CA Economy-Wide Carbon Ceiling Urged

By Published On: March 7, 2008

Independent power producers and a number of environmental organizations urged the California Air Resources Board to impose a carbon ceiling on all significant greenhouse gas emitters. The Air Board held a workshop on issues related to a possible cap-and-trade market February 29. In addition to which California-based industries should be covered by a carbon ceiling, also at issue is the role a carbon cap-and-trade program may play in helping achieve emission reductions under the Air Board’s rules to carry out the state climate protection law, AB 32. Other issues debated at the workshop included: -How much of utility emissions will be saleable commodities under a carbon cap-and-trade market. -What percentage of the sector’s greenhouse gases will be subject to reduction regulations. A broad-based cap “increases liquidity and efficiencies,” said David Branchcomb, consultant for Independent Energy Producers. Joined by the Union of Concerned Scientists and others, he asked that regulators cover not only power plants and other stationary sources, but also the transportation sector. Transportation is the largest source of greenhouse gases in California, representing about 40 percent of total emissions. The utility industry is the second largest source of global warming gases. However, Air Board climate change program evaluation supervisor Kevin Kennedy warned of the complexity and administrative costs involved in including large numbers of stationary polluting sources and millions of vehicles. “We can’t ignore the cost to the economy,” he said. Kennedy added that emission reductions will focus on sectors where they are doable and affordable. “More may be asked from some sectors and less from others,” he said. Also the subject of much disagreement was the role a carbon market should play under AB 32, if any. Some, including large corporations, traders and large environmental organizations, want a carbon trading market to play a significant role in a mix of market and regulatory reduction strategies. James Fine, Environmental Defense economist, compared AB 32 and its emissions reduction targets to a bicycle, with cap-and-trade acting like the “oil on the chain.” Others, in particular the Los Angeles Department of Water & Power and a number of Southern California public power agencies that receive coal-fired electricity, object to being subjected to a cap-and-trade market. They insist they will be burdened with high costs due to being forced to buy carbon emission reductions to offset the polluting coal power emissions. The Air Board is responsible for implementing AB 32 and is expected to release a draft of the law’s regulatory ground rules next month. Under the board’s scoping document, there will be an overall cap on state emissions that will be lowered annually to reach 1990 emission levels by 2020. There will also be caps set on the electricity industry and other industrial sectors. The Air Board is expected to adopt much of what the California Public Utilities Commission recommends for curbing emissions from the utility sector. In a proposed ruling, the CPUC and California Energy Commission called for creating a cap-and-trade market for the electricity sector as soon as possible. The agencies also recommended that responsibility for curbing greenhouse gas emissions fall on power plants, known as the “first deliverer” plan (formerly referred to as the “first seller”) or first entity that delivers power to the grid. A number of munis object because unlike private utilities they did not divest their generating units under the state’s deregulation law enacted in the 1996. Leilani Johnson, LADWP environmental supervisor, said the department supports regional strategies in place of a state cap-and-trade program. In addition to the Air Board’s plan to enforce California’s greenhouse gas reductions, there is a Western states move to seek reductions under what is known as the Western Climate Initiative. The Air Board’s Kennedy stressed the agency is working with the Western Climate Initiative to ensure that the state and regional climate strategies complement and not clash. The Western Initiative released its draft recommendation for curbing emissions from the utility sector this week, recommending that the emissions reduction responsibility lie with the generators in the western states. The proposed joint CPUC-CEC ruling, expected to be adopted by both commissions next week, also recommends that many of the carbon reductions be achieved by stringent energy efficiency and renewable mandates. However, the cost involved in their proposal is unacceptable to many Southern California munis. Norman Pederson, Southern California Pubic Power Agencies attorney, claimed that agencies in the Southland would be saddled with up to $1 billion in added costs. Another major concern for a number of public power agencies and non-utility power providers is whether the Air Board will sanction cross-sector trading under a carbon market system. They fear that trading firms, like Morgan Stanley, and other speculators will be powerful players that would focus solely on economic gain, leaving grid reliability in the cold. “It almost gets to be a free for all,” warned Pederson. Kennedy replied that the issue had more to do with how the Air Board decides to allocate carbon emissions under a market system. Whether emission rights will be given away for free or auctioned, or distributed by a mix of the two, has yet to be decided. Editors’ note: For a more detailed version of this story, please see our sister publication E=MC2 – Energy Meets Climate Challenge. You can find it at www.energymeetsclimate.com

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