Image source does not exist News Release: 2010-01-12 Panel Recommends Auctioning, “Household Friendly” Approach to Carbon Regulation

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ARB PIO: (916) 322-2990

Stanley Young
BreAnda Northcutt
(916) 324-9670

Panel Recommends Auctioning, “Household Friendly” Approach to Carbon Regulation

EAAC Recommendations Depart from Existing European, Proposed Federal Cap-and-Trade Designs

SACRAMENTO - Today, the 16-member Economic and Allocation Advisory Committee (EAAC) adopted their report of recommendations to California officials on a range of economic issues related to the possible design of a cap-and-trade system to reduce greenhouse gas emissions.

Today’s report includes key recommendations to help inform the development of a cap-and-trade program by the California Air Resources Board pursuant to the Global Warming Solutions Act of 2006 (AB 32). The Committee embraces auctioning, as opposed to free allocation, as the principal vehicle for putting valuable emissions allowances in private hands. In addition, it calls for giving households a large majority of the allowance value (auction proceeds). These are significant departures from most federal proposals, as well as the existing Emissions Trading System employed by the European Union.

“The issue of allocation strategy is one of the most important elements of a cap-and-trade program. I am encouraged that this diverse group of experts, with a broad range of perspectives, was able to reach consensus. I am hopeful that the analysis in this report will be useful to the California Air Resources Board as well as decision makers at the regional and national levels,” said Larry Goulder, Chair of the EAAC and Shuzo Nishihara Professor in Environmental and Resource Economics at Stanford University.

“California policymakers have made a cap-and-trade program an integral part of its strategy to implement AB 32. The Committee’s objective is that the recommendations contained in this report will assist the Air Resources Board in developing a cap-and-trade program that is both effective and fair,” said Rick Frank, Vice Chair of the EAAC and Executive Director of the Center for Law, Energy & the Environment at the University of California, Berkeley School of Law.

The EAAC recommends a “household friendly” approach to carbon regulation by suggesting that the majority of allowance value derived from California’s cap-and-trade program be returned to households. The Committee, which was split on the mechanics of providing allowance value to households, suggested two different options in their report. Allowance value could be provided either in the form of tax cuts or avoided tax increases, or in the form of a lump-sum payment directly to households.

Particular attention is recommended for low-income and disadvantaged communities to ensure they are not disproportionately affected by the program. Remaining allowance value is recommended to be used to ensure a level playing field for California’s workers and industries and for public purposes that will also benefit consumers, including energy efficiency programs, research on clean technologies, climate change adaptation measures, and environmental remediation.

Cal/EPA and ARB asked the Committee to look at the allocation of emission allowances and the various options for distributing allowance value. It employed four criteria from AB 32 in developing the recommendations: fairness, cost-effectiveness, environmental effectiveness and simplicity.

The recommendations from the Committee will be considered for possible inclusion in the draft regulation for California’s greenhouse gas cap-and-trade program, due out this spring. A cap-and-trade program is part of a broad based, multi-sector approach to reducing greenhouse gas emissions outlined in the AB 32 Scoping Plan, adopted by the ARB in December 2008. The Plan, which serves as California’s roadmap for reducing greenhouse gas emissions calls for a mix of complementary measures along with the creation of a cap-and-trade program. The proposed cap-and-trade program would cover 85% of California’s largest emission sources including electricity generation, large industrial sources, transportation fuels, and residential and commercial use of natural gas.

The Committee’s final report makes the following key recommendations:

Next month, members of the Committee will present the key findings of their report before members of ARB at their February hearing in Sacramento. In addition to today’s report, Committee members also will help inform the ARB on its revised economic analysis due to be released next month.

The EAAC has met publicly ten times since it was created on May 22, 2009 by Linda Adams, Secretary for Environmental Protection, and Mary Nichols, Chairman of the Air Resources Board. This independent panel of experts is comprised of economic, financial and policy experts with various backgrounds and experiences.

For more information on the EAAC and to view the full report, go to Climate Change Website.

ARB's mission is to promote and protect public health, welfare, and ecological resources through effective reduction of air pollutants while recognizing and considering effects on the economy. The ARB oversees all air pollution control efforts in California to attain and maintain health based air quality standards.