US: ARB mulls including cement importers in California ETS

07 February 2014 17:44 Source:ICIS

Carbon emissions from the production of cement imported into California could be included in the state’s cap-and-trade system, regulator Air Resources Board (ARB) said on Thursday.

Domestic cement producers such as Cemex Construction and CalPortland Company are already part of the programme and will have to surrender California carbon allowances (CCAs) to cover their 2013 and 2014 emissions by November 2015.

But the sector – which emitted 6.4m tonnes of CO2 equivalent in 2012 – is considered a “high leakage risk category”, ARB said. This means that, as a consequence of cap-and-trade compliance costs, chances are that a larger share of California’s cement demand is provided by imports from places where cement production is not subject to carbon costs.

To mitigate this, which would reduce emissions in California but only to increase them elsewhere, ARB has put up for public consultation three potential mechanisms, or border carbon adjustments, the first being the inclusion of imports in the scheme.

This option would be “administratively simple”, ARB said, as it would not require any change in the regulatory framework. But the scheme’s cap was calculated without taking into account emissions associated with potential production outside of California due to leakage. The potential for additional demand from this is estimated at 1m-6m tonnes of CO2 equivalent.

Introducing a “linked cost” with no market mechanism, or creating a separate allowance pool for importers are the two other options.

Introducing a linked cost may be easier to manage, ARB said, but importers would not be able to take advantage of flexible compliance instruments such as offsets.

The last option under consideration could be implemented under two variants. A “mini” cap-and-trade allowance pool could be created, with a separate cap set for importers and separate quarterly auctions. This would allow them to make use of all the flexible instruments of the programme, but setting the appropriate cap would be “challenging”, ARB said.

Otherwise, a “simplified purchase/sales system” could be put in place, with an updating allowance limit instead of a permanent cap. Allowances would not be fungible with the main cap-and-trade but the use of offsets would be allowed.

The consultation is open until 20 February.

ARB will hold a technical work group by April on the options, followed by a workshop to consider draft regulation in May.

A final draft proposal is expected in late July, which would then be subject to a 45-day comment period, with a view to holding the final board hearing in September. Silvia Molteni

By Silvia Molteni