Special treatment for the November 2012 auction
The November 2012 auction in the California cap-and-trade will specifically treat the CEAs.
The document ‘Guidance for Consolidated Accounts Application and the Compliance Instrument Tracking System Service (CITSS)’ (www.arb.ca.gov) indicates that although the CITSS will allow a Primary Account Representative (PAR) and/or Alternate Account Representative (AAR) to represent several entities, this capability will not be available in the auction platform for the November 2012 auction. In effect, in the November 2012 auction, a representative can only represent one entity.
Registration in the CITSS by entities with corporate associations should be completed based on an entity’s intent to participate in the November auction as either (1) a single CEA or (2) as multiple accounts under the “Opt-Out” option.
The above Guidance document gives the following practical analysis as regards each of the above options:
Option I – Planned Participation as a Consolidated Account
‘If auction participation will include only one entity with a consolidated account, ensure that the entity participating in the auction is represented by a PAR and AAR that does not represent any other entity. The PAR and AAR may apply to participate in the auction on behalf of the CEA that represents all the consolidated entities. All representatives of the consolidated accounts will receive an invitation to participate in the auction. An auction application should be submitted only by the representatives that will participate in the auction.’
Option Il – Planned Participation with Multiple Accounts (Opt-Out)
‘lla. If auction participation will include multiple entities within a corporate association, ensure that each entity with a CITSS account is represented by a different PAR and AAR. A single person as a PAR or an AAR should not represent more than one entity in the auction. All representatives will receive an invitation to participate in the auction and may submit an auction application.
llb. Alternatively, an entity may select one entity within all the associated entities to participate in the auction. The entity should ensure that the PAR and AAR do not represent any other entity. Under this option, compliance instruments purchased in the auction can be accepted in the Holding Account of the one entity and transferred to other entities within the corporate association as needed for business needs.’
Potential element of portfolio risk-management
The November 2012 auction notwithstanding, in principle consolidated account emerges as an interesting alternative for managing for carbon risks in associated entities.
Taking into account the sophisticated risk-management procedures used typically by groups of affiliated companies, CEA can represent an element of such elaborate systems, enabling the carbon risks being incorporated into the comprehensive strategy implemented across the entire portfolio risk-management.