California’s air regulators last Thursday set the final rules for a precedent-setting cap-and-trade program called for in the state’s 2006 climate change law (AB 32). The rules hold major long-term implications for energy operators, particularly natural gas-fired electric generation plants.
Earlier this year the California Air Resources Board (CARB) postponed for one year the implementation of the cap-and-trade effort until 2013 (see Daily GPI, July 1).
AB 32’s centerpiece is the first attempt at having electric generation plants, major industrial operators and refineries put limits on their greenhouse gas (GHG) emissions while allowing the trading of emissions credits over the next eight years as the limits are gradually tightened. Cap-and-trade is the key element to future success of the overall climate change program in the state, California officials, past and present, have maintained.
In taking its latest action, CARB said the cap-and-trade program will join what its spokesperson called “a suite of other major measures,” including standards for ultra-clean cars, low-carbon fuels and renewable electricity. They also maintain that the program complements and supports California’s existing efforts to reduce smog-forming and toxic air pollutants and improve energy efficiency in homes and businesses.
“Cap-and-trade is another important building block in California’s effort to create a clean and vibrant economy,” CARB Chairman Mary D. Nichols said. “It sends the right policy signal to the market, and guarantees that California will continue to attract the lion’s share of investment in clean technology. When the nation addresses the growing danger of climate change, as I believe it must and will, California’s climate plan will serve as the model for a national program.”
The board also approved an adaptive management plan to closely monitor the effect of the program on localized air quality and forests, in particular.
Former Gov. Arnold Schwarzenegger called CARB’s action “a major milestone for California’s continued leadership on reducing the world’s greenhouse gases.” Having signed the legislation in 2006 and fought off a statewide ballot measure to overturn it (Proposition 23) last year, Schwarzenegger said “the most critical phase in the fight against climate change is diligently, aggressively and correctly implementing this law.
“I have always believed that we can create a world where economic growth, energy independence and environmental protection are all achieved. We must not lose sight of the bigger picture Californians set as our priority when they defended our Global Warming Solutions Act last year and defeated Proposition 23 by a 23-point margin.”
Similarly, the state’s major energy utility Pacific Gas and Electric Co. (PG&E) lauded CARB’s leadership toward what it called “designing a cap-and-trade program, and its continued efforts to launch a program that will deliver sustained GHG reductions while working to minimize costs to California energy customers,” according Tom Bottorff, senior vice president of regulatory relations for PG&E.
Bottorff said PG&E believes that a multi-sector cap-and-trade program designed with strong cost-containment measures â€“ including the return of the allowance value to California consumers, readily available offsets and a sufficient reserve of allowances â€“ can be implemented in a way that minimizes economic impact to California and Californians.
The regulation sets a statewide limit on sources responsible for 85% of California’s GHG emissions and establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy. The program is designed to provide covered entities the flexibility to seek out and implement the lowest-cost options to reduce emissions.
The regulation will cover 360 businesses representing 600 facilities and is divided into two phases: the first, beginning in 2013, will include all major industrial sources along with electricity utilities; the second, starting in 2015, brings in distributors of transportation fuels, natural gas and other fuels.
The first auctions (for 2013 allowances) are slated for August and November 2012. Electric utilities will also be given allowances to be sold at auction for the benefit of their ratepayers and to help achieve AB 32 goals.
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