Economic and Allocation Advisory Committee (EAAC) established to advise CARB regarding cap and trade program
Already sporting a Climate Action Team, Environmental Justice Advisory Committee, Economic and Technology Advancement Advisory Committee, and Market Advisory Committee, on May 22 the California Air Resources Board (CARB) established another committee known as the Economic and Allocation Advisory Committee (EAAC). The EAAC was established to advise CARB regarding the implementation of the California Global Warming Solutions Act of 2006 (AB 32) and the cap and trade system to be implemented to reduce California’s greenhouse gas emissions. Per AB 32, the cap and trade program is to be developed by January 1, 2011 and implemented in beginning of 2012.
EAAC Purpose and Coordination with Others
The purpose of EAAC includes: 1) evaluating allowance allocation strategies involving free allocation, auction, or a combination of both; 2) advising CARB regarding the costs and benefits to various options involving the distribution of cap and trade allowances/auction revenue; 3) providing CARB revisions to its economic analysis; and 4) preparing a report with its findings by end of 2009.
At its first meeting on July 1, the EAAC and various stakeholders, discussed allocation approaches and including those being considered by the U.S. federal government, Regional Greenhouse Gas Initiative States (RGGI), Western Climate Initiative (WCI) and European Union. A review of the materials from the first meeting clearly indicates the EAAC is very aware that the nature of the allocations and revenue distribution will dramatically influence the program’s success and cost effectiveness.
Furthermore, because of the somewhat unique electricity market in California, which requires significant generation from outside the state, California must ensure that its cap and trade program does not lower emissions in California only to increase them elsewhere (a.k.a. leakage). Per the CARB, December 2008 Climate Change Scoping Plan the EAAC will develop a California cap-and trade program that links with the WCI to create a regional market system. The WCI has formed a Cap Setting and Allowance Distribution Committee (CSAD), and released its recommended design and regional cap and trade program in September 2008. The WCI anticipates that its preliminary budget and cap for its partners (states including California and Canadian Provinces) will be published in first quarter of 2010.
In addition to the linkage with WCI, the federal government is proposing that holders of allowances from California, WCI, and GGI before December 31, 2011 be allowed to exchange them for federal allowances under the program to be develop by the federal government. American Clean Energy and Security Act of 2009 (H.R. 2454), Section 790: Exchange for State-Issued Allowances.
CARB Funding, EAAC Coordination/Efforts, and Economy
CARB estimates that approximately $36 million per year will be needed on an ongoing basis to fund implementation of the cap and trade program. CARB is currently developing fee regulation and expects to take a regulation to the Board in mid-2009 with the aim of collecting fees in 2009/2010 year. That said, the budget, schedules, and EAAC efforts and coordination are likely to be impacted due to the recent July 1, 2009 Executive Order, S-13-09, calling for furlough for CARB employees of 3 days per month starting July 10, 2009 and ending June 25, 2010. The furloughs are due to the “unprecedented” California state budget deficit. California may look to the federal government and others (WCI/RGGI) to take the laboring oar on cap and trade while it tries to reconcile its budget.
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