As was indicated in the Californian regulator mailing list of 16 December 2011 California’s Office of Administrative Law (OAL) has approved the California Cap on Greenhouse Gas Emissions and Market-Based Compliance Regulation, including Compliance Offset Protocols.

The regulatory materials can be accessed from ARB website at the address:  http://www.arb.ca.gov/regact/2010/capandtrade10/capandtrade10.htm

OAL has also approved the Mandatory Reporting of GHG Emissions Regulation. The regulation includes amendments to harmonize the California GHG reporting requirements with federal GHG reporting requirements and support the California cap-and-trade program.

The said regulations are effective January 1, 2012.

Covered entities under the Californian scheme must register by January 31, 2012. Voluntary market participants may also use the form to register for the program, but they are not subject to the January 31, 2012 deadline.
Under the scheme there are specific requirements for emissions agents especially as regards beneficial holdings disclosure.

The initial version of the scheme code was adopted by the California Air Resources Board on 16 December 2010 (see: California Environmental Protection Agency Proposed Regulation to Implement the California Cap-and-Trade Program, Appendix A Proposed Regulation Order, Release Date: October 28, 2010). Final Regulation Order on California cap on greenhouse gas emissions and market-based compliance mechanisms has been posted in October 2011 on the website of the Californian Air Resources Board, together with accompanying documentation, among others, four Compliance Offsets Protocols.

Given the diverse structures of the US and EU administrative, legal, energy and financial markets frameworks, the differences in the scheme designs seem to be inevitable. Significant distinctions between European and Californian model occur for emission allowances auctions.

Additionally, the cost containment mechanisms in the California Cap-and-Trade Program appear more complex and sophisticated than in the EUETS.

The problem for companies’ affiliations – in the EU ETS somewhat neglected – is perceived and emphasised in many specific regulatory designs for the California cap-and-trade. As regards the said matter also the enforcement of the surrender obligation seems in the California scheme considerably improved.

But the differences in designs unnecessarily must lead to the opinion that the linkage of both schemes would be impossible. On the contrary, the said schemes need not to be identical, in order to be linked.

Notwithstanding the issue of linking, whether it materialises or not, Californian cap-and-trade can be perceived as a new investment opportunity. The first step in order to examine these opportunities is to be well acquainted with formal requirements for investing in Californian emission allowances.

Indications for other systemically significant nuances can be found in 'Discrepancies in views on  the finality of transfers in emission trading among EU ETS and California cap-and-trade regulators'.