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newsclips -- ADDENDUM to Newclips for June 28, 2010.
Posted: 28 Jun 2010 14:18:24
ADDENDUM to Newclips for June 28, 2010. California Offers Divisive Cost-Control Options For Cap-And-Trade Carbon Control News California officials are floating new proposals to minimize costs on companies and consumers under the state’s proposed greenhouse gas (GHG) cap-and-trade scheme, including a plan to expand the use of offsets that most environmentalists strongly oppose. State regulators may also allow companies to borrow future emission allowances to comply with current regulatory obligations -- another controversial measure that is likely to draw criticism in the weeks to come. How California designs its cap-and-trade program is being closely followed by numerous government officials and stakeholders, in part because the program could influence climate change proposals at the federal level and because it is expected to have economic and environmental impacts well beyond the state. During a June 22 public meeting, staff with the California Air Resources Board (CARB) floated new options it is considering to minimize costs when it launches its cap-and-trade program in 2012. CARB is expected to adopt the regulations this fall. Some of the key draft measures are: * Set a minimum auction price for allowances, in part to prevent collusion among purchasers, with unsold allowances being held in a special reserve holding account. * Relax the currently proposed limit of GHG offsets from 4 percent of total compliance obligation to 8 percent when a certain allowance price is reached. * Allow limited use of future “vintage” allowances intended for a following compliance period to be used to satisfy a current compliance period. * Release more allowances from the reserve under certain circumstances. Some of the problems associated with relaxing the offset limit include that additional offset supplies may not be available, and that projects may need assured future access to the market to be viable, according to a CARB presentation during the June 22 meeting. Expanding offsets will also lower the amount of GHGs that are reduced at facilities in California. Problems with allowing entities to use future vintage allowances to comply with current obligations include that direct emission reductions will be lagging behind the overall decline in the GHG cap; it results in fewer allowances available in the next period; and it could create a need for continuous borrowing -- at the end of 2020, some entities may have failed to reduce emissions fully, according to CARB staff. With regard to the proposal to establish an allowance reserve, CARB is considering an option to make the reserves available for direct purchase by entities at a “window,” which would require an allocation method when demand for the reserves exceeds the supply. This option could result in directly and freely allocating these reserves to covered entities. Researchers at Duke University’s Nicholas Institute for Environmental Policy Solutions who are helping CARB with its proposals said at the meeting that some of the options being floated by CARB staff are similar to provisions contained in the pending federal legislative proposal by Sens. John Kerry (D-MA) and Joseph Lieberman (I-CT), as well as the bill passed by the House last year by Reps. Henry Waxman (D-CA) and Edward Markey (D-MA). Proposed Price Floor Tim Profeta, director of the institute, said at the June 22 CARB staff meeting that the Waxman-Markey bill, for example, proposes a price floor of $10 a ton of carbon dioxide-equivalent. The Kerry-Lieberman proposal also creates a reserve and would expand allowance supplies if certain high prices are reached. At a certain level, the legislation would also create a discount-window approach that is similar to what CARB is considering, he said. Firms would be able to buy directly out of the reserve at a set price but each firm would be limited to buying no more than 15 percent of its compliance obligation, and these allowances could not be banked or re-sold immediately, according to the Kerry-Lieberman proposal. CARB staffers are considering directly allocating the reserve allowances to covered entities in situations that trigger the reserve in part because most entities will be receiving their base allowances freely at the start anyway, one CARB staffer said during the meeting. Utility representatives appeared to be fairly pleased with the direction CARB is heading in the proposed cap-and-trade program. Frank Harris, representing Southern California Edison, one of the state’s major investor-owned utilities, indicated support for the “window” reserve allowance allocation option, but questioned the 15 percent limit included in the federal legislation. The window option “provides some investor certainty and . . . is probably a little more straightforward than developing a price trigger and then creating a mechanism for the ability to access a reserve,” he said. Ray Williams, representing Pacific Gas & Electric, said “utilities have done some shared thinking and are reasonably well-aligned with what [Harris] has outlined,” adding that “we’re looking for a price collar mechanism that has environmental integrity and also provides price and supply assurance.” Norm Pedersen, an attorney representing the Southern California Public Power Authority, which represents municipal utilities including the mammoth Los Angeles Department of Water & Power, said the outfit is “thrilled with the direction staff is taking, and very encouraged with what we’re seeing.” However, Pedersen said CARB may not be adequately containing costs with its reserve proposals because there likely will still not be adequate allowances in the pot. He proposed that CARB consider expanding the number of overall allowances regulated entities receive from CARB based on changes in actual industrial and other GHG emissions that have resulted from the economic recession over the past two to three years. For example, CARB would establish a 2012 cap on emissions based on the best current forecasts of emissions, but then CARB could also establish a “pre-recession” forecast of 2012 emissions, which would be much higher. The difference between the two could then “populate” the allowance reserve, he suggested. Utilities, manufacturers and other industry representatives are supporting the CARB staff option to expand offset use under the California cap-and-trade program, with carbon offset providers and brokerage firms calling on staff to go much further by placing no limits on offset use. However, several environmental organizations are strongly opposing lifting the previously proposed 4 percent cap on the use of offsets to satisfy compliance obligations. Erin Rogers, representing the Union of Concerned Scientists (UCS), said at the June 22 meeting that expanding offset use threatens to increase GHGs and other pollution in disproportionately affected communities in California. She said this directly conflicts with provisions of AB 32, the state’s 2006 global warming solutions law that required the sweeping climate change regulatory program and the cap-and-trade scheme. Peter Miller, representing the Natural Resources Defense Council (NRDC), said the environmental organization does not prefer borrowing allowances from the future to satisfy current compliance obligations, in part because it fails to set an accurate carbon price signal and likely would increase pressure on regulators to relax caps in the future. Further, Miller suggested CARB staff consider lowering the offset limit when allowance prices are low, in addition to expanding it when prices are high. Will Barrett, representing the American Lung Association of California, said expanded offset use would forgo or eliminate pollution-reduction “co-benefits,” which is a key piece of AB 32. Alex Jackson, also representing NRDC, pointed out that cap-and-trade itself is a program aimed at lowering the costs of GHG regulation, indicating that allowing the expansion of offsets might be too generous on the regulated entities and could compromise certain aspects of the program. NRDC is also concerned about allowing borrowing of allowances from future compliance periods, he said. Questions remain over how the distinct provisions of California’s cap-and-trade program will link to the Western Climate Initiative (WCI), a proposed regional cap-and-trade program that includes California and several other states and Canadian provinces. That program is also expected to launch in 2012. For example, Dhaval Dagli, another representative of Southern California Edison, asked CARB staff at the meeting whether a California entity could purchase a GHG allowance from a linked program under a condition in which a price trigger has been reached, or whether the linked state would also have to be in a price-trigger condition. A CARB staffer responded generally that California does not want to link to a system that is “less rigorous” in terms of its cost-containment measures or offset project quality. Further, “we’re currently having those discussions within the WCI about the need for coordination between cost-containment mechanisms.”