Under the California cap-and-trade scheme 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.”

Thus it seems 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 of the 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.




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