Comment Log Display

August 2, 2013

Dr. Steven Cliff
Chief, Climate Change Programs Evaluation Branch
California Air Resources Board

Re: Proposed Amendments to the California Cap-and-Trade Program 
(July 18, 2013 Discussion Draft)


Dear Dr. Cliff,

We write to raise serious concerns regarding the Board's proposed
amendments to the rules on resource shuffling in §§ 95802(a)(252)
and 95852(b)(2) of the July 18 discussion draft. Please find our
detailed comments in the attached Stanford Law School working
paper.

In brief, we believe that the proposal, if adopted, would violate
the Board's obligation under California Health & Safety Code §
38562(b)(8) to minimize leakage. As a number of studies have
recently shown, a strong rule on resource shuffling is required to
avoid substantial leakage in the electricity sector. Yet several of
the proposed safe harbor provisions are so broad that almost any
electricity sector transaction could be structured to fit within
them, effectively negating the prohibition on resource shuffling.

We are also specifically concerned with the exemptions for
out-of-state coal power contracts. The discussion draft proposal
unambiguously exempts divestment of these contracts from the ban on
resource shuffling, without a corresponding requirement that
underlying facilities retire or otherwise reduce their emissions.
Our calculations show that the associated leakage risks constitute
between 47% and 197% of the cumulative mitigation expected under
the cap-and-trade market through 2020, depending on the success of
complimentary policies and the use of the allowance price
containment reserve. Simply put, the potential for leakage at this
scale threatens to undermine the integrity of the carbon market,
and cannot be reconciled with the statutory requirement to minimize
leakage.

In addition to documenting our concerns in detail, we also provide
a fully developed alternative policy structure that implements a
new, market-based mechanism. Our proposal would greatly reduce the
potential for leakage related to resource shuffling while
permitting covered entities to engage in a range of transactions
that would have been impossible under the current regulations.

We urge the Board to consider the significant implications of a
weak rule on resource shuffling and modify its approach to fully
address the leakage concerns we identify. Thank you for your
consideration.

Respectfully,

Danny Cullenward and David Weiskopf