No On-Time State Cap-&-Trade Decision

By Published On: May 23, 2008

State regulators are unlikely to resolve whether to institute a cap-and-trade system to cut greenhouse gas emissions from the power sector and other major industries any time soon, Mary Nichols, the chair of the California Air Resources Board told lawmakers in Sacramento May 21. While some clear statement of California’s path has been widely expected in a draft plan due next month for implementing the state’s climate change law, AB 32, Nichols said the Air Board instead only intends to outline options for further analysis. Even the final plan–due to be adopted in November–is unlikely to define in much detail any state plan for a cap-and-trade program, she told the state Senate Energy, Utilities, and Communications Committee at an oversight hearing on AB 32. Instead, the Air Board intends to outline a number of core regulatory measures in the upcoming plan. The board expects they should be enough to achieve 60 percent of the greenhouse gas cuts the law mandates by 2020. These measures include plugging in ships to shore-side electric power while they are docked at the state’s major ports instead of burning diesel, stepped-up energy efficiency requirements for utilities beyond current mandates, and a renewable portfolio standard that exceeds the current requirement of 20 percent. Nichols said that the precise levels of extra efficiency and renewable energy are yet to be decided. The Air Board still is examining how to achieve the other 40 percent of the emissions reductions, with the options of direct regulations, cap-and-trade, and a carbon tax still on the table. “My positive feelings toward cap-and-trade seem to fluctuate,” said Senator Christine Kehoe (D-San Diego), who chairs the panel. “Right now I feel there’s more certainty in regulation.” The San Diego Democrat questioned whether cap-and-trade would bring the emission reductions needed under the law or even wind up saving money if it does so. Nichols maintained that the Air Board has not eliminated cap-and-trade from consideration because it has the potential to unlock innovation that would lower the cost of cutting greenhouse gases. Yet, she noted that trying to start a state-based carbon market with “very few players in it” is fraught with some peril. It could open the market to manipulation and damage the state’s economy, she said. “That is something we’re not going to do,” she said, adding that any move toward a state carbon market may be overtaken by the multi-state Western Climate Initiative or passage of federal climate change legislation. Nichols did not discount either the carbon fee or cap-and-trade option entirely. Instead, she said she thought the state potentially could develop a cap-and-trade program that links with other emerging markets and a potential national market should federal climate change legislation pass. It could be combined with a state auction of emissions rights, though Nichols said the Legislature probably would have to become involved in the details of how the sale of the rights is structured and the proceeds are spent.

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