Friday, December 17, 2010

California Adopts Cap-And-Trade Regulation To Drive Green Jobs

Dec 16: The California Air Resources Board (CARB), following a 10-hour meeting voted 9-1 to approve a cap-and-trade regulation, marking a significant milestone toward reducing California's greenhouse gas emissions under its AB 32 law. CARB's cap-and-trade regulation, along with several complementary measures which they say will drive the development of green jobs and set the state on track to a clean energy future. The regulation is a key measure to achieve the greenhouse gas reduction goals of AB 32, California's pioneering climate change law signed by Governor Schwarzenegger in 2006.

    CARB Chairman Mary Nichols said, "This program is the capstone of our climate policy, and will accelerate California's progress toward a clean energy economy. It rewards efficiency and provides companies with the greatest flexibility to find innovative solutions that drive green jobs, clean our environment, increase our energy security and ensure that California stands ready to compete in the booming global market for clean and renewable energy."
    The regulation sets a Statewide limit on the emissions from sources responsible for 80 percent of California's greenhouse gas emissions and establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy.  The program is designed to provide covered entities the flexibility to seek out and implement the lowest-cost options to reduce emissions. The cap-and-trade program also works in concert with other measures, such as standards for cleaner vehicles, low-carbon fuels, renewable electricity and energy efficiency, and complements and supports California's existing efforts to reduce smog-forming and toxic air pollutants.

    According to a release from CARB, "The cap-and-trade program and the other measures to reduce greenhouse gases provide a model for action that can be used at the Federal, state and regional levels. As climate policies are being addressed worldwide, California's early actions are positioning its economy to reap the benefits on the world stage and are catalyzing action throughout the country and the world." Nichols added, "The cap-and-trade program provides California with the opportunity to fill the growing global demand for the projects, patents and products needed to move away from fossil fuels and to cleaner energy sources."

    The regulation will cover 360 businesses representing 600 facilities and is divided into two broad phases: an initial phase beginning in 2012 that will include all major industrial sources along with utilities; and, a second phase that starts in 2015 and brings in distributors of transportation fuels, natural gas and other fuels.

    Companies are not given a specific limit on their greenhouse gas emissions but "must supply a sufficient number of allowances" (each covering the equivalent of one ton of carbon dioxide) to cover their annual emissions. Each year, the total number of allowances issued in the State drops, requiring companies to find the most cost-effective and efficient approaches to reducing their emissions. By the end of the program in 2020 there will be a 15 percent reduction in greenhouse gas emissions compared to today, reaching the same level of emissions as the state experienced in 1990, as required under AB 32.
    To ensure a gradual transition, CARB will provide significant free allowances to all industrial sources during the initial period (2012-2014). Companies that need additional allowances to cover their emissions can purchase them at regular quarterly auctions CARB will conduct, or buy them on the market. Electric utilities will also be given allowances and they will be required to sell those allowances and dedicate the revenue generated for the benefit of their ratepayers and to help achieve AB 32 goals. 

    Also, eight percent of a company's emissions can be covered using credits from "compliance-grade offset projects," promoting the development of beneficial environmental projects in the forestry and agriculture sectors. Included in the regulation are four protocols, or systems of rules, covering carbon accounting rules for offset credits in forestry management, urban forestry, dairy methane digesters, and the destruction of existing banks of ozone-depleting substances in the U.S. (mostly in the form of refrigerants in older refrigeration and air-conditioning equipment).

    There are also provisions to develop international offset programs that could include the preservation of international forests.  A Memorandum of Understanding has already been signed with Chiapas, Mexico, and Acre, Brazil, at the Governor's Global Climate Summit 3 to establish these offset programs. The regulation is designed so that California may link up with programs in other states or provinces within the Western Climate Initiative, including New Mexico, British Columbia, Ontario and Quebec. Efforts are also underway to link the WCI with other regional climate programs, such as the Midwest Greenhouse Gas Reduction Accord and the Regional Greenhouse Gas Initiative which covers the power generation emissions of 10 northeastern states. 
    Governor Schwarzenegger said in a presentation thanking the CARB Board, ". . .one thing we know for sure is that AB 32 was challenged, you know, by outside oil companies and by industries, coal mines and different companies that challenged it, put millions of dollars behind it in the last election. And Proposition 23, which was meant to take out AB 32, was defeated overwhelmingly -- not by 5 percent, not by 10 percent but by 22 percent. So that just shows to you -- a huge majority of Californians are big believers in AB 32. And they are big believers not just because of the global climate change because, let's be honest, not everyone believes in that. There are some people that believe in it and some people don't. . .  I know today, even though we are 10 years away from 2020 but I know today that we will have a reduction of 25 percent of greenhouse gases by the year 2020, only because I have such an excellent team here. . ."
    Kristin Eberhard, Legal Director of Natural Resources Defense Council's (NRDC's) Western Energy and Climate Projects issued a statement saying, "The adoption of this unprecedented carbon market to reduce pollution is a key milestone that will enable California to forge ahead with a clean energy economy. The Air Board today responded to the strong message delivered by California voters on November 2nd when they voted for a clean energy economy by resoundingly rejecting Proposition 23, the largest public referendum in history on climate and clean energy policy. The Air Board's action demonstrates that California continues to lead in pioneering smart, clean energy policies that make sense for the environment, public health and our economy. This is an economically sound program that will send a steady market signal driving innovation in clean energy, reducing pollution and mitigating oil price shocks while creating jobs and promoting economic growth."
    Fred Krupp, president of Environmental Defense Fund (EDF) said, "California is turbo charging its already fast-growing clean energy economy by creating incentives and a market for pollution reducing technologies. The state is leading a new industrial revolution that will give U.S. companies an edge over foreign competitors in a global market opportunity valued at $2.3 trillion." Derek Walker, director of the California Climate Initiative at EDF said, "The next great economy will be in energy technology, presenting huge opportunities for investments, manufacturing and jobs. California is leading America's charge to fight climate change by capping pollution and starting a domestic clean tech revolution that'll help us more effectively compete against China, India and Europe."
    In a statement on December 10, prior to the hearing the California Manufacturers & Technology Association (CMTA) said, "There are still many unknowns with the proposal. CMTA has long-advocated for implementing AB 32 in a way that allows California to reach the GHG reduction emission goals while at the same time maintaining the competitiveness of the state. Unfortunately, because of missing information and unfinished regulation, it is nearly impossible for regulated industries to estimate the potential costs and other impacts of the cap-and-trade regulation on their operations. In the proposal, free allocation of allowances for all industrial sectors is allowed for the first compliance period but not for the second and third. CMTA has asked that the free allowances, up to the output-based benchmark for each sector, be applied to all periods up to 2020. We believe that AB 32 does not authorize CARB to raise revenue for purposes unrelated to administration of the program. In addition, imposing a broader auction in the second and third periods will only increase leakage (companies moving out of the state) by imposing higher costs on industry."

    Access a release from CARB (click here). Access extensive information and staff presentations from the CARB meeting (click here). Access the CARB Cap-and-Trade website (click here). Access a statement from Governor Schwarzenegger (click here). Access the statement from NRDC (click here). Access a blog post from NRDC with more information (click here). Access a statement and link to more information from EDF (click here). Access a statement from CMTA and link to more information on CMTA's concerns (click here).