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Price collar, allowance counts and free allowances emerge as focal points in reauthorization debate
Summary
Senators and experts discussed how allowance counts, the price floor/ceiling ‘‘collar’’ and the allocation of free allowances affect market certainty, consumer prices and potential leakage; analysts recommended narrowing the price band and swift regulatory clarity to reduce revenue volatility.
Senators and outside experts pressed CARB and panelists on market design: how many allowances should remain in the system, how the price floor and ceiling (the ‘‘collar’’) should be set, and whether free allowances to trade‑exposed industries should be reduced or redirected.
Independent analysts and university researchers told the committee that the program could move from a condition of ‘‘relative laxity’’ to greater stringency under reauthorization and that market prices could, under some modeled scenarios, approach the regulatory price ceiling. Helen Christian of the Legislative Analyst’s Office and Danny Cullenward warned that the existing price spread — recent market prices in the low‑to‑mid‑$30s and a ceiling near $95 — creates substantial revenue volatility for the Greenhouse Gas Reduction Fund and for planning by regulated entities and funded programs.
Danny Cullenward presented scaling scenarios: depending on allowance budgets and market prices, the program could involve ‘‘several hundred, maybe more than $300,000,000,000 worth of allowances being allocated over the next 20 years,’’ and that the distribution of allowance value (the share going to utilities, GGRF, and large emitters) matters for who ultimately receives revenue. He emphasized two choices that need legislative‑administration clarity: expected price levels and how revenues and program value will be allocated.
Senators pressed whether changes to free allowances to oil and gas would directly raise gasoline prices; analysts clarified that overall cap stringency (the total number of allowances) drives allowance scarcity and prices while allocation determines who receives value but does not, by itself, change total allowance supply. Several senators and witnesses urged a narrowing of the collar to reduce price volatility; others cautioned that excessive statutory micromanagement could harm the regulator’s ability to do technical rulemaking.
Public power utilities and municipal utilities asked legislators to preserve existing treatment of allowances for publicly owned utilities, warning that changes could raise local electricity rates and hurt low‑income ratepayers. Business groups urged the legislature to prioritize cost containment and warned against removing flexibility that helps prevent leakage and maintain competitiveness.
Ending: The committee heard broad agreement that the legislature should act quickly to provide legal and policy direction to reduce market uncertainty, but members differed on whether to set price parameters in statute or leave technical specification to CARB rulemaking.
