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Comment 105 for Design Comments for the GHG Scoping Plan (sp-design-ws) - 1st Workshop.
First Name: Patrick
Last Name: Griffith
Email Address: pgriffith@lacsd.org
Affiliation: Los Angeles County Sanitation Districts
Subject: LACSD Comments on the AB 32 Program Design
Comment:
The following are our detailed comments on the Cap and Trade discussion in the Draft Scoping Plan and Appendicies, and other related topics: 1. Many stationary sources in California are already at BACT or BARCT levels and little room remains to do better. In SCAQMD’s 2007 AQMP, for example, Multiple Component Sources Control Measure MCS-01 will move most combustion sources in the South Coast Air Basin from BARCT to BACT during the 2010-2023 timeframe. Hence there will be very little opportunity for further in-plant emissions reductions given that BACT is the best that can be done. Most stationary sources therefore, very early into the Scoping Plan regulatory cycle, will be forced to rely heavily on offsets to meet declining caps under a cap-and-trade (C&T) program. The use of offsets will be critical to survive the early stages of a C&T environment. These offsets must not be arbitrarily limited either numerically or geographically. 2. Implementation should start slowly, akin to putting one’s big toe into a tub of hot water before jumping in, so as not to cause irreversible effects by a rush to action. No justification has been offered for the need to “quickly transition” (Page 18) from a system where the state provides some free allowances to a system where the majority of the allowances are auctioned in the trading market. This is especially true if an auction system is implemented. At the outset of a program this large and with such potential financial impacts, only a small amount of allocations should be auctioned initially and then gradually increased until the regulators and the regulated entities become acclimated, and the market matures. 3. Superposing C & T atop command and control rules for the same source categories could increase the overall program cost. Command and control strategies should be used as backstops, to be phased in only if C & T doesn’t achieve the required targets within a specific period of time. 4. Preliminary Recommendations, Part B, Section 1, Cap and Trade Program, Pages 15-20: Although the Draft discusses on how the cap and trade system would work, there is little discussion on the advantages the program would bring. We realize that ARB is under pressures to opt for a carbon tax instead or command and control regulation. To better support cap and trade, the ARB should expand its arguments beyond those mentioned briefly on p. 19 in the Scoping Plan text. These advantages include: o Causes less economic disruption than direct regulation or carbon taxes o Clear incentive for over-performance o Strong driver for technological innovation to achieve that over - compliance o Can stimulate emissions reductions in non-covered sectors o Achieve emissions certainty – ensures that the targets are met o Widely accepted o Guarantees that the covered sectors pay for their emissions o Still retains many regulatory aspects such as permits for emissions, verification and penalties for non-compliance ARB should also make mention of the success of the EU-ETS, specifically pointing out that emissions reductions from this program are expected to exceed 200 million metric tons of CO2 per year – equivalent to erasing ALL of California’s transportation emissions. Bear in mind that the EU program faced many structural hurdles including getting cooperation from over 20 countries with different cultures and languages. If the EU could overcome those obstacles to effect real and significant emissions reductions, there is no reason why California can’t do better. An effective cap and trade system is the only market mechanism considered that will encourage the technology development needed to take California past its 2020 goals and onto 2050. We ask that the state more clearly spell out the advantages of this program if only to better support its own efforts. 5. Page 18: Regardless of their status in the inventories resulting from the mandatory reporting rule, essential public services such as schools, hospitals, sanitation, LFG systems, police, fire, etc., should not be included in C&T programs. Taxpayers should not be indirect speculators in the marketplace and be held hostage to market whims. In the event that local governments own facilities that are captured under C&T, with the exception of municipal utilities, they should be given free allocations. This avoids unnecessary competition between government and the business community. Local governments, competing for allocations, only raise the cost of the allocations for everyone. 6. Page 19: The limit on offsets is without basis and counter-productive to the larger goal of emissions reduction. Certainly, at a minimum, there should be no limit on offsets generated within the WCI as these would most likely meet the most stringent standards of verifiability, additionality, etc. To place a cap on offsets will restrict innovation and place a further burden on all businesses in the WCI. 7. Preliminary Recommendations, Section C, Carbon Fees, Page 41: Carbon fees should target strictly anthropogenic emissions from fossil fuel combustion and exclude biogenic CO2 emissions from carbon-neutral fuels like landfill gas and sewage or manure based digester gas. This treatment recognizes that the carbon-neutral fuels add no new carbon to the atmosphere but rather complete the natural, short-term carbon cycle of atmosphere-plant-human and back to atmosphere. Moreover, proceeds of carbon fees should only be spent to further reduce GHGs. 8. Preliminary Recommendations, Section C-3, Compliance Offsets, Page 43: A lot of emissions reductions opportunities will be forgone if we have to wait for the rigorous protocols called for under the “Compliance Offsets” paragraph. Perhaps certain well-documented projects could get categorical or pre-approvals to fast-track emissions reductions. We ask that ARB find a way to expedite the approval of offset projects so that emissions reductions can occur now, when they are most needed. 9. Preliminary Recommendations, Section C-3, Voluntary Offsets, Page 45: ARB should do more than issue a supportive policy statement encouraging early reductions of GHG emissions. Such actions need recognition and protection against potential federal actions that might re-draw the baseline or not recognize state programs. Better support and protection would stimulate more voluntary reductions. 10. Preliminary Recommendations, Section C-4, Use of Possible Revenues, Page 47, Direct emission reductions: ARB should purchase CO2 reductions or allowances for the sole purpose of retirement only as a last resort. It is hard to justify taxpayer money for this purpose as long as the state continues to face mounting deficits and other critical needs are underfunded. Any excess monies should fund emissions reductions projects and technologies. 11. Page C-12: New facilities that begin operation in sectors included in a cap-and-trade program should NOT need to purchase allowances either through an auction or from other allowance holders. This is akin to South Coast’s RECLAIM “structural buyers” provision that, in our opinion, is fundamentally unfair to new entrants into the regulatory program. A permanent set aside or bank of allocations should be funded by CARB to allow new businesses to be covered in the same fashion as the original entrants to the program. Without such a provision, new business development is discouraged. Earlier versions of the Lieberman-Warner bill had such protective provisions. 12. Page C-12: It is unclear how the cap-and-trade program will cover 85% of California’s emission sources by 2020. Please provide a chart showing how sources will fall under C&T with time. The time-weighted average of emissions under the C&T program seems much less than 85%. 13. Page C-15: ARB may be adopting regulations to implement cap and trade well before the other members of the WCI have implemented inventory programs. The European experience in Phase I of their EU-ETS has shown how dangerous it is to implement cap and trade without having a reliable emissions estimate. We suggest that the cap and trade program be voluntary until the other parties in the WCI are ready to fully participate to minimize the potential for market disruptions. 14. Page C-17: The draft recommendation for the WCI calls for allowance auctions in the first year to constitute between 25 to 75 percent of the total cap. We feel that even the 25% number is too high and will cause significant economic hardship. We urge the ARB to consider carefully the economic duress that may be created if too high an auction percentage is chosen, or if free allowances are too rapidly phased out. 15. Page C-18: Exactly how will the auction process encourage voluntary early reductions by firms, municipalities and individual consumers? Free allowances should be distributed to entities that undertake early actions. More importantly (see our general comments) CARB must actively protect California early actions under a federal climate change program. 16. Page C-19: As we stated in our general comments, we do not understand how the ARB can say with certainty that allowing offsets outside of California would reduce co-benefits inside California. It is difficult to envision the type of projects that would be offered up as offsets, and therefore this conclusion seems speculative to us. Take for example, the application of biosolids-derived compost from California on agricultural land in Arizona. This project could generate offsets by reducing nitrous oxide emissions relative to the use of commercial fertilizer and increased carbon retention in the soil. Any co-benefits analysis would include too many variables (tillage and irrigations practices, crop choice, soil conditions, etc.) to say for certain that compost application in California is to be preferred over that in Arizona. ARB should not debit or otherwise discourage offsets outside of California unless the co-benefits are clear and overwhelming.
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Date and Time Comment Was Submitted: 2008-08-11 14:02:44
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