CARB’s Greenhouse Gas Options Assume Auctions

By Published On: February 8, 2008

Initial California Air Resources Board policy options for carrying out the state’s climate change law focus on regulating power generators, not utilities that distribute power, said Air Board regulators February 6. The options also assume that the right to emit greenhouse gases will be auctioned rather than allocated free of charge. Air Board regulators outlined five “policy scenarios” they plan to analyze with economic models to determine the impact of California’s attempt to reduce greenhouse gas emissions through its climate change law, AB 32, on energy prices, economic output, jobs, and other key aspects of the state’s economy. They said that more options might be subsequently analyzed. “There are very different approaches CARB could take to implementing AB 32,” said Kevin Kennedy, Air Board chief of climate change program evaluation. They range from relying solely on prescriptive regulations to implementing a cap-and-trade program for the state’s whole economy, he explained. Under a cap-and-trade program, emissions levels are placed under a limit that declines each year until the goal of the law is met. Companies that stay under their limit can sell their excess emission rights to those that go over their limit. However, companies that exceed their limit must purchase enough credits to cover excess emissions or be found in violation of the law. Utility representatives reacted to the Air Board’s scenarios skeptically. “There’s something that’s a little troubling,” said Jim Lazar, Burbank Water & Power economist. He said the scenarios make it look like the Air Board plans to push generators and other large stationary industries to emit even less greenhouse gases than they emitted in 1990, while treading lightly on other sectors. Instead, he recommended that the Air Board seek to achieve “a constant of proportional reduction across the sectors.” Otherwise, he said, the law could create disproportional impacts. Bud Beebe, Sacramento Municipal Utility District regulatory affairs manager, asked that the Air Board analyze a scenario that assumes a higher level of renewable energy penetration than 20 percent. He also recommended that the Air Board analyze the economic impacts of a load-based cap, which would hold utilities responsible for cutting emissions rather than power plant operators. Kennedy responded that he could not commit to doing so in the initial modeling work. However, he noted that the California Public Utilities Commission and Energy Commission are due to release their recommendations on how to regulate the power industry any day. The Air Board plans to consider their recommendations as it devises a plan to carry out AB 32. Editors’ note: For a more detailed version of this story, please see our sister publication E=MC2 – Energy Meets Climate Challenge – energymeetsclimate.com.

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