A proposed carbon cap-and-trade program is likely to raise electricity producer profits by $700 million a year, the Division of Ratepayer Advocates told the California Air Resources Board in August 1 correspondence. “While a cap-and-trade program may be ‘en vogue’ in environmental policy” wrote Dana Appling, division director, “it should not be adopted without careful consideration against alternatives and cost protections.” The division said that electric ratepayers would pay for the increased profits “regardless of the allowance allocation methodology” used for providing the right to emit greenhouse gases under the cap-and-trade system. Emissions rights, for instance, could be given away by the state for free, auctioned off, or distributed through some combination of the two approaches. To get around the problem of higher electricity costs, the division recommended that the state broaden the number of sectors covered by the cap-and-trade program to encompass the whole economy. In the Air Board’s draft plan for carrying out the state’s climate protection law, AB 32, the cap-and-trade program would cover just the power sector and some large industries. If the program cannot be broadened, the division suggested the state defer its implementation past the targeted start date of 2012 and consider other alternatives, including a carbon fee. Amplifying on the written comments, division electricity planning and policy branch supervisor Dave Ashuckian told Circuit that it would be producers of clean energy that would collect that $700 million windfall under a cap-and-trade system. Since dirty power producers would have to buy credits to operate, they would have to raise their power prices to cover the added cost. This would allow wind and other clean energy producers to increase their prices too, reaping the increase as pure profit. The estimate is based on a $30 per ton price for carbon emissions allowances under a cap-and-trade system. The higher the price of carbon, the greater the potential windfall for clean energy producers, he said. In light of the problem, the division is recommending that the Air Board rank order all greenhouse gas emissions reduction measures and pursue the least cost options first. Many of the measures outlined in the Air Board’s plan for the power sector are high priced, he said, yet many low cost options for cutting emissions may exist in other sectors of the economy that the Air Board has yet quantify. “The electricity sector is just so regulated it’s easy to pile on more regulation,” he said. However, he added that in the power sector “we’re not after the low hanging fruit anymore.”
