This page last reviewed August 17, 2015

Allowance Allocation 

Allocation refers to how ARB distributes the allowances it issues.  

ARB allocates allowances for leakage prevention and transition assistance via four primary methods:

  1. Direct distribution to covered entities for industrial assistance,
  2. Direct distribution to electrical distribution utilities on behalf of ratepayers,
  3. Direct distribution to natural gas suppliers on behalf of ratepayers, and
  4. Other types of allocation and limited exemptions.

In addition, allowances are sold through quarterly State-run auctions, and a small percentage of allowances have been set-aside for the allowance price containment reserve (see Cap-and-Trade Regulation 95870(a) and Staff Report Appendix G) and the Voluntary Renewable Electricity Program (see 95870(c)).  This webpage details the direct distribution of allowances to industrial entities, electrical distribution utilities, natural gas suppliers, and other entities that may be eligible for a direct distribution of allowances or a limited exemption of emissions. 

Allowance Allocation for Industrial Assistance

Sections 95852.2(e), 95870(e), 95890, 95891, and 95894 of the Cap-and-Trade Regulation describe allowance allocation for industrial assistance.  ARB allocates to industrial facilities for leakage prevention and transition assistance.  For more information on leakage prevention, please review the following resources: Staff Report: Initial Statement of Reasons Section II-H, Appendix K and Appendix B: Leakage Risk Analysis for New and Modified Sectors

To receive direct allowance allocation, an industrial facility must have an activity and North American Industrial Classification System (NAICS) code that is listed in Table 8-1 of the Cap-and-Trade Regulatio, and have complied with the Mandatory Reporting Regulation (MRR).  Table 8-1 identifies the leakage risk and assistance factor for each of the eligible activities.  The summary of allowances allocated for industrial assistance is available here.  The allowance allocation is aggregated by NAICS code(s) so as to not reveal any confidential business information.

The distribution of industrial assistance allocations is determined using a combination of product-based and energy-based methodologies.

Product-Based Allocation Methodology

A facility will receive allowance allocations using the product-based allocation methodology if it is both eligible for allocation from Table 8-1 of the Cap-and-Trade Regulation, has an activity and product in Table 9-1, and has received a positive or qualified positive product data verification statement through MRR.  Product-based allocation uses the equations detailed in Section 95891(b). 

Energy-Based Allocation Methodology

A facility will receive allowances under the energy-based allocation methodology if it is eligible for allocation from Table 8-1 but does not have an activity and product in Table 9-1.  Energy-based allocation is described in Cap-and-Trade Regulation sections 95891(c).

For new facilities eligible for allowance allocation under the energy-based allocation methodology, additional data on steam and fuel consumption needs to be collected. For more information and forms, please visit the Energy-Based Allocation web page.

Allowance Allocation to Electrical Distribution Utilities on Behalf of Ratepayers

The relevant regulation sections describing allowance allocation to electrical distribution utilities (EDU) are Sections 95870(d), 95890, and 95892.  To ensure that electricity ratepayers do not experience sudden increases in their electricity bills associated with the Cap-and-Trade Regulation (Regulation), ARB allocates allowances to electrical distribution utilities on behalf of ratepayers.  The regulation stipulates that EDUs must use the value associated with these allowances for the benefit of retail ratepayers of each EDU, consistent with the goals of AB 32.  Allocated allowances may not be used for the benefit of entities or persons other than their ratepayers.  For more information on these requirements, please review the information on the EDU and Natural Gas Supplier Use of Allocated Allowance Value web page.  To see information regarding the development of the allocation to the electrical distribution utilities, please review:  Appendix 1: Staff Proposal for 15-day Changes to Address Electricity Sector Allowance Allocation and Appendix A: Staff Proposal for Allocating Allowances to Electricity Distribution Utilities.

Distribution of EDU Allowance Allocation

As stated in section 95892 of the Regulation, investor-owned utilities must consign all allocated allowances to auction.  Publicly owned utilities (POU) and electrical cooperatives (co-op), however, can determine how to distribute their allowances among their compliance accounts, limited use holding accounts (from which allowances can only be consigned to auction), or the compliance account of an electrical generating facility operated by a POU, co-op, or joint powers agency in which the POU or co-op is a member and with which it has a power purchase agreement.  By September 1 of each year (or the first business day thereafter), POUs and co-ops must inform the Executive Officer of the share of their allowances to be placed in each of the accounts.  For more information, please review the information and forms listed for electrical distribution utilities on the Distribution of Allowance Allocation webpage.

Reporting on Use of Allocated Allowance Value

As stated in section 95892 of the Regulation, each EDU that receives an allowance allocation has until June 30 of each year to submit a report to the Executive Officer describing the disposition of any auction proceeds and allowance value received for the prior calendar year. For more information, please review the information and forms on the EDU and Natural Gas Supplier Use of Allocated Allowance Value web page.

Allowance Allocation to Natural Gas Suppliers on Behalf of Ratepayers

Section 95893 of the Cap-and-Trade Regulation (Regulation) describes the method of allocating allowances to natural gas suppliers.  To ensure that natural gas ratepayers do not experience sudden increases in their natural gas utility bills associated with the Cap-and-Trade Program, ARB allocates allowances to natural gas suppliers on the behalf of their ratepayers. The Regulation requires natural gas suppliers to use the value associated with these allowances for the benefit of their ratepayers, consistent with the goals of AB 32.  They may not be used for the benefit of entities or persons other than their ratepayers.  For more information on these requirements, please review the information on the Electrical Distribution Utility (EDU) and Natural Gas Supplier Use of Allocated Allowance Value web page.  

Distribution of Natural Gas Supplier Allowance Allocation

Natural gas suppliers can decide how to distribute their allowances between their compliance accounts and their limited use holding accounts (LUHA).  By September 1 of each year (or the first business day thereafter), natural gas suppliers must inform the Executive Officer of the share of their allowances to be placed in each of the accounts.  The share placed into the LUHA must be at least 25 percent for 2015, increasing annually by 5 percent through 2020.  For more information, please review the information and forms listed for natural gas suppliers on the Distribution of Allowance Allocation web page.

Reporting on Use of Allocated Allowance Value

As stated in section 95893 of the Cap-and-Trade Regulation, each natural gas supplier that receives an allowance allocation has until June 30 of each year to submit a report to the Executive Officer describing the disposition of any auction proceeds and allowance value received for the prior calendar year. For more information, please review the information on the EDU and Natural Gas Supplier Use of Allocated Allowance Value web page.

Other Types of Allocation and Limited Exemptions

Legacy Contract Generator Allocation

Pursuant to Cap-and-Trade Regulation section 95894, facilities that generate electricity and/or thermal output under legacy contracts may apply to ARB for transition assistance for the greenhouse gas emissions related to these contracts. These facilities are known as legacy contract generators. Legacy contracts are contracts executed prior to September 1, 2006 which govern the sale of electricity and/or thermal output and do not provide for the recovery of Cap-and-Trade Program costs. Legacy contract generators that wish to apply for this assistance for the subsequent vintage year must submit an application to ARB by September 2 of the calendar year immediately preceding the vintage year (e.g., for allocation of vintage 2016 allowances, applications must be received no later than September 2, 2015).   The Legacy Contract Transition Assistance Application Form may be used for this purpose.  This form is provided for clarity and convenience and does not supersede any law or regulation.


The information in this form should be received both electronically and by certified U.S. mail no later than 5:00 p.m. on September 2 each year.  Please send an Excel spreadsheet with the required information to Eileen Hlavka at ehlavka@arb.ca.gov.  Please mail the signed copy of this information to the following address:

California Air Resources Board

Attn: Eileen Hlavka

Climate Change Program Evaluation Branch, 6th Floor

1001 "I" Street
Sacramento, CA 95814 


If a facility requests legacy contract transition assistance, it must make a good faith effort to renegotiate the legacy contract to be eligible for legacy contract transition assistance (section 95894(a)(3)(C) of the Cap-and-Trade Regulation). The good faith effort must have occurred since the last deadline for legacy contract applications because legacy contract generators must apply each year for allocation (section 95894(a) of the Regulation). For example, if a facility requests an allocation of vintage 2016 allowances (with an application deadline of September 2, 2015), an effort to renegotiate must have occurred between September 2, 2014 and September 2, 2015.

ARB accepts the attestation of the legacy contract generator regarding renegotiation per 95894(a)(3)(C) unless it has a reason to suspect that no renegotiation effort occurred. An industrial or other counterparty to a legacy contract may contest an attestation of renegotiation by submitting a signed letter to ARB asserting that the relevant legacy contract generator made no good faith effort to renegotiate with them. In this case, ARB will investigate further to assess whether a good faith renegotiation effort appears to have occurred.


Questions may be directed to Eileen Hlavka at ehlavka@arb.ca.gov or (916) 322-7648.

Public Service Facility Allocation

Under the Cap-and-Trade Regulation, public service facilities are eligible for direct allocation of allowances if they meet the requirements of sections 95802(a)(304), 95870(f), and 95890(d).  If you believe your facility might be eligible for public service facility allocation, ARB requests that you submit a Notice of Intent to Receive Allocation as a Public Service Facility.

Questions may be directed to Bill Knox at wknox@arb.ca.gov or (916) 324-0839.
 

Limited Exemption of Emissions Associated with Qualified Thermal Output

Under the Cap-and-Trade Regulation, facilities may apply for a limited exemption of emissions if they meet the requirements of section 95852(j), which is designed to cover two types of facilities: (1) cogeneration units which would not exceed the Cap-and-Trade Program inclusion threshold but for their thermal output produced on site, and (2) district heating facilities that serve multiple end users, none of which would be covered under the Cap-and-Trade Program if they produced the emissions currently produced by the district heating facility in the process of serving that end user.  Applications were due by September 2, 2014.

Questions may be directed to Bill Knox at wknox@arb.ca.gov or (916) 324-0839.

 

 


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