Comment Log Display

California Air Resource Board staff:


On behalf of the University of California system (the University)
the following comments are provided in response to proposals
discussed at the May 17, 2010 cap-and-trade status update
workshop.

As the State of California’s premiere research institution, the
University applauds ARB’s plan to use allowance value to create the
California Carbon Trust to fund research, development, and
deployment projects for zero or low-greenhouse gas technologies.
Addressing global warming requires technological innovation at
scale and the University urges ARB to allocate allowance value
commensurate to this research challenge.

Based on current practices and ARB draft regulations, it appears
that five University of California campuses and one medical center
will be regulated under the proposed “narrow scope” cap-and-trade.
Beginning in 2012, the University anticipates that its annual
compliance costs will be between $6 million and $18 million,
assuming allowance prices in the range of $10 to $30. The
University supports the goals of AB 32 and will comply with all
regulatory obligations, but wishes to point out that absent
increased funding from the state, the costs of cap-and-trade
compliance will be born directly or indirectly by students,
faculty, and researchers, to the detriment of teaching and research
activities.

The University suggests that the negative impacts that
cap-and-trade compliance costs will have on teaching and research
at state-funded universities could be partially or wholly mitigated
if ARB were to allocate some allowance value to state-funded
universities for the express purpose of investing in carbon
reduction projects. Projects like energy efficiency retrofits and
renewable energy installations directly contribute to the State’s
environmental goals and also reduce campus operating costs,
allowing universities to redirect funds toward teaching and
research activities. Given public higher education’s importance to
the long term economic and cultural health of State, the University
feels that this proposal is worthy of ARB’s consideration.

As a large direct access customer, the University urges the Air
Resources Board (ARB) to allocate allowance value in a consistent
manner to all Load Serving Entities that are required to meet the
Renewable Energy Standard (RES), including utilities and Energy
Service Providers. Staff comments during the May 17 workshop lead
us to believe that this is ARB’s intention, but the University
would appreciate clarification on this point.

Lastly, the University supports limited allocation of allowance
value to merchant generators so that they can recover cap-and-trade
compliance costs that cannot be passed along to current customers
under the terms of preexisting power purchase agreements. Absent
some allocation of allowance value, it stands to reason that
regulated merchant generators will be forced to pass all
cap-and-trade compliance costs along to future customers. If this
happens, it will create an advantage for utility companies that can
spread compliance costs throughout their rate base and will
discourage new participants in the wholesale power market/direct
access. ARB policy should not undermine competition in California’s
electricity market, particularly at a time when environmentally
motivated entities are beginning to use Community Choice
Aggregation or similar strategies to enter wholesale power markets
in order to procure cost-competitive electricity portfolios.

Thank you for this opportunity to provide feedback.

Sincerely,

Nathan Brostrom
Executive Vice President, Business Operations
University of California