US: Natural gas suppliers will have to co-sign CCAs at auction

California’s natural gas suppliers will be required to co-sign at auction 25% of the allowances they will get for free in 2015, and the amount will increase by 5 percentage points per year until reaching 50% in 2020, according to amendments to the cap-and-trade rules proposed Friday by the regulator.

Natural gas suppliers are set to join the carbon programme in 2015. Under the proposal from the Air Resources Board (ARB), they will receive 94% of their 2011 emissions for free in 2015, declining approximately 2 percentage points per year until 2020.

However, they will have to co-sign part of these California carbon allowances (CCAs) to auction and use the proceeds to ensure ratepayers are not impacted by the carbon scheme.

The amount of allowances co-signed could impact the number of allowances ARB offers at quarterly auctions. The programme’s cap is set to expand in 2015 to 394.5 million allowances, which includes free allocation and allowances to be auctioned.

Market participants said the proposed rules were anticipated by most people in the market, and they were unlikely to have a significant impact.

Investor-owned electricity utilities, such as Pacific Gas & Electric and Southern California Edison, are already required to co-sign freely allocated allowances into ARB auctions. The proceeds of those allowances are funnelled back to the companies’ ratepayers, and the companies have to cover their short positions in either the ARB auctions or on the secondary market.

The ARB will be taking comments on the proposed changes until 5 April.

Initially, natural gas suppliers were not going to be allocated free allowances by the ARB. However, the regulator decided to do it to ensure ratepayers were not adversely impacted by the cap-and-trade programme.

The fuel sector, which will also be included in 2015, will not receive any free allowance, according to ARB rules. Traders said this policy should make those companies active in both ARB auctions and the secondary market. Dan X. McGraw