Taking Stock of Climate Change Efforts: As European Carbon Market Falters, CA Expands Cap and Trade to Canada

Unlike many environmental problems, which can be addressed at a local or regional scale, climate change is inherently global in nature: greenhouse gas (“GHG”) emissions from any source join with historic and contemporary GHG emissions from other sources globally to contribute to the total store of GHGs in the atmosphere.  The global nature of the issue is a key reason why, from the onset of climate change efforts, policymakers and environmentalists have attempted to address GHG emissions at an international scale.

Failure of Kyoto Protocol Leaves Void in International Climate Change Efforts
The primary effort to address climate change at an international scale is the Kyoto Protocol, adopted in 1997 in connection with the United Nations Framework Convention on Climate Change.  Unfortunately, through the first “commitment period” (which ended in 2012), the Kyoto Protocol has not achieved expectations, as the two largest GHG emitting countries—China and the United States—never signed the Protocol.  The sense that the Kyoto Protocol will ultimately fail as a climate program was compounded by the inability of negotiators at the 2009 Copenhagen Summit to agree on a framework for climate change mitigation for the period following the end of the first commitment period in 2012.  Since Copenhagen, climate policymakers have looked for a regional model to lead the way to a new international climate framework.

European Trading System in Disarray
With the Kyoto Protocol faltering, hopes have been pinned on the European Union’s climate change program—the Emissions Trading Scheme (“ETS”).  These hopes are rapidly fading.  In the past few months, the ETS has experience significant growing pains, with the price of carbon allowances having dropped from about € 25 per ton in 2008 to below € 3 per ton in April.  Although reductions in GHG emissions in the EU are still on pace to meet the target of the Europe 2020 Strategy (20% lower than 1990 emissions), most analysts believe that carbon prices at this level are too low to spur investment.  The severe drop in carbon allowance prices has led many, including The Economist, to question whether the ETS has any future.

California Expanding its Cap and Trade Program to Canadian Province of Quebec
In the midst of Europe’s difficulties, California has moved forward to link its cap and trade system with that of the Canadian Province of Quebec.
On April 19, 2013, the California Air Resources Board (“CARB”) approved a plan to formally link with Quebec beginning on January 1, 2014.  Linkage will create a relatively seamless cap and trade market, with compliance instruments—carbon allowances and offset credits—being interchangeable in the two systems.  California and Quebec will also hold joint auctions of carbon allowances.
The linkage of the California and Quebec cap and trade systems is a modest first step towards a robust North American cap and trade system.  Although Quebec is Canada’s largest province by size and has a population of about eight million people (second only to Ontario among provinces), its economy is not nearly as large as that of California: Quebec has a GDP of about $300 billion compared to California’s GDP of about $1.9 trillion.  About 80 entities (referred to as “establishments” in Quebec’s program) are subject to Quebec’s cap and trade regulations.  In comparison, California’s cap and trade program covers about 350 entities representing 600 facilities.  Also, Quebec’s allowable GHG emissions are substantially lower than those of California: Quebec’s cap starts at about 23.2 million tons of GHG emissions (CO₂e) in 2013 and ends at about 54.7 million tons in 2020, while California’s cap starts at about 162 million tons of GHG emissions (CO₂e) in 2013 and ends at about 334 million tons in 2020.  (Note that the increase reflects the addition of transportation fuels and natural gas in 2015; over time, the cap will go down — become more stringent —for all covered sectors.)

Testing the New Model
CARB recognizes that a key aspect of linkage with Quebec is that it may establish a new template for climate change efforts globally.  As stated by CARB in its response to comments: “[T]he experience gained now in demonstrating that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon and reduce greenhouse gas emissions is invaluable to accelerating national and international efforts to address climate change.”
However, California’s cap and trade program is less than a year old and already several lawsuits have been filed challenging various aspects of the program.  So the jury is still out as to whether California’s program will succeed.  Moreover, the addition of Quebec will make the cap and trade program more complicated (and mistake prone) without offering a meaningful test run that could be expected of a larger, more complex regional program.
Nonetheless, given the problems with the Kyoto Protocol and the ETS, the need for a successful model is certainly there, and California and Quebec may be the start of such a model.  In the interim, California and Quebec will undoubtedly have to iron out a number of issues (ranging from the integrity of offsets to the logistics of operating a linked market in two languages).
In the event that the California-Quebec market sets the tone for a revamped European system or a new Kyoto, monitoring the developments of the North American effort will be a key task for businesses and governments (not only within California and Quebec, but in other states and provinces as well), as they may be incorporated into the system at some point in the future.

Gov. Brown wants to grab $500 million in cap-and-trade proceeds for general fund

 

Molly Peterson | May 15th, 2013, 10:22am

David McNew/Getty Images

California's carbon-credit market has raised $500 million in revenue, which Governor Brown wants to borrow to balance general fund expenses.

Gov. Jerry Brown plans to borrow $500 million from a program to fight climate change, as part of his effort to balance the budget - a move that has stirred up clean air advocates.

California has begun auctioning off carbon emission permits as part of its cap-and-trade program. They're basically licenses to pollute that businesses can buy to offset their emissions. The money -- $500 million collected so far -- goes into the Greenhouse Gas Reduction Fund.

Brown wants to use that money to cover the state's general fund expenses, and pay it back later, with interest. He argues that it's okay to borrow the money because greenhouse gas reduction programs are just getting off the ground.

The Sierra Club, the Greenlining Institute and other environmental groups say the permit fees can only be spent on programs that reduce greenhouse gases.

They argue that some of the money the governor wants to borrow was going to fund clean air programs in low-income and minority neighborhoods near refineries and other sources of pollution.

The governor did sign a law last year meant to protect carbon fees from being diverted for general fund use. But SB 535 doesn't stop him from borrowing the money.

Canadian Cap-And-Trade Program

http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm

UPDATE 2-California's carbon permit auction beats expectations

Feb 22 (Reuters) - California's largest greenhouse gas-emitting businesses paid $13.62 per metric tonne (1.1 tons) for the right to release carbon, narrowly beating market expectations in the state's second carbon permit auction.

At the state-run auction, California managed to sell all of the nearly 13 million carbon permits it offered to cover emissions for this year and less than half of the roughly 9.6 million permits it offered to cover 2016 emissions, the California Air Resources Board (ARB) said on Friday.
Allowances to cover 2016 emissions cleared the auction at the lowest allowable price under the program's rules, $10.71 per tonne amid weak demand, the ARB said.

The quarterly allowance auctions are a critical component of the state's cap-and-trade program, the first of its kind in the United States. It uses market mechanisms to reward companies that figure out ways to reduce pollution below levels set by the government, and serves as the backbone of California's effort to cut emissions back to 1990 levels by 2020.

California hopes its climate change program will serve as a model for other states and the federal government.

Environmentalists and market participants hailed the auction results as a success.
"Today's results represent another successful chapter in California's story of cutting pollution and moving towards a clean energy economy," said Derek Walker, an associate vice president at the Environmental Defense Fund.

"The results also demonstrate that this is a strong, viable carbon market," he said.
Jeff King, managing director of environmental markets for Scotiabank, also hailed the results, noting that the clearing price was more closely correlated with the secondary market price for allowances than it was at the program's inaugural auction in November.

STRONG DEMAND
King said that strong demand for the 2013 vintage allowances was a sign that the new market is developing well.

"The 2.47 times subscription rate is a bullish indicator for future auctions," he said.
At the first auction, demand only barely outstripped supply.

Emilie Mazzacurati, managing director of climate consulting and research firm Four Twenty Seven, said she expects participation to grow again at the next auction, which is scheduled for May 16.
"I think a number of compliance entities that had waited out the first auction have now jumped on the bandwagon and that the financial sector is taking more of an interest in the market."

Banks and other financial institutions upped their participation at this auction, purchasing almost 12 percent of the current year allowances offered, up from about 3 percent in November.

REVENUE
The sale of permits raised about $84 million for the state, an ARB spokesman said, money that will deposited into a new state-run greenhouse gas reduction account.

That money will be added to the nearly $54 million it raised from the sale of allowances at the November auction.

California regulators are currently weighing how to allocate those funds and are holding a series of forums around the state to receive input from the public on how it should be spent.
The next public workshops are scheduled to take place in Sacramento on Monday and in Los Angeles on Wednesday.

California Governor Jerry Brown is expected to release his plan for spending the revenue to the legislature in May, the ARB spokesman said.

But not everyone agrees that California should be raising money from the sale of carbon allowances.
In November, the California Chamber of Commerce sued the ARB, claiming it lacked the legal right to raise revenue through the auctions.

The state's largest business group said the carbon permits should be handed out to businesses freely.
Last week, the National Association of Manufacturers, the nation's largest manufacturing trade group, said it would join the lawsuit on the side of the California Chamber of Commerce.

Environmental organizations including the EDF and the Natural Resources Defense Council have intervened in the suit on the side of the state, saying the auctions are necessary to price carbon correctly and raise revenue to support clean energy.

A hearing in Superior Court in Sacramento County is scheduled for May 31.

California's second carbon auction gets higher price

By Dale Kasler
dkasler@sacbee.com

By Dale Kasler The Sacramento Bee

Last modified: 2013-02-25T16:54:32Z

Published: Saturday, Feb. 23, 2013 - 12:00 am | Page 6B

Last Modified: Monday, Feb. 25, 2013 - 8:54 am

Copyright 2013 The Sacramento Bee. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

California's fledgling cap-and-trade carbon market is becoming more familiar to the companies that have to participate in it – and that's showing up in the price they're paying for the right to pollute.
Carbon emission allowances sold for $13.62 a ton this week during the state's second-ever carbon auction, the California Air Resources Board reported Friday.

The price at Tuesday's auction was considerably higher than the first state-run sale last November, when carbon sold for barely above the $10 legal minimum.

The cap-and-trade market is the centerpiece of AB 32, California's effort to curtail greenhouse gases and global warming.

Experts say the companies that have to buy emissions allowances are becoming more comfortable with the process, resulting in more aggressive bidding.

The latest results "demonstrate that this is a strong, viable carbon market," said Derek Walker, associate vice president at the Environmental Defense Fund, in a prepared statement.
The cap-and-trade system puts a ceiling on the annual carbon emissions by hundreds of industrial polluters; the ceiling declines slightly each year. Companies get most of their emissions allowances for free, but they have to buy some of them at auction.

Those companies that are polluting too much can either scale back their emissions or buy allowances, either from the state or on the open market. State officials say this market approach to environmental regulation gives companies flexibility and will breed innovation.

Still, big business lobbyists call the program a heavy cost burden. The California Chamber of Commerce is suing the state, arguing that all the carbon credits should be distributed for free.
In the latest auction, all 12.9 million credits – each good for emitting a ton of carbon this year – sold out.

The auction for credits that can be used to emit carbon in 2016 was less robust – just 4.4 million credits sold, at the minimum price of $10.71 a ton.

In all, the auction raised $223 million. The Legislature has declared that the proceeds must be spent on environmental purposes, with a focus on improving air quality.

© Copyright The Sacramento Bee. All rights reserved.

Read more here: http://www.sacbee.com/2013/02/23/5210552/californias-second-carbon-auction.html#storylink=cpy

Little Unity Over California's Cap-And-Trade Program

Businesses and environmentalists remain deeply divided over California's landmark carbon cap-and-trade program, with industry calling it a job-killing nightmare and clean energy proponents saying it has positioned the state as a global leader in tackling climate change.

The strong feelings over the policy were on display at a conference last week in Sacramento, where business groups and environmentalists repeatedly clashed over the market-based program, a key component of the state's effort to roll back its output of heat-trapping gases to 1990 levels by 2020.
While environmentalists say the effort is already attracting clean energy businesses to the state, industry argue it could drive them away.

"My manufacturers are now living their worst fears," said Dorothy Rothrock, vice president of government relations at the California Manufacturers & Technology Association, which represents 600 businesses in the state.

Without immediate fixes to the program, like giving away all of the program's carbon permits to businesses for free, some of her members may eventually need to raise prices, lay off workers, or flee the state, she said.

"My companies are saying, ‘What are we supposed to not pay for in order to pay this new cost?'" she said.

The success or failure of the 2-month-old program will have broad ramification for the concept of cap and trade, a policy where the government sets a limit on the amount of greenhouse gas emissions that businesses can produce. It then either sells or hands out for free a dwindling number of carbon permits, also known as "allowances."

The allowances can be used for compliance with the regulation or, if the company can reduce its emissions on its own, can be sold to businesses that need them.

The program is also a new source of revenue for the cash-strapped state, having brought $138 million into state coffers from two permit auctions, and millions more to power companies who will use it to offset higher electricity rates. Debate is now underway over how the state will spend the revenue with a draft plan expected to be released by Governor Jerry Brown's administration in April.

At the conference, environmentalist pushed back against the idea of giving all the permits away for free saying it would not only deprive the state of money it needs to fund clean energy programs, but could also enrich the very companies the program seeks to regulate if they cash in on the value of the permits while passing the new costs on to consumers.

Alex Jackson, an attorney with the Natural Resources Defense Council, said the program is off to a good start and said it would be a mistake to make major changes to it now.
He added that the 2006 law that led to the cap-and-trade program, AB 32, has already attracted clean energy businesses to the state.
Jackson cited the relocations of biofuels provider Propel Fuels, solar company Sungevity and electric car manufacturer Electric Vehicles International to California after passage of AB 32 as proof that California's landmark law is attracting clean energy businesses to the state.

But California's food processors joined the manufacturers in expressing their concerns about the program, but unlike the state's cement plants or steel mills, they said moving is not an option for them.

"You can't move a tomato processor. They need to stay in the area, so we're trapped," said John Larrea, director of government affairs for the California League of Food Processors.

Both Larrea and Rothrock said that while the program is a drag on business now, it will get even worse in 2015 when it expands to cover many more businesses and the number of permits given for free to their members is reduced.

Both Larrea and Rothrock said they would prefer the state simply tell them how much each facility can emit over the cap-and-trade policy as it is currently designed - ironic since cap-and-trade has long been touted as a business-friendly alternative to direct government regulations.

All sides of the issue are now looking ahead to coming battles over the program, including an updating of the state's "scoping plan," which outlines the suite of policies used to meet the state's long-term emissions goals. A draft of the new plan is expected by the end of the year.

California's largest business group, the California Chamber of Commerce, last year filed a suit against the program, claiming the quarterly auctions are illegal. A hearing on the case is scheduled for May 31 at Sacramento Superior Court.


Read more: http://www.foxbusiness.com/industries/2013/03/06/little-unity-over-california-cap-and-trade-program/#ixzz2NFvW8QVR

First Carbon Offset Projects To Be Reviewed By Air Resources Board

By Bob Moffitt

Twenty five projects initiated before the state finalized its Cap-and-Trade rules will be inspected to ensure they met state requirements.

Permalink

(Sacramento, CA)
Friday, March 08, 2013

The California Air Resources Board says it's reviewing the first twenty five projects submitted that promised to offset greenhouse gas emissions. If approved, the businesses can earn credits under the state's Cap-and-Trade Program.

Stanley Young with the Air Resources Board says certified inspectors will determine how much pollution each project eliminates. "We require that the project developer hire and accredited person- a third-person verifier, to take a close look at the paperwork involved in this and make sure they went through all of the proper steps and followed the stringent rules."

Most of the projects either used manure from dairy farms in biodigesters or eradicate ozone-depleting chemicals.

If the 25 projects performed as promised, they would eliminate three million tons of carbon

California eyes dividends, deficit cuts from cap-and-trade

Feb 9 (Reuters) - Revenue raised by California's greenhouse-gas emissions trading program could be distributed to state residents to offset higher fuel costs or used to reduce the state's projected deficits, a state budget watchdog agency said on Thursday.

"Our analysis indicates that such revenues could be returned directly to Californians - such as in the form of a check - as a dividend that would be intended to offset their increased expenditures on goods and services that ultimately would become more expensive as a result of the cap-and-trade program," the Legislative Analyst's Office said in a report.

The report added that revenue from the program, which goes into effect next year, could also be used as part of a "multiyear approach to reduce the state's projected General Fund deficit."

"The availability of these revenues could allow the state to avoid other actions, such as cutting governmental programs or increasing state revenues, that could slow the state's economy," the report said.

The report comes as California prepares to implement its Global Warming Solutions Act enacted in 2006. Commonly referred to as AB 32, the law established the goal of reducing greenhouse gas emissions in the most populous U.S. state to 1990 levels by 2020.

To meet that target, California will establish a so-called cap-and-trade program that issues allowances to companies that emit carbon dioxide and other greenhouse gases at facilities such as power plants, refineries and factories and that permits the allowances to be traded.

Revenue from the program is expected to vary annually, from less than $1 billion to nearly $14 billion, according to the Legislative Analyst's Office.

Governor Jerry Brown's state budget plan expects the program to generate $1 billion in revenue in the next fiscal year, including $500 million that will be used to fill the state's general fund, which faces a $9.2 billion deficit.

Brown also wants to put cap-and-trade revenue toward other clean-energy, natural resources and other uses, including toward funding a planned statewide high-speed rail network. The Democratic governor put the idea of funding the rail project that way out recently during a television interview, catching lawmakers by surprise.

Legislators from both parties in the Democrat-led legislature have become increasingly concerned about the planned rail network, which is also under attack from Republicans the U.S. Congress and California's Central Valley, where the U.S. government is insisting the network's first line must be built to receive more than $3 billion federal funds.

At issue for California lawmakers are escalating cost projections for the rail project. Its latest estimated cost nears $100 billion, which eclipses its previous estimate of $43 billion as well as the $10 billion in general obligation debt voters approved in 2008 to help build the rail system.

Lawmakers are also concerned that voters are souring on the ambitious rail plan, which is intended to connect California's far-flung metropolitan areas. Nearly two-thirds of voters want lawmakers to put the bond package back on the ballot, and if given another vote on it, 59 percent would reject it, according to findings of Field Poll released in December.

Brown is enthusiastically behind the rail project. He met with U.S. Transportation Secretary Ray LaHood on Thursday and both men affirmed support for it.

After a tour on Wednesday of a Siemens plant in Sacramento, California where the company light-rail car, LaHood said the Obama administration stands behind putting the rail system's first line in the Central Valley to link the cities of Fresno and Bakersfield.

That idea is not going over well in California's legislature, drawing criticism from lawmakers from both parties. While the farming region's flat terrain may be suitable for running high-speed trains, many lawmakers would prefer to start lines in urban areas -- and many would prefer the state not start the project at all given its costs.

Brown's finance department is preparing a report on rail project that will help guide lawmakers in coming months to decide whether California should issue the first set of bonds to finance construction of the project's first leg. (Reporting By Jim Christie; Editing by Bernard Orr)

California cap-and-trade money should be spent carefully, analyst says

California's experiment in combating global warming by creating a cap-and-trade program could generate more than $12 billion a year in revenue, but officials can't rely on that windfall to fix the state's fiscal problems, according to a new report.

The nonpartisan Legislative Analyst's Office said the amount of money generated by auctions of credits allowing polluters to release greenhouse gases would vary wildly, from less than $1 billion to $14 billion in some years. The market-based system is intended to drive down the amount of greenhouse gases discharged in California by making it increasingly expensive to pollute.

Gov. Jerry Brown has his eyes on the first batch of cash, though his plans are still vague. He's suggested spending $1 billion of the money generated by the first auction, scheduled for August, on renewable energy development and infrastructure. He also wants to put about $500 million toward the state's general fund and has spoken about using future revenues to help finance a controversial high-speed rail line linking Los Angeles and the Bay Area.

Business groups contend that the money should be returned to companies who have to pay higher fees to meet California's new emissions requirements. The Air Resources Board, which designed the cap-and-trade program, has proposed returning the money to consumers to compensate them for possibly higher energy prices.

The legislative analyst's report raises red flags for Brown. It warns that the amount of money generated by the program will fluctuate wildly from year to year. "This means that they may be more appropriately used for one-time or short-term, purposes rather than for the support of ongoing programs or tax reductions," it states.

The report also cautioned that the state can only legally spend the money on easing the impact of greenhouse gases -- or muster a two-thirds vote of legislators to spend it elsewhere.
"Appropriate uses of the revenues for mitigation purposes could potentially include expenditures on energy and water-use efficiency programs, alternative fuel programs and investments in renewable energy projects," the report states.