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Comment 10 for 2022 Climate Change Scoping Plan (scopingplan2022) - Non-Reg.

First NameKenneth
Last NameJohnson
SubjectCARB should encourage and support early action to reduce greenhouse gas emissions.

California's Cap-and-Trade regulations have not achieved the mandated "maximum technologically feasible and cost-effective greenhouse gas emissions reductions" in any meaningful sense, as evidenced, for example, by the 310 million unused allowances in circulation. Moreover, the regulations operate - by design - to undermine and neutralize complementary action toward achieving additional emissions reductions beyond CARB's minimal statutory requirements. The first problem probably cannot be resolved within the existing Cap-and-Trade regulatory framework, but the second problem could have a straightforward remedy via implementation of existing statutory mandates as outlined below.

The draft Scoping Plan encourages and relies upon complementary actions by local jurisdictions, communities, and individuals to achieve CARB's goals. Quoting from Chapter 5 (p. 228): "Only when we add up the impacts of the choices we make do we understand the true impact on GHG emissions. We can choose to drive a car, take a bus, bike, or walk. We can choose to install a heat pump or buy an electric cooktop. Together, we get to pick the future we want." But what exactly is the "true impact" of such choices?

California utilities offer Green Power options, which ratepayers purchase as a way of reducing their carbon footprint. These programs require "Green-e" certification from the Center for Resource Solutions []. The FAQ page on the Green-e website says "Purchasing renewables lowers the purchaser’s carbon footprint, but may not reduce global carbon emissions." This is a puzzling statement because reducing one's carbon footprint, by definition, means reducing the purchaser's contribution to global emissions. Why would switching from fossil fuel to renewable electricity not marginally reduce global emissions?

For California the answer is that CARB's Cap-and-Trade regulations disallow individuals from influencing statewide emissions from regulated sectors. Emissions from industries such as electric power are regulated by the supply of emission allowances, which is predetermined and controlled by CARB. Individual actions such as purchasing Green Power do not influence the supply of allowances or aggregate emissions in capped sectors. If an individual reduces their carbon emissions by purchasing Green Power, or by installing energy-efficient appliances or residential PV, driving an EV, etc., then the allowances that would otherwise have been used to cover that individual's emissions will instead be used to allow increased emissions elsewhere. Actions to reduce one's own emissions merely have the effect of subsidizing somebody else's increased emissions; they have zero net impact on statewide emissions. Cap-and-Trade gives a different meaning to "net zero".

This nullifying effect of Cap-and-Trade is not a "bug"; it is a "feature". That is how it is designed to work. As a policy instrument, Cap-and-Trade is not intended and does not operate to incentivize the "maximum technologically feasible and cost-effective greenhouse gas emissions reductions"; its priority objective is to achieve a predetermined emissions target at minimum cost. The benefits of unanticipated market opportunities, whether from economic conditions, technology advances, or local and individual climate actions, are channeled toward reducing compliance costs, not toward further reducing emissions.

Cap-and-Trade neutralizes the environmental benefit of all complementary emission-reduction actions in regulated sectors. For example, CARB's Greenhouse Gas Reduction Fund (GGRF), the repository of Cap-and-Trade auction revenue, is reported to have achieved 76 MMTCO2e cumulative carbon emissions reductions between 2015 and 2021. [] But to the extent that those reductions have been in capped sectors they have probably been substantially nullified by increased emissions elsewhere. Quoting from a 2017 report from the Legislative Analyst's Office ("Cap-and-Trade Revenues: Strategies to Promote Legislative Priorities"):
"Spending on Capped Sources Likely Has No Net Effect on Overall Emissions. ... As long as the cap is limiting emissions, subsidizing an emission reduction from one capped source will simply free–up allowances for other emitters to use. The end result is a change in the sources of emissions, but no change in the overall level of emissions."

A number of local jurisdictions in California, such as San Diego and Santa Clara counties, have initiated Climate Action Plans (CAPs) with ambitious decarbonization goals exceeding state mandates, e.g., net zero by 2035. The draft Scoping Plan says "California encourages local jurisdictions to take ambitious, coordinated climate action at the community scale; action that is consistent with, and supportive of, the state’s climate goals" (p. 218). These actions are generally intended and expected to help reduce statewide and global GHG emissions. But Cap-and-Trade operates to nullify the environmental benefit of such actions, as explained in a publication authored by the Chair of the Independent Emissions Market Advisory Committee (2017 RFF report by Burtraw et al., "Expanding the Toolkit: The Potential Role for an Emissions Containment Reserve in RGGI"). This explanation pertains to RGGI but is equally applicable to California:
p 4 "Additional actions may be taken by cities, states, companies, or individuals to reduce emissions associated with electricity consumption based not on the price of CO2 emissions but for other environmental reasons. These additional efforts lead to an economic benefit for all RGGI states in the form of lower allowance prices, but they do not yield additional emissions reduction benefits. We refer to this as the 'waterbed effect.' Reducing emissions in one place simply makes available allowances to emit CO2 in another place."
p 23-24 "Unless demand is so low that prices are at the auction reserve price, low demand and low prices are an economic benefit with no coincident environmental benefit. This result is a manifestation of what we call the 'waterbed effect.' An emissions reduction effort such as investment in energy efficiency undertaken by any entity in a RGGI state will simply make more allowances available to other RGGI entities and no additional emissions reduction is realized, at least until a potential cap adjustment as part of a subsequent program review. The waterbed effect undermines the incentive for environmentally motivated cities, states, companies, and individuals to take actions to reduce emissions associated with electricity consumption as any such actions may yield no climate benefit."

I encourage CARB and stakeholders to obtain more information about this "waterbed effect" and potential regulatory or legislative remedies from the state advisory bodies (IEMAC and LAO). The most straightforward remedy would probably be via implementation of HSC 38562(b)(1), which requires CARB to "Design the regulations, including distribution of emissions allowances where appropriate, in a manner that ... encourages early action to reduce greenhouse gas emissions." When entities such as local jurisdictions, communities, and individuals undertake actions directed toward achieving emission reductions beyond mandated state requirements (for purposes other than monetizing the resulting surplus emission allowances), it would be appropriate to allocate to those entities the surplus allowances resulting from such action. This can be effectively achieved by establishing some type of "early action allowance reserve" for holding surplus allowances that have been withheld from circulation. The allowance reserve will reasonably assure additionality of complementary climate actions in the context of Cap-and-Trade. Specifically:

- For Local/regional Climate Action Plans that achieve quantified emissions reductions in capped sectors beyond their pro-rata share of mandated statewide reductions, the resulting surplus allowances would be held in reserve as long as the CAP's GHG reduction goals are being achieved. The reserved allowances could be deducted from allowance accounts that would have otherwise covered the emissions in the absence of such action.

- For GGRF expenditures (California Climate Investments) that result in quantified emissions reductions in capped sectors, the resulting surplus allowances should be put in reserve. (Regardless of whether this reform is implemented, CARB should separately track and report GGRF-related emission reductions in capped and uncapped sectors, which it currently does not do.)

- For utilities' Green Power programs, customers' purchases of premium Green-e-certified renewable power should result in the associated surplus allowances being put into reserve. The integrity of the Cap-and-Trade emission reporting and regulatory apparatus would enable utilities and the Center for Resource Solutions to certify additionality for Green Power purchases in California.

- Individuals and organizations wishing to reduce their carbon footprint via offsets should be able to easily purchase allowances in small quantities and deposit them into the reserve. Again, Cap-and-Trade would provide a robust guarantee of additionality for such offsets.


Original File Name
Date and Time Comment Was Submitted 2022-05-18 15:55:19

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