National Center for Climate Change Strategy and International Cooperation (NCSC) operates the CCER registry. The Beijing Green Exchange is dedicated to CCER trading platforms.
The China national ETS is not linked with any other system.
ETS: Regional ETSs in Beijing, Chongqing, Fujian, Hubei, Guangdong, Shanghai, Shenzhen and Tianjin
Domestic crediting mechanism (national): China Certified Emissions Reduction (CCER)
Domestic crediting mechanisms: Local offset crediting mechanism in Beijing, Chongqing, Fujian, Hubei, Guangdong, Shanghai, Shenzhen, Tianjin, etc.
Compliance
Two calendar years from 2019 to 2022. One calendar year from 2023 onwards.
MONITORING: Covered entities are required to set up monitor plans and monitor their emission based on these plans.
REPORTING FREQUENCY: Covered entities must submit the previous year’s emissions reports by the end of March each year.
VERIFICATION: Provincial-level ecological and environmental authorities are responsible for organizing the verification of GHG reports. They may commission technical service agencies to provide verification services. Verification of emissions from the power sector must be completed by the end of June. Verification of the cement, aluminum smelter and steel industries should be completed before the end of September each year. Verification of other key industries should be completed by the end of the year.
FRAMEWORK: MRV guidelines, supplementary data sheets, verification guidelines, and other guidance are available for the eight sectors expected to be covered by the ETS. This MRV framework has evolved continuously since 2013 (see ‘Sectors and Thresholds’ section).
The Interim Regulations enhanced enforcement measures and penalties for different parties. Covered entities face a fine for not reporting or cheating in reporting, ranging from CNY 500,000 (USD 69,469) to ten times the illegal gains. Failures in compliance obligations result in fines ranging from five to ten times the market value of the gap, a significant increase from the previous maximum fine of CNY 30,000 (USD 4,416). For those who refuse to surrender allowances after receiving a warning, deductions from the following year’s allocation and potential production suspension are now in force.
Consultancy firms, third-party verifiers and testing organizations involved in MRV data fraud may face penalties up to ten times of their illegal gains, as well as disqualification. Similar punishments also apply for market manipulation. The regulation rectifies the previous absence of penalties for misconduct by technical service providers and market participants.
Market participants involved in market manipulation behaviors may face penalties up to ten times their illegal gains, starting from CNY 500,000 (USD 69,469).
Market Regulation
MARKET PARTICIPATION: Compliance entities. The Interim Regulations indicate that other types of institutions or individuals may in the future also be allowed to participate in the market; however, there is no specific timeline for this.
MARKET TYPES:
Primary: Allowances are currently only distributed by free allocation. The Interim Regulations state the intention to introduce auctioning, though without a specific timeline.
Secondary: China Emission Allowances (CEA) can be traded on a dedicated trading platform managed by the Shanghai Environment and Energy Exchange. CEAs for the 2019 to 2020 period, CEAs for 2021, CEAs for 2022, and CEAs for 2023 are categorized as four different products on the exchange, and have similar prices.
Due to financial market regulations, other products (i.e., derivatives) are currently not allowed.
LEGAL STATUS OF ALLOWANCES: Allowances are not considered financial instruments. For financial accounting purposes, the Ministry of Finance published an interim policy that categorizes only purchased allowances, and not those received for free, as assets in financial statements.
In May 2021, the MEE announced the option of establishing a market-regulating and protection mechanism. This would enable the MEE to respond to abnormal fluctuations in trading prices, for instance through buy-back, auctioning, or adjusting the rules related to CCER use. The necessary triggers and specifics of this mechanism are yet to be defined.
EXCHANGE
Instrument type: Price-based instrument
Functioning: The Shanghai Environment and Energy Exchange implements a system of limits on price increases and decreases for trading over the exchange. For listed trading (the maximum volume for a single transaction does not exceed 100,000 tCO2e), this is 10% above or below the reference price (the closing price of the previous trading day). For block trading (with minimum transaction volume of 100,000 tCO2e), this is 30% above or below the reference price. Only transactions within this price range can be successfully completed on the exchange. It also sets the maximum position limit for the different market participants: the sum of their annual allocated allowances plus 1 MtCO2 for compliance entities, 1 MtCO2for institutional investors, and 50,000 tCO2 for natural persons.
Other Information
The China national ETS has a multi-level governance structure involving three levels of government:
Ministry of Ecology and Environment (MEE):
Acts as the national competent authority setting the rules and overseeing the system, jointly with other national regulators.
Provincial-level MEE subsidiaries: Oversee the implementation of the ETS, including identifying covered entities, organizing MRV, hiring verifiers, calculating allowance, managing provincial registry account, oversee compliance.
Municipal-level authorities: Responsible for managing covered entities directly.
China Carbon Emissions Registration and Clearing Co., Ltd.: Responsible fo.lr operating the CEA registry and clearing platform.
Shanghai Environment and Energy Exchange: Operates the CEA trading platform.
National Center for Climate Change Strategy and International Cooperation (NCSC): Operates the CCER registry.
The Beijing Green Exchange: Responsible for operating the CCER trading and clearing platform.
An evaluation framework is currently under development.
The National Measures for the Administration of Carbon Emission Trading (trial) (2021)
Allocation Plan for the Power Sector (2019-2020) and list of covered entities (2021) (English translation)
Guidelines for Enterprise Greenhouse Gas Verification (trial) (2021)
Notice on Strengthening the Management of Enterprise Greenhouse Gas Emissions Reporting (2021)
Allocation Plan for the Power Sector (2023-2024)
Management Measures for voluntary Greenhouse Gas Emission Reduction Trading (Trial) (2023)
Guidelines for GHG Monitoring and Reporting for various sectors (2013, 2014, and 2015)
Updated Guidelines for GHG Monitoring and Reporting for the power sector (2023)
Updated Guidelines for GHG Monitoring and Reporting for industrial sectors (2023)
Interim Regulations on the Administration of Carbon Emission Trading (2024)
Guidelines for GHG Monitoring and Reporting for Cement, aluminum smelter and steel industries (2024 and 2025)
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