California carbon down 3 pct ahead of electricity meeting

* Trading down 63 percent from previous week
* Traders await insight on electricity import rules
SAN FRANCISCO May 3 (Reuters Point Carbon) - California carbon allowances (CCAs) for delivery in 2013 closed at $15.50/tonne on Thursday, down 50 cents from a week ago, as market players held back on trading ahead of a key regulatory meeting on Friday that they hope will give new market players more clarity about their obligation in the cap-and-trade scheme.

Just 30,000 CCAs changed hands on the IntercontinentalExchange (ICE) this week, a 63 percent drop from the previous week.

Sources said the market was quiet in the run up to the California Air Resources Board's (ARB) workshop in Sacramento that will focus on regulations pertaining to electricity importers.
Under California's "first deliverers" system, the first entity that sells power to the California grid, ranging from power producers to banks, has to hold allowances to cover the related greenhouse gas emissions.

California imports about a quarter of its electricity from out of state, which tends to come from more carbon-intensive sources like coal plants and accounts for about 50 percent of California power-sector emissions.

At this point, the CCA market moves more on regulatory developments than supply-and-demand fundamentals, so brokers and traders said they'll be watching the meeting carefully to see if it might entice new entities to engage with the market.

"The hearing could definitely have an impact on the market because a lot of market maker-type entities, like banks, own a lot of the PPAs (power purchase agreements) for out-of-state generation in California," one broker said Tuesday.

"So if they get a little more clarification from ARB on what they are liable for from a compliance standpoint, they may begin to translate that into market activity," he said.

RESOURCE SHUFFLING
The workshop will also examine the controversial issue of "resource shuffling."

Resource shuffling is when an out-of-state power producer sends more of its clean electricity generation to California to make it appear that it has reduced its emissions while keeping its dirty generation in state.

California has indicated that since it would not provide any environmental benefit, resource shuffling will be banned by the program.

But lawyers have said it's unclear whether the state has the legal authority to enforce the ban, since California is prevented from regulating economic activity taking place in other states.

In its regulations, ARB requires power producers to swear an oath that they will not engage in the practice.

OFFSETS
Carbon offset credits derived from projects that destroy ozone-depleting substances (ODS), which will count for compliance with the program, were offered at $8.50/t on Thursday, sources said.
"There's not a lot of bid-side interest. We've heard indications of $7.50-$7.75/t, but nothing is significantly materializing there," one broker said.

He added that interest in the market for Climate Action Reserve Climate Reserve Tonnes (CRTs) is fading as market participants await the introduction of official ARB-issued credits, which the air regulator has not yet started minting.

On Thursday ARB announced it would begin accepting applications for companies wanting to serve as offset registries, verifiers and early action programs. (rory.carroll@thomsonreuters.com; Editing by Bob Burgdorfer)