cap and trade


It’s (Sort of) Official: Cap & Trade Is (Almost) Here

After a ten-hour hearing in which board members endured more than 170 speakers, the California Air Resources Board (CARB) voted to “endorse” a 200-page set of rules for what will be the world’s second largest cap & trade program (after Europe).

CARB is charged with implementing the 2006 Global Warming Solutions Act, or AB 32, which mandates that California reduce its greenhouse gas emissions to 1990 levels by 2020.  The cap & trade program is a key piece of the Air Board’s plans.

“It’s an exciting program,” said Board chair Mary Nichols. “It’s a very big step forward.”

Not that the job is done. Several facets of the regulation will now undergo a fine-tuning process, with another report back to the board in July of next year. Eventually it will find its way to the state’s Office of Administrative Law for review, and finally to the governor’s office, to be signed as an executive order. Continue reading

Lonely Road for Cap and Trade

California is the lab rat in the cap & trade maze

(Photo: Craig Miller)

One day after the midterm congressional elections, President Obama was already talking about cap & trade in the past tense: “Cap & trade was just one way of skinning the cat. It’s not the only way,” the President told reporters. “It was a means, not an end. And I’m gonna be looking for other means to address this problem. Senator Joe Lieberman put it more bluntly. “Cap and trade is off the table,” Lieberman said. “We have to start on the presumption that the table is clean, that nothing is on it.”

But while Washington is “looking for other means” to reduce the carbon emissions that cause global warming, the table is set for cap & trade in California. By day’s end Thursday, the state will likely have the nation’s first system that covers more than electric utilities. Continue reading

Regions Make Their Own Climate Stand

In the absence of an international agreement, states and provinces commit to work together to fight climate change.

Gov. Schwarzenegger making closing remarks at the Governors' Global Climate Summit (Photo: Gretchen Weber)

Governor Arnold Schwarzenegger’s third and final Governors’ Global Climate Summit wrapped up Tuesday with the launch of a new international coalition aimed at developing projects that cut carbon emissions around the globe. R20, or “Regions of Climate Action” is the culmination of Governor Schwarzenegger’s efforts to spur “subnational” action to address climate change.

“We can’t afford to wait for national and international movement,” he said in a press release announcing R20. “Action is needed now.” Continue reading

Climate Action May Be Up to the States

Just a couple of weeks back, some stalwarts still held out hope for a federal climate bill this summer. But with the capitulation by congressional leaders on Thursday, this week the legislative landscape looks undeniably bleak. And with flagging expectations for multinational climate talks, the heat is now turned up once again on the so-called “sub-national” actors, like states and provinces. It also lends more gravitas to efforts like Governor Schwarzenegger’s announced third climate summit for sub-national leaders, scheduled for November at UC Davis. Continue reading

California Slogs Toward Cap-and-Trade

Dispatch from the bureaucratic trenches:

A cloud settles over the state capitol. Photo: Craig Miller

Clouds linger over California's cap-and-trade future. Photo: Craig Miller

The notion may be losing momentum in Washington but in Sacramento, California’s Air Resources Board continues the trudge toward a carbon trading program mandated under the state’s 2006 climate law, AB 32. This week its staff held the latest in a series of public meetings to discuss “program development” and “allowance allocation.” The topic may be a certified snore for most people but the CalEPA auditorium in Sacramento was nearly packed with representatives from utilities, environmental groups, public health advocates and an assortment of other interested parties, many with diametrically opposed views of how carbon allowances should be meted out for trading.

One of them was Chris Busch of the Center for Resource Solutions, who gave voice to a contingent disillusioned with what they read as momentum toward giving away allowances to industry. Busch coined what was probably the phrase of the day, accusing the Air Board of some “creative re-framing” of how carbon allowances might be distributed. Environmentalists have been pushing for something close to a “100% auction” of permits, while many business interests are hoping to get them free of charge, at least in the early stages of the program.

To many in the room, the update from the Air Board staff appeared to indicate a drift toward free permits. The Board’s Kevin Kennedy stressed that the staff had never come out officially for a 100% auction and said they’re “taking a close look” at how best to distribute them. His colleague, Matt Zaragoza put it more bluntly, saying “We’re strongly considering the need for free allocations.”

Regarding the state’s plan to join in a regional carbon market with several other states and some Canadian provinces known as the Western Climate Initiative, Kennedy insisted that “reports of it’s death have been greatly exaggerated.” But when pressed on how many US states are actually prepared to move forward, he confirmed that only New Mexico is in lockstep with California. Arizona’s governor recently signed an executive order pulling that state out of the proposed regional carbon market.

Here in the Golden State, industry is still angling for anything it can get to keep emissions fees to a minimum. Some complain that valid considerations are being left out of the plan.

“A lot of us are producing products today that are very focused on energy savings.,” said Phil Newell, who heads energy and environmental affairs for Guardian Industries, a maker of “low-E” glass products which promote energy efficiency. Newell says that a system of traded carbon permits and offsets should account for the energy savings achieved by his company’s products. “Every time we use a unit of energy in producing a coated product, we’re reducing 500 units of pollution elsewhere,” Newell claimed in a hallway interview. “We need some recognition of that.” Newell said that without that recognition, the high cost of carbon allowances might force his company to shut down manufacturing in California. Guardian operates a plate glass manufacturing plant near Fresno.

The Air Board’s staff says it is pushing for a “design document” describing a plausible allowance system by mid-summer.

Another Whack at a Federal Climate Bill

87767226The latest version of a federal climate bill sets a series of national targets for greenhouse gas emissions and would halt California’s plans for state and regional carbon trading.

Unveiled by Senators John Kerry and Joe Lieberman today, the American Power Act aims to push GHG emissions down to slightly below 2005 levels by 2013, then sets a longer-term reduction timetable of 83% (of 2005 levels) by 2020, 58% by 2030, 17% by 2050 (or to flip it around, an 83% reduction from 2005 levels by 2050), in line with the promise that President Obama made following the “Copenhagen Accord.”

The 987-page bill regulates seven greenhouse gases, with room for the Environmental Protection Agency to add others under the Clean Air Act. The cap-and-trade provisions focus on “7,500 factories and power plants,” which is to say those that put out more than 25,000 metric tons of carbon per year. That’s the same benchmark used by the federal EPA in its proposed regulations.

Like previous drafts, this one nullifies state and regional carbon regulation, setting up “one clear set of rules” for industry and providing “compensation for the revenues lost as a result of the termination of their cap-and-trade programs,” such as California’s AB 32, and regional efforts, such as the Western Climate Initiative. California’s Legislative Analyst has estimated that the state has committed about $120 million so far, to the implementation of its 2006 climate law. California regulators have already weighed in on the concept of “federal preemption,” warning against leaving the job of carbon reduction to the federal government alone. The Kerry-Lieberman bill requires “consultation” with states that currently have their own emissions plans.

Significantly, the first several sections of the Senate bill address development of energy sources. The reduction goals for greenhouse gas emissions aren’t even spelled out completely until page 265. Energy provisions that may come to bear on California policy include:


– All farms appear to be exempt from cap & trade but benefit from offset programs

Oil Industry:

– According to a summary of the bill from Kerry’s office: “Producers and importers of refined products” will get a fixed price for their carbon allowances.

– Offshore drilling is included as part of the energy strategy but states can prohibit leasing within 75 miles of the coast

Nuclear Power:

– Provides several incentives, including an “expedited procedure for issuing combined construction & operating licenses for qualified new nuclear reactors.”

– Increases loan guarantees to $54 billion

Missing from the bill is a comprehensive national strategy for storage of spent nuclear fuel, an unresolved issue that prevents California utilities from any expansion of nuclear power.

Governor Schwarzenegger issued a statement that barely acknowledged federal preemption, saying only that “California has been an unparalleled leader in clean energy, pioneering policies that have benefited the entire nation, and we must be able to continue our important, groundbreaking work that will both improve the environment and help our economy.”

Some environmentalists have already responded with raspberries. In a statement based on draft summaries of the bill, the group Friends of the Earth called it “dangerous,” claiming that the bill would “scrap crucial tools for solving the climate crisis” and provide “billions in giveaways to corporate polluters.” In a statement from the Environmental Defense Fund, on the other hand, its western regional vice president said that the bill’s announcement “marks real progress in the fight against climate change.”

Andrea Seabrook reported on the bill’s rollout and prospects for NPR’s All Things Considered.

Rallying Against Carbon Trading

Rachel Cohen

Protesters at a carbon conference in San Francisco. Photo: Rachel Cohen

Businesses wary of a cap-and-trade system for carbon regulation are finding some unlikely allies these days. Outside a carbon policy conference in San Francisco today, the concept was assailed by members of the “environmental justice” movement.

About sixty protesters  targeted an event called Navigating the American Carbon World, an event that brought together representatives from government and  industry, including firms interested in facilitating emerging carbon markets.

“Inside there are thousands of people trying to make big money off-carbon trading,” said rally organizer Brianna Morgan of Rising Tide North America, as demonstrators outside sang songs, led chants, and performed political street theater. “We believe that carbon trading and carbon offsets let corporations off the hook from making real changes to the way they do business,” said Morgan.

Morgan and her fellow protesters were part of Mobilization for Climate Justice West, a network of 15 to 20 community-based groups.

Meanwhile conference attendees inside the Marriott hotel discussed climate change policy topics including carbon trading, a major component of the California climate law passed in 2006, known as AB 32.

The European Community is already using a carbon trading system, in which industrial emitters are allocated “carbon credits” corresponding to a specific quantity of global warming pollution. If facilities emit more CO2 than they have credits, they can buy additional credits in a regulated carbon market. But carbon markets have been slow to get off the ground elsewhere, including the US. California’s cap-and-trade system, scheduled to take effect in 2012, has encountered resistance from business groups and conservative candidates for Governor.

The San Francisco protesters said they object, in part, to carbon offsets, which allow emitters to meet regulatory requirements by funding activities elsewhere in the world, such as re-forestation, the exact impact of which on net carbon emissions may be elusive. Meanwhile, local emissions are allowed to continue.

“We believe that this is rewarding people for doing exactly what they always do,” Morgan said.

She added that carbon emissions coincide with other types of pollution that have public health consequences at home, such as increased rates of asthma near oil refineries and major ports.

Committee: No Free Lunch for Carbon Emitters

California’s cap-and-trade program took another baby step toward fruition on Monday, with the release of the state-appointed Economic and Allocation Advisory Committee’s final report on implementing carbon regulation.

Stopping just short of recommending a 100% auction of emission credits, the report, which is non-binding and was written to help the California Air Resources Board develop an economically sound cap-and-trade program, advises the state to sell off the majority of its carbon permits to emitters — with a few exceptions. Industries that “rely heavily” on carbon-based energy or compete directly with firms that do not face carbon regulation, the report says, should be “provided with assistance” or given funds earned from the auction.

The report pointedly advises against handing out free permits to utilities. Although the state’s utilities will almost certainly pass increased costs onto customers, the committee predicts that the price spike will provide an incentive for Californians to start saving energy. The committee’s press release says the report takes a “household friendly” approach to cap-and-trade, recommending that at least 75% of the proceeds from selling carbon permits be returned to households through either tax cuts or direct financial transfers.

Even before the report was released on Monday, the looming possibility of a carbon permit auction was causing anxiety in industrial circles. The AB-32 Implementation Group, an organization that aims to protect California business interests, claimed last week that if the price of carbon is set to $60 per ton, “large employers could be subject to an ‘Auction Tax’ of up to $143 billion by 2020.” Environmental groups have been urging the Air Board to auction off all the carbon permits initially offered.

In a written statement, Governor Arnold Schwarzenegger responded to the committee’s report, saying “the best program will be one that returns value to the people through tax cuts, rebates or dividends, and I applaud the Committee for recognizing those options.”

Here’s a quick run down of the rest of the report’s key recommendations:

Protect Low Income Households

The report recommends returning some of the auction’s profits to low income households, since such households tend to spend a greater percentage of their income on energy.

Invest in a Low Carbon Economy

The committee recommends that the state create an independent Investment Advisory Board to help make it reach its low carbon targets.

Simple Auctions

The state’s carbon permit auctions should simple and allow the public to sell permits in the auctions along with the state.

State Senators Hear Cap-and-Trade Caveats

Craig Miller

Photo: Craig Miller

The dark underbelly of cap-and-trade was somewhat exposed in a four-hour hearing today before the Senate’s Select Committee on Climate Change and AB-32 Implementation. AB-32, of course, is shorthand for California’s Global Warming Solutions Act of 2006, which mandates a carbon trading program be in place by 2012.

Here’s my “highlights reel” from the panel of experts who testified, in order of appearance:

Mary Nichols, Chair, California Air Resources Board

– On carbon pricing: “There is no approach that does not involve administrative costs & headaches” but cap-and-trade “seems like a pretty good mix” of certainty provided by an enforced cap and market flexibility (versus an outright carbon tax of some sort).

– On California going “solo” with carbon trading (i.e. without the other states and provinces currently signed to the Western Carbon Initiative): The larger the territory, the more potential for “bad actors” but the greater the potential for meaningful savings & benefits to the economy.

Michael Wara, Stanford Law Professor

– On carbon offsets: “…difficult to administer;” to ensure real reductions, changes in behavior, has proven to be “a significant and ongoing challenge, in practice.”

– California appears to be “opting for prudent limits” on allowable offsets, at an anticipated 4%, versus more than 30% in the Waxman-Markey bill that has cleared the US House of Representatives.

– “Very few [offset] programs have been run without controversy.”

Ken Alex, California Attorney General’s Office

– On enforcement: “Every system has cheaters, especially where billions of dollars are involved.”

– Cap-and-trade provides “a permanent incentive for cheaters.” Unassailable data is essential for regulators.

– Regulators “must have sufficient authority” to assess meaningful penalties. Alex, who was involved in sorting out the state’s energy crisis of 2000-2001, recalled that “million-dollar penalties were irrelevant.”

Dallas Butraw, Economist, Resources for the Future

– Warned against a “phone book-sized” regulation.

– Cost of carbon emissions permits will be passed along to consumers but could be offset by tax breaks or a dividend system similar to what oil & gas companies pay to residents of Alaska.

David Harrison, Economist, NERA Economic Consulting

– On lessons from Europe: Despite a rocky start for the EU’s “pilot” program, the system for carbon trading in 27 countries has “evolved over time” to become “very successful.”

– The EU experience “really does show that cap & trade works. Emissions have been reduced.”

– There is “no silver bullet” for determining allocations; that in Europe has been a “messy” and “contentious” process.

– In spite of it all, the EU experience demonstrates that cap-and-trade is “not perfect but it really is better than the alternatives,” and provides a good laboratory for California.

The committee, chaired by Fran Pavley (D-L.A.), also heard from several business and environmental groups. At one point a speaker from the Natural Resources Defense Council (NRDC) argued briefly with a utility representative about whether electric rates are actually higher or lower in California, compared to the nation as a whole (apparent compromise: rates may be higher but average bills are lower).

Utilities complained that the system, as proposed, forces power companies to bear the brunt of the burden. Business interests warned that unbridled implementation of AB-32 “could add to an already alarming increase in job losses,” claimed that the state has no authority to hold carbon permit auctions under AB-32, and asked for initial permits to be given away to industry. Environmentalists asked for the opposite, urging that 100% of initial permits be auctioned off, i.e. that emitters be made to pay for them.

Numerous speakers expressed nervousness over validity of carbon offset programs. Regarding the various schemes for carbon storage in forests or soil, Assemblyman Jared Huffman (D-San Rafael) said “This one makes my head hurt.” There’ll be a lot of Excedrin passed around before this is through.

Sketchy First Look at California Cap & Trade

On Tuesday the California Air Resources Board put out a sneak preview of the carbon cap & trade system mandated by the Global Warming Solutions Act of 2006 (AB 32). Couched as a “preliminary draft,” the 132-page plan is intended as a broad outline for a final Cap-and-Trade regulation scheduled to go before the board late next year.

As such, the draft lacks a few key components, such as how many allowances the state plans to auction off to industry, versus give away. Air Board chief Mary Nichols says her agency is still waiting on recommendations from an expert committee on how to best handle allowances.

Environmentalists have been pushing for polluters to pay for allowances up front. In an email to me on Tuesday, in anticipation of the draft, Bernadette del Chiaro of Environment California wrote that her group is “slightly disappointed that ARB staff are punting on the issue of auctions. ARB in the scoping plan said they are committed to getting to 100% auctions. I hope the draft rules at least repeat this commitment.”

The draft appears to stop short of an outright commitment, reiterating that “transition to a 100 percent auction was a worthwhile goal.” In a conference call with reporters, Nichols said she anticipates at least a partial auction. Also undetermined is how to deploy the funds that emitters may pay for allowances. Nichols said a $10 per ton price for carbon could produce a two-to-four-billion-dollar pool of money, which could be used for such things as “buying down” utility costs for low-income families or creating incentives for development of renewable energy technology. Nichols declined to project what a cap & trade system would end up costing households in California.

You can download a PDF file of the complete report at the CARB website (under “What’s New). A public meeting is scheduled for December 14 in Sacramento, to get feedback on the Preliminary Draft Regulation released this week.

Also on Tuesday, the Governor’s Office announced that Quebec, one of California’s partners in the Western Climate Initiative for regional carbon trading, has set a target “to reduce its greenhouse gas emissions 20 percent below 1990 levels by 2020 and the introduction of a clean-car emissions standard equivalent to California’s Vehicle Tailpipe Emissions Standards.”

The WCI includes seven western states and four Canadian provinces. Any progress from the state’s WCI partners is welcome at this point, as most have been reluctant to set their intentions into law.

Check out our interactive map of California’s largest industrial emitters of greenhouse gases.