The WCI carbon market and its offsets developers in particular are likely to be shielded from California’s compliance with the federal Clean Power Plan, as state regulators anticipate easily meeting the goals.

Without taking the state’s cap-and-trade system into account, California’s other regulations governing utility emissions are expected to be more than sufficient to meet CPP requirements when they take effect from 2022.

The state’s Public Utilities Commission requires generators to supply one third of their power from renewable sources by 2030. Only Colorado and New York have comparable targets in place.

“When you take into account (California’s) renewable energy target, as well as energy efficiency targets, I think those two combined may be enough to get California into compliance with the federal plans,” said Charles Purshouse of project developer Camco Clean Energy.

“I’m not even sure it will put forward its cap-and trade system as a hard backstop.”

OFFSETS SHUNNED

The CPP gives no provisions for utilities to use California Carbon Offsets (CCOs) to meet emissions reduction targets, though for California this is unlikely to present a challenge, according to Gary Gero of the Climate Action Reserve, which regulates offset projects and issuances.

“My understanding is that the state’s intention is to demonstrate compliance with the CPP without resorting to the cap-and-trade itself; so only relying on the renewable portfolio standard, the energy efficiency requirements and the relatively clean generation mix that we have,” he said.

“The state believes that it can demonstrate compliance with that alone, by isolating the utility sector in terms of emission reduction accounting for that purpose.”

California Air Resources Board officials did not return calls seeking comment. The regulator will hold a public workshop on Oct. 2 to discuss its plans for CPP compliance.

DEMAND

Even if the state were forced to detach the power sector from WCI to comply with CPP, offset demand is unlikely to collapse as utilities are not the main buyers.

“California’s offset market is being dominated by (demand from) the oil and gas sector,” said Steven Neoh, a carbon market analyst at Climate Connect.

“Utilities and power marketers contributed only 14% of the offsets used in Nov. 2014,” he added, noting that that figure is somewhat skewed by the regulator withholding 4.4 million ODS offsets while it carried out its Blue Harbors invalidation investigation.

Offset developers said they are more concerned with the lack of long-term certainty concerning AB32, the state bill that underpins their industry.

California’s cap-and-trade market currently runs through 2020. A proposal from the state senate to extend the system to 2030 was withdrawn earlier this month when it became clear it did not enjoy enough support to pass in California’s Assembly. The bill will be presented again next year.

Developers had been eagerly awaiting the certainty of legislative backing for post-2020 goals, as under current conditions emitters have little need to source offsets amid an oversupply of allowances.

CCAs STABLE, VOLUME DROPS

Meanwhile, front-year California carbon prices were unchanged this week as liquidity declined further.  The benchmark Dec-15 futures saw just 1.5 million tonnes traded on ICE Futures, while just 200,000 tonnes of Dec-16s changed hands.

In total 3.4 million allowances were traded in the five days through Thursday, compared with more than 10 million the previous week.

California handed out some 680,000 CCOs in the past fortnight, while a separate batch of 306,500 exited their invalidation period this week, making them so-called ‘golden’ and increasing their value in the state’s emissions market.

By Alessandro Vitelli – news@carbon-pulse.com