Comment Log Display

These written comments expand upon the concerns expressed by the
University of California (the University) at the CARB public
workshop meeting held at Cal EPA Headquarters in Sacramento,
December 14, 2009. 

In its AB32 Scoping Plan, CARB recognizes the importance of CHP as
an emission reduction strategy that will help California achieve
the goals codified in AB 32, and calls for the creation of 4,000 MW
of additional CHP generation. The University of California (the
University) embraces this finding and goal, but is concerned that
Cap and Trade may impact CHP operators in ways that create
disincentives to retain and develop CHP plants. 

The University believes that the simplest and fairest way to
incorporate CHP into Cap and Trade would be to create a stand-alone
CHP sector that is regulated separately from the conventional,
single-output electrical generation sector. The University operates
five CHP plants that would be subject to Cap and Trade regulation
as currently proposed. These plants are significantly more
efficient than conventional separate heat and power generation; for
example, UC Irvine’s CHP plant emits 22% less greenhouse gas than
procured grid power and natural gas-fired boiler operation.*  To
account for the efficiencies of CHP compared to separate heat and
power generation, the University also urges CARB to allocate
allowances to CHP operators based on separate heat and power double
benchmarks. These recommendations are consistent with those of the
Cogeneration Association of California (CAC) and the California
Cogeneration Council (CCC). Additional details on each of these
recommendations may be found in the CAC’s and CCC’s October 2009
written comments to CARB.** 

The University has reservations with the CPUC/CEC recommendation 
to bifurcate CHP’s electric and thermal production and regulate the
separate outputs in electrical generation and commercial/industrial
sectors, respectively.*** Under the CPUC/CEC recommendation, the
University is concerned that the net cost of operating CHP to meet
onsite electric and thermal loads will exceed the combined cost of
purchasing electricity from the grid and purchasing the natural gas
required to operate boilers to meet the thermal needs of a campus.
The University’s misgivings in this regard are compounded by the
lack of clear guidelines from CARB or from the CPUC/CEC on how the
thermal output of topping/combined cycle CHP plants will be handled
within Cap and Trade. 

The University seeks assurance from CARB that Cap and Trade will
not disincentivise the continuing operation of CHP plants, the
expansion of existing CHP plants, or the development of new plants.
More specifically, the University requests that CARB clarify how
the thermal output of topping/combined cycle CHP plants would be
treated if the CPUC/CEC Cap and Trade recommendations are adopted.
Additionally, if CARB decides to allocate allowances to retail
providers to offset rate increases, the University strongly
suggests that operators of CHP plants serving onsite electric and
thermal loads also receive allowances. Failure to do so will
increase the cost of operating a CHP plant, relative to purchasing
grid electricity and operating boilers, creating a powerful
disincentive to continue operating or expand existing CHP plants or
develop new CHP plants.

In addition, the University strongly discourages CARB from
allocating allowances to generators based on historical emissions
levels. This allocation method effectively rewards inefficient,
heavily polluting plants while penalizing emitters that have
previously invested in technologies, such as CHP and thermal energy
storage, that minimize pollution and maximize plant efficiency. 

Were allowances to be allocated based on historical emissions
levels, the University is also concerned that it will be penalized
for being an aggressive early actor on energy efficiency. Under Cap
and Trade, one of the primary emission abatement strategies for
operators of onsite CHP plants would be to implement demand-side
energy efficiency measures. Between 2009 and 2012, the University
will invest approximately $250M in energy efficiency projects,
substantially reducing its emissions before the onset of Cap and
Trade. If CARB elects to allocate allowances based on historical
emission levels, the University seeks clarification on how CARB
will account for voluntary early actions that reduce emissions.

The University also seeks clarification on how CARB plans to
accommodate new CHP plants within Cap and Trade. Absent other
subsidies or incentives, any new plants, including CHP, would be at
an obvious disadvantage if allowances were allocated to generators
based on historical emissions levels. Consistent with the goals of
the AB 32 Scoping Plan, the University urges the adoption of final
regulations that encourage development of new CHP.

The University strongly favors a three-year compliance period to
reduce costs and further recommends that CARB streamline its
proposed procedures for allowance surrender. In its draft Cap and
Trade guidelines, CARB proposed a multi-step allowance surrender
process consisting of an initial allowance surrender, data review,
reconciliation, and final surrender. Under this proposed system, by
December 31 of the third compliance year, a covered entity would be
required to make an initial allowance surrender based on: 

1)	That entity’s verified emissions for the first two years of the
compliance period, and 
2)	A percentage of the entity’s annual average emissions
calculated over the first two years of the compliance period.

Once the entity receives a positive verification for its third
compliance year, its initial allowance surrender would be compared
to its actual surrender obligation. If this comparison determines
that an entity has failed to surrender a sufficient number of valid
compliance instruments, then the entity must surrender the
outstanding balance within 30 days or face a penalty.

The University believes that this system is unnecessarily
cumbersome and that CARB would greatly reduce compliance difficulty
and costs if it simply required a covered entity to surrender
allowances after receiving positive verification for its third year
of emissions data. 

As a CHP plant operator and a large onsite emitter, the University
anticipates that it will face significant compliance costs under
the narrow scope of Cap and Trade. While it applauds the goals of
AB 32, the University depends on the State of California for its
operating budget and is concerned that without increased funding
from the state, there is a strong potential that the University’s 
only recourse will be to pass along the costs AB 32 compliance to
its students. The University urges CARB to consider the impact of
AB 32 compliance on state agencies, particularly institutions of
higher education, when determining how allowances and revenue from
allowance auctions are allocated.

*- Data supplied by UC Irvine 

**- CCC and CAC recommendations are posted here:
http://www.arb.ca.gov/lispub/comm2/bccommlog.php?listname=sept-9-chp-ws,
recommendations 11 and 15 respectively.  

***-See “Final Opinion and Recommendation on Greenhouse Gas
Regulatory Strategies,” CEC-100-2008-007-F, Title 6, pp. 220 - 230