Air Board Waffles on Cap & Trade

By Published On: December 12, 2008

In sweeping greenhouse gas reduction plans for the state, the California Air Resources Board endorsed a carbon cap-and-trade program with western states December 11. If a market-based cap-and-trade doesn’t work, the agency may consider a carbon tax. The Air Board decision sets the state on a course toward greater energy efficiency and use of renewable energy. The plan--adopted under the state’s 2006 climate protection law, AB 32--calls for about a 30 percent cut in greenhouse gas emissions by 2020, much of it from the power industry. The Air Board pledged to carefully study the economic and public health impacts of greenhouse gas reduction measures before imposing them under the plan. It also left the door open to substituting a carbon tax for the cap-and-trade program. “If there’s anything that’s been learned through history, we’re going to need a price signal and that means either a carbon tax or cap-and-trade,” said Air Board member Daniel Sperling. “I’d like to suggest we keep the carbon tax on the table.” Air Board chair Mary Nichols did not rule a tax out, though she indicated that the Air Board would initially work toward developing a cap-and-trade program. While Air Board members acknowledged the plan will cost the state, they maintained it would produce net benefits in the long run. Nichols predicted that its emphasis on energy efficiency would save residents money over the long haul and that its requirement for more renewable energy would help break dependence on fossil fuel. She said the plan would create green jobs for hundreds of thousands of state residents. Under the plan, the state seeks to trim greenhouse gas emissions back to their 1990 level by 2020, or by about 174 million metric tons a year of carbon dioxide equivalent. The power industry would have to make greenhouse gas cuts under a carbon cap-and-trade program, although many of the program details remain fuzzy. The plan also zeros in on electric utilities and power generators to achieve 21.3 million metric tons of emissions reductions by meeting a 33 percent renewable portfolio standard by 2020. This seeks to require utilities to line up renewable energy sources for one-third of their power procurement. Current law only requires 20 percent of utilities’ power to be based on renewable energy. The Air Board plan would require utilities to help achieve another 26.3 million metric tons of emissions reductions through enhanced energy efficiency programs. The plan further seeks to cut emissions by 2.1 million tons under the state’s million solar roofs program and looks to utilities to supply an increasing amount of power to electrify cars, ships docked in port, and other vehicles to cut use of fossil fuel and attendant carbon emissions. A market-based carbon trading plan remains at the top of the state’s efforts to reduce greenhouse gas emissions. The Air Board pledged to set up a carbon trading market in conjunction with the Western Climate Initiative, which is composed of seven states and four Canadian provinces. Southern California municipal utilities voiced support for the AB 32 plan, particularly its strategy to create the broad western region emissions trading system. However, Southern California Public Power Authority attorney Norman Pedersen urged the Air Board to make sure that other western states put as much emphasis on direct regulations, such as energy efficiency requirements, as California. For instance, states that hand out inflated levels of emissions rights could enable their power plants to operate without cutting emissions while the owners sell their surplus rights to operators in states with tighter allocations. That market-based trading system could threaten declining greenhouse gas emissions, warn environmentalists. In response to environmental concerns, the Air Board committed this week to eventually use an auction mechanism for 100 percent of the emission rights granted under the planned carbon cap-and-trade program. The Board also agreed to find ways to mitigate any negative impacts of the plan on communities that suffer disproportionately high levels of air pollution. Some business groups endorsed the plan, but many urged caution in carrying it out. Amisha Patel, California Chamber of Commerce policy advocate, called for making the most cost-effective greenhouse gas cuts. The Air Board’s action fulfills a major milestone under AB 32, which called for the agency to develop a comprehensive road map for ratcheting down greenhouse gas emissions before the end of this year. Next, the Air Board plans to develop the strategies outlined in the plan into specific rules that it is to adopt and begin enforcing by 2012.

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