Up to 85% of the projected revenues from California’s proposed greenhouse gas (GHG) cap-and-trade auction could be used to cut retail electricity rates during the next eight years, according to a proposed state regulatory decision released this month. Eventual cap-and-trade revenues in the state have been estimated to range from $5.7 billion to $22.6 billion through 2020.

The proposal would first return cap-and-trade allowance revenues to the state’s largest GHG emitters — principally electric generation plants and refineries among the state’s heaviest industries. Second in line would be small businesses followed by residential and other small retail power users.

California held its first auction for carbon emissions trading on Nov. 15, despite a lawsuit to block it. Natural gas-fired power generation plants and refineries are the main focus of state regulators under the long-anticipated cap-and-trade program (see Daily GPI, Nov. 16). Natural gas-fired plants account for more than two-thirds of the state’s 50,341 MW of available capacity, the state grid operator has said. Power plants and refineries account for about 60% of all GHG emissions in the state.

The proceeds from the auction are to be used for the benefit of retail energy utility ratepayers, which is consistent with California’s global climate change act (AB 32). The California Public Utilities Commission (CPUC) has come up with a proposed decision on how to allocate those proceeds to end-use utility customers.

The CPUC’s four primary policy objectives in its proposed decision are preserving carbon pollution price signals in utility power rates; ensuring that “economic activity does not shift to other states and countries as a result of the cap-and-trade program”; protecting low-income utility customers; and maintaining “competitive neutrality” among utilities, community choice energy programs and direct access energy providers.

“The proposed decision finds that, in general, electricity rates should reflect the cost of carbon as determined by the price of emission allowances sold in the cap-and-trade program,” a CPUC spokesperson said. “Preserving the carbon price signal is critical to providing appropriate incentives for businesses and individuals to reduce GHG emissions when making decisions regarding their energy use.”

At the time of the state’s auction, Environment California’s research and policy center in Sacramento released a report citing various businesses in the state that are taking steps to use more clean energy to reduce their GHG emissions, such as an Anheuser-Busch brewery in Fairfield that is reducing its energy costs and emissions through wind and solar applications.

The CPUC’s proposed decision would first allocate the allowance revenues to ensure that the program “does not disadvantage California industries,” the spokesperson said. “It direct investor-owned utilities to return allowance revenues to businesses operating in industries identified as emissions-intensive and trade-exposed. These businesses emit large amounts of GHG and operate in competitive markets.”

For power plants and refineries, the allocated revenues are expected to cover “the majority” of their cap-and-trade costs, according to the proposed decision. In the meantime, the California Air Resources Board (CARB) has posted the 2013 auction results on its website (www.arb.ca.gov), noting that all 23.1 million allowances up for sale were sold at prices ranging from $91 to $10/allowance.

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