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Comment 44 for Cap & Trade Public Meeting (may-17-allocation-ws) - 1st Workshop.


First Name: James
Last Name: Fine
Email Address: ombcomm@arb.ca.gov
Affiliation: EDF

Subject: Comments on AB32 Cap-and-trade Allocation Proposal
Comment:
Dear Mr. Kennedy,

Thank you for providing the opportunity to comment on the initial
allocation proposal (“staff proposal”) for the cap-and-trade
program to be implemented under the Global Warming Solutions Act of
2006 (Assembly Bill 32).  Environmental Defense Fund (EDF)
considers the proposal to be a positive step forward for this
cornerstone piece of California’s long-range clean energy plan.  
EDF supports a program design that minimizes economic leakage,
promotes job growth, reduces waste, caps air pollution, and spurs
investments inspired by long-term thinking that is inclusive of the
social costs of global warming pollution. 

EDF agrees with staff that administrative allocation of allowances
can be implemented in ways that inspire innovation and investment
by regulated entities while providing these same firms with the
means and clear regulatory guidance to protect consumers.  CARB is
justified in emphasizing leakage minimization, clean energy and
efficiency investments, as well as community investments that help
transition California’s economy. 

There is an unavoidable relationship between the stringency of the
cap, allowance prices, and various other cost containment
mechanisms.  EDF is concerned that Phase I and II caps may be set
at levels that do not drive genuine emissions reductions --
manifested in very low equilibrium allowance prices.  The preferred
outcome in such a case would be to tighten the targets.  However,
EDF agrees with consideration of a price floor as an alternative
mechanism to maintain a price signal to producers and consumers. 

EDF supports the staff proposal for a reserve pool, recognizing
many important cost containment functions that it can be used to
perform.  We agree with the principle of augmenting the fund with
high-quality offsets.  Of course, the market for allowances ought
to be sufficiently unconstrained to send clear price signals to
producers and consumers, and should generate impetus for
investments in low-carbon technologies.  It would be helpful for
staff to provide clarity on what is meant by “unexpectedly high
prices,” and to offer more details about how the reserve pool will
be structured and used.

EDF does not support the idea of a price valve for reasons we have
detailed extensively in prior letters and public testimony.  Other
cost containment strategies, including banking, multi-year
compliance periods, and offsets are more appropriate instruments as
they ensure environmental integrity (the primary goal of the AB32).
  Short term allowance price management will be facilitated by the
reserve pool, furthering obviating the need for a price valve.

EDF strongly supports inclusion of a community benefits fund, and
shares the concerns of many stakeholders that the staff proposed
allocation scheme creates little assurance that available funds for
community benefits and to mitigate co-pollutant impacts will be
sufficient.  Similarly, while EDF is pleased that the staff
proposal includes dividends to the people of California, we are
concerned about time delays since staff envision providing these
dividends in the “later years” of the program.  What will low
income communities do to manage price increases in the interim?  
One way to increase funds for community benefits and mitigations is
to place these on the same priority tier as price volatility
management, leakage prevention and transition assistance for the
uses of allowance value.   Nowhere in AB32 does the law indicate
that leakage prevention is a superior goal to other program
priorities. 

EDF is pleased that staff propose an output based allocation
scheme with a performance benchmark to calculate allowance
allocations.   EDF observes that less or no leakage assistance
would be needed if regional, national or international policy
levels the playing field, a reality that ought to be reflected in
the equation proposed by staff.

In our view, an appropriate balance between assisting commercial
interests and funding direct investments in community benefits,
such as a community benefits fund, will involve two specific
modifications to the staff proposal.

1.       Put community benefit funds in the superior tier for
allocating allowance value, and provide more specificity about how
sufficient funds will be generated

2.       Eliminate plans for a price valve; while the reserve pool
can be used to maintain a price floor, it may not be financially
viable to maintain a price ceiling using allowance reserves. 
Raising the cap is not an acceptable option for limiting allowance
prices because it undermines the programs’ environmental goals. 
Cost containment measures should be carefully designed to permit
allowance price signals to become stronger over time. 

Moving forward in advance of completed analysis is necessary to
keep the program development on track.  However, EDF is concerned
about the transparency of the leakage risk categorization
methodology and is not confident that robust data will be available
in a timely manner to provide analytical support for categorizing
sectors.  It will be hard for EDF to support a final staff proposal
if we do not clearly and completely understand its analytical
justification.

Thank you for requesting our input and for considering these
comments.

Sincerely,


James Fine
Environmental Defense Fund

 

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Date and Time Comment Was Submitted: 2010-06-08 14:29:58



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