Air Board Reviews Cap-and-Trade

By Published On: August 3, 2007

The California Air Resources Board received a key report July 27 that makes recommendations on how to set up a cap-and-trade program for greenhouse gas emissions under the state’s climate protection law, AB 32. The report by the Market Advisory Committee stirred discussion by the board, which is charged with devising rules to cut greenhouse gas emissions 25 percent by 2020. “I want to support cap-and-trade and I do,” said Air Board member Daniel Sperling. Yet, he said he believed that while it would work in the electricity sector, it might not work in other industries and “certainly” would not work in the transportation sector. Sperling raised this concern earlier as well (Circuit, April 13, 2007) New Air Board chair Mary Nichols cautioned that any cap-and-trade program must be structured to prevent “a run up” in the price of electricity in California. She said that coal dependent utilities like the Los Angeles Department of Water & Power could face disproportionate costs under a cap-and-trade system compared to hydropower dependent utilities in Northern California. “Everything you mention from the auction to the trading fills them with alarm,” said Nichols, who sat on the LADWP board of commissioners before moving to the Air Board. She said that in putting together its greenhouse gas control program, the Air Board must think about how to “disperse the costs more throughout the economy.” Air Board member Dorene D’Adamo suggested that allowing use of offsets under cap-and-trade may be helpful “to get at land use and energy efficiency in the residential and commercial sector.” Local air pollution control district representatives urged the Air Board to include stringent enforcement provisions in any cap-and-trade program. For instance, violations of emissions caps should be subject to both civil and criminal penalties not only when “intentional,” but also when due to negligence, urged Barbara Lee, Northern Sonoma County Air Pollution Control District air pollution control officer. She said that the Market Advisory Committee report treaded lightly on enforcement. South Coast Air Quality Management District counsel Barbara Baird also took issue with the report’s suggestion that a cap-and-trade program allow a three-year compliance period. Under this approach, companies would have three years to cover excess emissions with purchased credits or offsets. Instead, she urged a tighter one-year compliance period so that companies cannot get too “deep in the hole.” She also asked that companies be required to develop compliance plans outlining how they intend to reduce their greenhouse gases to stay under their emissions caps. The Air Board has until the beginning of 2009 to develop a comprehensive plan for carrying out AB 32 and until 2011 to develop detailed rules for implementing that plan. The Market Advisory Committee was formed by executive order to advise the Air Board on how to use market incentives to carry out the new law. It immediately became mired in controversy when it set its sights exclusively on how to create a cap-and-trade program (Circuit, Oct. 27, 2006). Such a system would place companies under an emission limit, or cap, which would decline year by year. Those that emitted less than their individual caps could sell their excess emissions rights to those that needed to emit more. As long as all emissions were covered by rights, also known as emissions credits, all companies would be deemed in compliance with the law. The committee also recommended that companies be able to offset their emissions in order to comply with emissions limits, for instance by planting trees that take carbon dioxide out of the atmosphere. Now that the committee has completed its report, it has disbanded, although its members said they would remain available to advise the Air Board to the extent needed.

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