With the Jan. 1, 2012, launch of California’s carbon cap-and-trade program stalled by a court ruling, the California Air Resources Board is developing an analysis of how to go forward using potential alternatives to a carbon trading scheme. “We are hopeful that we will hit our target start date,” said Air Board spokesperson Stanley Young. He noted that the agency still intends to go forward with cap-and-trade. Yet there is little doubt that the court’s ruling is pressuring policymakers to define a course of action that gives industry regulatory certainty in the year ahead. The Air Board faces growing complaints from industry due to mounting economic costs, a rise of alternatives to a cap-and-trade system, plus growing doubts that California can go it alone amid a shrinking pool of other state markets with which to potentially link. The mounting problems come as the Air Board also faces a changed landscape for making a cap-and-trade market the key path for carrying out the state’s climate change law. “There’s a huge amount of uncertainty,” observed Steven Kelly, Independent Energy Producers Association policy director. Since CARB adopted its cap-and-trade rules late last year, power companies have been purchasing emissions offsets and planning retrofits to comply with the program’s emissions cap. The delay is costing the industry money too, said Gary Ackerman, Western Power Trading Forum executive director. Ackerman said cap-and-trade is crucial to the power industry successfully reducing its emissions under AB 32. The Air Board’s halt in carrying out the basic underpinnings of a cap-and-trade system comes in response to a San Francisco Superior Court ruling May 20. It held the Air Board did not analyze adequate alternatives to a greenhouse gas trading system when it wrote its plan for carrying out the state’s greenhouse gas reduction law, AB 32. The Air Board quickly appealed the decision (Current, May 27, 2011). Some of the work halted on launching a market-based system includes how to run emissions rights auctions--which are central to the program--and how to handle companies that cannot immediately comply with their caps, noted Kelly. Now, doubts are growing about whether the Air Board ultimately will pursue implementing the program or shift course. “A lot has changed since the law was passed and the program was adopted,” said V. John White, Center for Energy Efficiency and Renewable Technology executive director. AB 32 was enacted in 2006 and the cap-and-trade program adopted late last year. Since then, White pointed out that the state’s efforts to cut greenhouse gases have become “more integrated” with air pollution control and clean energy policies, including the Brown administration’s ambitious 12,000 MW distributed generation goal. “The idea of another look could be a good thing,” he said. Under the Air Board’s greenhouse gas reduction plan, cap-and-trade is supposed to yield 15-20 percent of the reductions the state needs to roll back its greenhouse gas emissions to their 1990 levels by 2020, according to the Air Board’s Young. Eighty-percent of the reductions are earmarked for other measures, including tailpipe standards for cars, the state’s 33 percent renewable energy standard, energy efficiency in buildings, expanded cogeneration, a phase-out of coal power, a low carbon fuel standard, and direct regulations on industry. Among the alternatives to a greenhouse gas market system, according to Young, are a carbon tax and more direct regulations that specify exactly what industries need to do to lower carbon emissions. In contrast, a cap-and-trade market gives companies a broader choice of how to meet emission reduction requirements, including buying credits from those who have reduced more than required or purchasing offset credits stemming from projects that cut greenhouse gas levels in the atmosphere, such as reforestation. A coalition of businesses June 1 under the banner of the Clean Economy Network asked the state to press forward with a cap-and-trade market. The letter--signed by the San Francisco Chamber of Commerce, Silicon Valley Leadership Group, Tendril, and others--calls cap-and-trade key to increasing “the size of the market for California’s clean technology industry.” However, the state’s pursuit of a carbon emissions trading market has become more problematical since air regulators have always wanted to link California’s program with markets in other states. Doing so, they reasoned, would add liquidity to the market, creating the robust supply and demand for carbon credits needed to send a strong price signal that incentivizes emissions reductions. Since California developed its program, cap-and-trade is all but dead at the federal level. Other states are slowing their move toward carbon trading. For instance, only one other U.S. state in the Western Climate Initiative--New Mexico--is moving forward with cap-and-trade. In the Northeast, New Jersey’s governor just announced that the state plans to drop out of the Regional Greenhouse Gas Initiative trading market at the end of this year (see CLIMATE ROUNDUP). Two other states are discussing whether or not to continue in that program. The Air Board is tentatively scheduled to review the status of its cap-and-trade program in July. Speculation is growing that the agency may announce a delay and re-examine the program at that time.
