On January 20, 2017, the California Air Resources Board (CARB) released an updated Scoping Plan to reduce state greenhouse gas emissions (GHGs). Under the state's climate change law known as Assembly Bill (AB) 32, CARB is required to produce a scoping plan every five years. The proposed plan has the potential to impact the state's cap and trade program and carbon markets for the long term.

The proposed plan outlines options to meet California's aggressive goals to reduce GHGs by 40 percent below 1990 levels by 2030. The State codified the 40 percent goal in legislation enacted last year (Senate Bill 32). The proposed plan would extend the state's cap-and-trade program - in which CARB auctions off emissions allowances to refiners, utilities and other GHG sources as the emissions cap gradually declines - to cover the years 2020 to 2030. The proposed plan would extend the cap-and-trade program and newly require oil refineries to reduce their GHGs by 20 percent.

The proposed plan also incorporates the state's updated Renewable Portfolio Standard requiring utilities to procure 50 percent of their electricity from renewable energy sources by 2030. It also raises the state's Low Carbon Fuel Standard, and aims to reduce emissions of methane and hydrofluorocarbons by 40 percent from 2013 levels by 2030 and emissions of black carbon by 50 percent from 2013 levels.

Notably, the proposed plan outlines alternative options CARB may pursue to meet the 40 percent emissions reduction goal. CARB's preferred option appears to be the extension of the cap and trade system beyond 2020, including its plan to link California's program with Quebec's cap-and-trade system starting in 2018. But many in the industry have expressed uncertainty over whether the cap-and-trade program will continue as planned given the pending litigation in state courts. For instance, the Third District Court of Appeal in Sacramento just heard oral arguments on January 24, 2017 for and against California's authority to conduct auctions of greenhouse gas permits under the cap-and-trade program.

Accordingly, the plan outlines one alternative for industry-specific GHG reductions measures with no cap-and-trade system. A second alternative proposes a carbon tax, and a third alternative proposes a "cap-and-tax" system which would place a declining cap on the industry, including natural gas and fuel suppliers, while also requiring them to pay a tax on each ton of GHG emitted.

CARB has held workshop meetings and received public comments on drafts of the plan since July, 2016. CARB has scheduled a public Board meeting to discuss the proposed plan on January 27, 2017 and February 16-17, 2017. CARB plans to issue a final Scoping Plan by the spring this year, and will hold a public meeting on the final Plan on April 27, 2017. For more information, see CARB's website.