The compliance obligation for the entities that are part of the consolidation will be summed and assigned to the Consolidated Entity Account (CEA). The operator of the CEA will have the responsibility to meet the combined obligations.
CEA under California program appears to be a modernised and improved version of the unsuccessful institution of pooling regulated in the EU ETS by Article 28 of the Directive 2003/87/EC (which will extinguish with the end of the second trading period on 31 December 2012).
General outline of the rules governing CEAs
An interesting feature of the California cap-and-trade emissions units registry infrastructure is the possibility to have a consolidated account. Consolidate account will provide entities with a direct corporate relationship one set of accounts to manage their compliance instruments and compliance obligations.
Allocation under California cap-and-trade program is generally done on a facility basis. For entities that have consolidated accounts, the allocation for the entities that are part of the CEA will, however, be summed and placed into the Holding Accounts or Limited Use Holding Accounts of the CEA, as applicable.
The analogous rules apply with respect to the compliance obligation. While compliance obligations are calculated in the California scheme normally on a facility basis, the compliance obligation for the entities that are part of the consolidation will be summed and assigned to the CEA. The operator of the CEA will have the responsibility to meet the combined obligations.
When it comes to auctions, if accounts are consolidated, then an account representative(s) from the CEA will apply to participate on behalf of all the consolidated entities.
California regulators have also foreseen a possibility for multiple consolidated accounts as entities with a direct corporate association may apply for more than one CEA. Each entity can, however, only be represented by one CEA. In the case of multiple consolidated accounts the purchase and holding limits are shared between the CEAs representing the entities with a direct corporate association and any opt-outs.
CEAs are not mandatory and entities have the right to opt-out. In the case of opt-out compliance obligations are still met at the facility level.
If an entity that has a direct corporate association with another entity subject to the cap-and-trade program chooses to not be part of a CEA, that entity must provide to the California regulator a complete and signed Consolidated Entity Account Form, including:
- a distribution of purchase and holding limits,
- an acknowledgement by the Primary Account Representative (PAR) for the CEA or other entities retaining their separate Compliance Instrument Tracking System Service (CITSS) accounts of the request for an opt-out.
The entity will also need to apply for a separate account in the CITSS, including reporting any entities in the cap-and-trade program with which it has a corporate association.