Under the California cap-and-trade scheme however an emission allowance means only ‘a limited tradable authorization to emit up to one metric ton of carbon dioxide equivalent’ and in no way constitutes property or a property right.
Final Regulation Order California cap-and-trade scheme (Subchapter 10 Climate Change, Article 5, Sections 95800 to 96023, Title 17, California Code of Regulations, Article 5: CALIFORNIA CAP ON GREENHOUSE GAS EMISSIONS AND MARKET-BASED COMPLIANCE MECHANISMS expressly states in § 95820 (c) that a compliance instrument issued by the California scheme ‘does not constitute property or a property right’:
‘Each compliance instrument issued by the Executive Officer represents a limited authorization to emit up to one metric ton in CO2e of any greenhouse gas specified in section 95810, subject to all applicable limitations specified in this article. No provision of this article may be construed to limit the authority of the Executive Officer to terminate or limit such authorization to emit. A compliance instrument issued by the Executive Officer does not constitute property or a property right’.
What is the substantiation of this legal concept? The Staff Report: Initial Statement of Reasons Release Date: October 28, 2010 (which contained § 95820 (c) in the same wording as the Final Regulation Order) explains the reasons for such an approach in the following manner:
“Additionally, the Executive Officer retains the right to revoke the authorization contained in the compliance instrument. Finally, compliance instruments do not constitute property or carry property rights. ...
It is necessary for the Executive Officer to retain authority to terminate or limit the “authorization to emit” so that in the case of fraud or market manipulation, ARB has a mechanism to protect the market. Additionally, property rights cannot attach to the compliance instruments because, in the event of federal preemption in the cap-and-trade market or other conditions, California must have the ability to revoke the compliance instruments without creating a loss to the people of California.”
It seems thus that the regulatory uncertainty at the State legislature level with respect to the federal legislation as well as the prudence with respect to the risks of misuse the future experimental cap-and-trade Californian market decided about the contained regulation of the emission allowances nature as a “limited tradable authorization to emit” and not a property right.
On the other hand, the as was indicated in ‘Emissions allowances – are they property rights? Australia and California regulators’ views’ Australian ‘Exposure Draft of the Clean Energy Bill 2011, Commentary on Provisions’ of 28 July 2011 in the very heading (on the page 96) states ‘A carbon unit is a property right’. The Australian draft legislative text further explains in points 3.49 and 3.50 that, ‘A carbon unit issued by the Regulator is personal property and, subject to the requirements of the mechanism, transmissible by assignment (that is, as a result of some form of agreement to transfer the units to another person), by will (that is, as part of a deceased person‘s estate) and by other forms of transfer permitted by law. ...
This will promote confidence in the integrity of carbon units and reduce uncertainty for their holders, and further promote confidence in the development of the market for carbon units.’
Legal nature of emission allowances as a property rights
- Category: Emissions trading
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