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.
WCI to close public comment on mandatory GHG reporting policy June 4
The Western Climate Initiative (WCI) will close the public comment period on its “Final Draft Essential Requirements of Mandatory Reporting for the WCI this Thursday, June 4. The Final Draft and Response to Stakeholder Comments, made available together on May 8, 2009, describe both WCI’s responses to prior public comment (regarding its January 2009 greenhouse gas reporting requirements) and the changes it made in response to those comments.
Although the report informs the public of changes WCI considered in response to public comment, recommended changes to key policy details were largely rejected. For instance, “many commenters” expressed concern that the reporting and verification thresholds (e.g., 25,000 metric tons of CO2e for the cap and trade program; 10,000 metric tons of CO2e for mandatory emissions reporting) were too low and that third-party verification of emissions reports was unnecessary.
With regard to the threshold comments, WCI responded:
The choice of the cap-and-trade program threshold was made after analysis of estimated facility-level emissions and was designed to ensure capture of 85-90% of WCI Partner jurisdiction emissions. Raising this threshold to 50,000 or 100,000 metric tons … would incentivize “leakage” of emissions to smaller facilities within an industry. The reporting threshold was set at a lower level to allow monitoring of uncapped sources for “leakage”, to allow WCI Partner jurisdictions to check for avoidance of the cap by facilities underestimating their emissions . . .. WCI expects that many of the facilities . . . in the 10,000 to 25,000 metric tons of CO2e emissions range will have only simple combustion sources [for which] emissions quantification … will be fairly simple.
In response to the verification comments, WCI stated that it “still firmly believes that third party verification is necessary” and that after “examining the experience of other GHG programs, WCI has found that third party verification is a cornerstone of national and international GHG reporting protocols.” WCI also rejected calls for reporter exemptions for CO2 emissions from biomass combustion. However, WCI did agree to relax the blanket requirement for a full verification if a reporter engaged a new verifier merely due to a change in verifier personnel.
House committee releases draft cap-and-trade legislation, challenging state and regional initiatives
On October 7, 2008, John D. Dingell (D-MI), Chairman of the House Committee on Energy and Commerce, and Rick Boucher (D-VA), Chairman of the Subcommittee on Energy and Air Quality, released a discussion draft of legislation establishing a cap-and-trade system designed to cap greenhouse gas emissions. In a memorandum to members of the Committee on Energy and Commerce, Representatives Dingell and Boucher observed:
Since January 2007, the debate over climate change has evolved dramatically, beginning with groundbreaking reports released by the International Panel on Climate Change, which affirmatively settled the question of whether human activity is contributing to global warming. In addition, in the absence of Federal action, some 24 states and several regional organizations have moved towards regulation of greenhouse gases. While the States should be lauded for their progressive stance in addressing the problem, their actions, if not properly coordinated and directed and accompanied by Federal action, could be disruptive to interstate commerce and counterproductive to the goal of limiting national greenhouse gas emissions. (Emphasis added.)
Among other things, the draft legislation proposes limits on state and regional emissions-control programs. For example,
- Section 403(c)(1) would provide the Federal Energy Regulatory Commission with
exclusive jurisdiction over accounts, agreements, and transactions involving a regulated instrument [defined to include emission allowances, offset credits and allowance derivatives], whether inside or outside the United States, that are not subject to the jurisdiction of the Securities and Exchange Commission.
- Section 733(b) would limit the ability of states to implement their own emissions caps:
[N]o State, local, or regional authority may adopt or enforce a program that caps the amount of greenhouse gases that may be emitted or sold, and that uses tradable emission allowances for the purpose of meeting that cap.
- One of two proffered options for Section 816(b) preempts state motor vehicle standards:
(b) [OPTION B] PREEMPTION OF STATE STANDARDS FOR MOTOR VEHICLES.— Notwithstanding sections 177 and 209(b) of this Act, or any other provision of law, no State or any political subdivision thereof shall adopt or attempt to enforce any standard relating to the control of greenhouse gas emissions from new motor vehicles or new motor vehicle engines for which greenhouse gas standards have been established under title II of this Act or for which corporate average fuel efficiency standards have been established under chapter 329 of title 49 of the United States Code. No State shall require certification, inspection, or any other approval relating to the control of greenhouse gas emissions from any new motor vehicle or new motor vehicle engine as condition precedent to the initial retail sale, titling (if any), or registration of such motor vehicle, motor vehicle engine or equipment.
The legislation was not warmly received in all quarters. Fred Krupp, president of the Environmental Defense Fund, cautioned that
[t]he unbending science demands that we reduce global warming pollution far enough — and fast enough — to protect us from the worst consequences of climate change. The near-term targets and timetables in the current draft of the proposal fall far short of that goal.
The potentially preclusive effect of the legislation on existing and prospective state and regional initiatives — among them the Regional Greenhouse Gas Initiative ("RGGI") and the Western Climate Initiative ("WCI") — remains to be seen. Meanwhile, existing initiatives continue to move forward:
- The WCI (a collaboration of seven U.S. states, including California, and four Canadian provinces) released its “Design Recommendations for the WCI Regional Cap-and-Trade Program” on September 23, 2008, followed by the September 30, 2008 release of its "Essential Requirements of Mandatory Reporting for the Western Climate Initiative, Second Draft."
- The week before the House cap-and-trade draft was released, six states participating in the RGGI announced that allowances for the right to emit carbon dioxide from power plants in the northeastern U.S. sold for $3.07 per allowance in the first U.S. greenhouse gas auction. The $38,575,783 in proceeds from the September 25, 2008 auction, operated by World Energy Solutions, Inc., will be distributed to Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont, the six RGGI states that participated in the auction. (The RGGI also includes Delaware, New Jersey, New Hampshire and New York.)
- On October 14, 2008, all ten states of the RGGI initiated the bidding process for the next RGGI allowance auction, set for December 17, 2008.
- The California Air Resources Board ("CARB") released its final draft of a plan designed to reduce emissions to 1990 levels. The “Climate Change Proposed Scoping Plan”, issued on October 15, 2008, includes plans to "develop a cap-and-trade program for California that will link with the programs in the other WCI Partner jurisdictions to create a regional cap-and-trade program."
The release of the draft House bill highlights a looming legislative (and probably judicial) jurisdictional battle over cap-and-trade and other emissions-control programs.
Schwarzenegger proposes climate policy summit to counter federal inaction
Saying he was "tired of waiting for Washington to act," this week California Governor Schwarzenegger announced plans to organize a "climate policy summit" to be held next month and he plans to invite the Governors of all 50 states, as well as leaders of regional and local states and provinces from Canada, China, India, and other countries. Governor Schwarzenegger plans to use the summit to get state leaders to agree on a plan for the reduction of greenhouse gas emissions, which no doubt is intended to put pressure on the next administration to incorporate these regional initiatives into a federal plan of action. The summit is scheduled for November 18 and 19 in Los Angeles.
There is significant momentum going into this summit of state and community leaders who are pressing forward with local and regional-based climate-related initiatives. In the same week as Governor Schwarzenegger announced that he would host the summit, the Regional Greenhouse Gas Initiative (RGGI) – a consortium of 10 Northeastern and Mid-Atlantic states – held its first auction of emission trading allowances for utilities, and the Western Climate Initiative (WCI) – which includes seven Western states and four Canadian provinces – announced a greenhouse gas cap and trade plan.
CARB announces draft plan for implementation of AB 32
In September 2006, California enacted the first major state initiative for reducing climate change or greenhouse gas (GHG) emissions. Commonly referred to as Assembly Bill 32 ("AB 32"), California's Global Warming Solutions Act sets a goal of reducing GHG emissions to 1990 levels by 2020 – a reduction of about 25 percent – followed by a reduction of 80% below 1990 levels by 2050. On June 26, 2008, the California Air Resources Board (CARB) issued a "Climate Change Draft Scoping Plan," which details the concrete measures that it proposes to not only reach AB 32’s GHG emissions reduction goals, but also to drive innovation, support an emerging "cleantech" sector of the state's economy and create new jobs.
Workshops are planned throughout the state to present details to the public and for CARB to take public comments. The Board is expected to adopt the plan in November 2008, subject to public comments. Public comment will be critical because the measures and policies outlined in the plan will not only guide the implementing regulations, but will form the basis for significant enforcement action against companies who do not meet these aggressive standards.
Among many others, key elements of the plan are:
- A cap and trade program covering 85 percent of the state's emissions. This program will be developed in conjunction with the Western Climate Initiative, composed of seven states and three Canadian provinces, to create a regional carbon market.
- A proposal that utilities produce a third of their energy from renewable sources such as wind, solar and geothermal.
- Implementation of the California Clean Car law to provide a wide range of lower emitting and more efficient cars and trucks.
- Strong enforcement mechanisms.
Those seeking additional information and commentary on AB 32 and the draft plan may wish to review ClimateConnect’s “AB 32 101” page.
