In 2011, Cap-and-Trade was established to set a declining cap on allowed GHG emissions.  The cap-and-trade plan is a central part of AB 32.  Under cap-and-trade, the largest carbon emitters, including refineries, power plants, industrial facilities, and transportation fuels, will be required to meet the caps or buy credits.

The program will be phased in.  From 2012 through 2014, major electricity generators, industrial facilities and suppliers of carbon dioxide for industry will be regulated.  From 2015 through 2017, fuel suppliers and distributors, including suppliers of natural gas, transportation fuels and liquefied petroleum gas, will be regulated.  The point of regulation for fuel deliverers has not yet been determined, but will be based on emissions upon combustion.

Each year, CARB will determine the total cap on GHG emissions from all covered sources.  That number is then divided into “allowances”. The cap, and corresponding allowances, is reduced each year sufficient to reach a 15% reduction of GHGs by 2020.

This complex program is summarized well by Jessica A. Johnson on the cleantechlawblog.