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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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