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ARB outlines key compliance procedures

August 8, 2014 by Rahul Rana

CaliforniaCarbon.info, August 9, 2014: The California Air Resources Board (ARB) held a ‘California Cap-and-Trade Compliance Surrender Webinar’ to inform compliance entities and other interested parties about the Compliance Instrument Tracking System Service (CITSS) accounts, and the procedure for surrendering instruments to meet compliance obligations.

Having a CITSS account is a prerequisite for transacting compliance instruments in the cap-and-trade program. It allows entities to acquire, trade, and surrender compliance instruments, while also allowing ARB’s market monitoring team to keep an eye on the market and check against manipulation.

The annual surrender deadline for entities, by which their 2013 obligations must be met, is November 3, 2014. By 5PM (PT) on this date, entities must transfer into their CITSS compliance accounts any instruments that they wish to use to cover thirty percent of their emissions from last year.

Entities must take care that the information provided in their CITSS accounts is up to date and correct, or else they will face the risk of being out of compliance. Entities should contact ARB in case their facilities are not listed in their CITSS account, or if a facility does not have a reporting ID. The reporting ID should also be matched with the entities record. All account representatives listed should be valid contacts and the only ones accessing CITSS, sharing of CITSS account password and username is considered a violation of the rules.

CITSS version 4.0

ARB provisionally plans to release version 4.0 of CITSS on August 28, 2014. After version 4.0 goes live, CITSSS account holders and their primary and alternate account representatives will receive an email when their greenhouse gas (GHG) emissions data has been entered and approved within CITSS. A second email will notify them of the availability of 2013 annual compliance obligations for review in CITSS. Entities will be able to see how close they are to meeting their compliance obligations in the new module.

CITSS 4.0 training webinars will also be conducted on 26 and 27 August. When compliance processing begins once the 3 November deadline passes, no transfers to compliance accounts will be allowed as CITSS will temporarily be taken offline for that evening.

‘True-up’ allowances

ARB does not allow borrowing of future allowances to meet current-year compliance obligations, hence for 2013 compliance only V2013 California carbon allowances (CCAs) maybe used, except for rare cases where ‘true-up’ allowances have been allocated. Entities can, however, use offsets to meet up to 8% of their verified emissions in any year.

‘True-up’ cases occur when entities’ expected allocation based on estimated product data are lower than the actual product data, resulting in them receiving an allocation that is below what they are entitled to. Thus the ‘true-up’ is a correction made in the form of V2015 allowances. ‘True-up’ allowances can only be used to meet the awarded entity’s obligations for a previous year. If traded to another entity, it can only be used to meet obligations for compliance years equal to or greater than the year in which it is issued. The opposite may also occur, and entities may have received more allowances than were due to them for industrial assistance. ARB will deduct the balance from their next allocation. Entities will know if they are eligible to receive ‘true-up’ allowances when ARB allocates free allowances in mid-October this year.

Compliance instrument surrender and penalties

ARB will retire compliance instruments from CITSS accounts in the following order: (i) offsets; (ii) allowances purchased from reserve sales (no reserve sales conducted yet); (iii) CCAs with vintage years smaller than the compliance year (not applicable now since 2013 is the smallest available vintage); (iv) allowances with vintage years equal to the compliance year, plus any ‘true-up’ allowances.

ARB has auctioned all V2013 allowances and hence entities that have a shortfall of allowances for the 2013 compliance obligation must look to buy V2013 CCAs from other entities that are holding them. V2014 allowances can be bought directly from ARB during the August and November auctions this year.

If an entity fails to meet their compliance obligation they will be penalized by having to surrender four times the amount of the missing compliance instruments after the subsequent auction or reserve sale, whichever is later. Entities may use future vintage allowances to meet their untimely surrender obligations. Each compliance instrument not surrendered on time constitutes a separate violation and ARB may then initiate enforcement procedures against the violators.

ARB advises all entities to take the following actions between now and 3 November. First, entities should ensure that they have a CITSS account registered, and that all the information in the account is up to date. Second, all emissions data for 2013 must be verified by 1 September. Third, entities should participate in the CITSS 4.0 training webinar on 26 and 27 August. Fourth, entities should log into their CITSS accounts in early October to view their compliance obligations under cap and trade. Finally, entities must ensure they have transferred the correct amount of eligible compliance instruments into their compliance accounts by 3 November.

For further information regarding this article, please write to contact@californiacarbon.info.

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