Impact of SB 605 on the California Carbon Market

SB 605 as revised July 3rd, 2013 would restrict offset projects in the AB 32 cap-and-trade regulation to projects based in California. Such a restriction would cut available offset supply by 70 to 90 percent compared to current projections, worsening the expected shortage of credits available for use in the California carbon market, and escalating credit and allowance prices.

While offset protocols for U.S. projects approved and under consideration are forecasted to meet between 30 and 70 percent of total demand, supply from California-based projects would likely meet no more than 6 to 16 percent of cumulative demand for credits through 2020. The offset shortage makes it very likely (over 60 percent chance) that prices would reach the highest tier of the APCR in 2020, $82 a ton.

Yet higher prices in the carbon market are unlikely to incentivize a significant number of new offset projects in California due to institutional, regulatory and technical hurdles.

Download the full report Market Impact of SB 605.