Environmental Markets / Carbon Allowances

Carbon Allowances

Carbon allowances are issued by a government under an emissions cap-and-trade regulatory program. Each allowance (or emissions permit) typically allows its owner to emit one tonne of a pollutant such as CO2e. Under a cap-and-trade system, the supply of GHG allowances is limited by the mandated 'cap'.

Below are some examples of carbon allowance programs

CALIFORNIA STATE CAP AND TRADE

Facilities in all sectors located in California that emit more than 25,000 tons/CO2e are required to offset all emissions with carbon allowances and offsets. California’s objective is to reduce greenhouse gas emissions by 40 percent below 1990 levels by 2030 – the most ambitious target in North America. Any facility that emits more than 25,000 tons of CO2e annually as well as fuel suppliers must comply with this program.

WASHINGTON STATE CAP AND INVEST

Under the cap-and-invest program, businesses responsible for roughly 75% of Washington’s greenhouse gas emissions will have to obtain allowances to cover their emissions emitting more than 25,000 tCO2e/year. The State of Washington has recently launched a new "cap-and-invest" program to reduce greenhouse gas emissions and combat climate change.

REGIONAL GREENHOUSE GAS INITIATIVE (RGGI)

Power generating facilities located in 11 states (CT, DE, ME, MD, MA, NH, NJ, NY, PA, RI, VT, and VA) are required to offset all emissions with carbon allowances and offsets. Their first carbon dioxide (CO2) auction of RGGI allowances was held in 2008. The program was created for the purpose of limiting carbon dioxide emissions from power plants in the participating states.