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California embraces cap and trade

This last Thursday, California regulators voted to approve the basic fundamentals of the cap and trade system that will implement the state’s landmark 2006 Global Warming Solutions Act (AB 32). Under the law, the California Air Resources Board (“CARB”) is to develop a set of regulations to implement the law itself.

These regulations are the more detail-oriented, “where the rubber meets the road” rules for industry to follow beginning in 2012. CAP’s Araceli Ruano has the story.While AB 32 set the foundation, CARB’s implementation will decide whether the law will actually have any impact on climate change at large and will in large part determine the viability of the renewables industry in California. As expected, they adopted a “Cap and Trade” system to reduce Greenhouse Gas Emissions (GHG) that will be phased in during the next decade. For an easy to understand summary of cap and trade generally, and the system approved in California, see here and here.

Today’s partisan divide notwithstanding, the cap and trade mechanism is a Republican construct. It was conceived in the Reagan White House to ease out lead pollution in an industry-friendly way. It was first written into law by President George H.W. Bush to reduce air pollutants in the 1990 Clean Air Act amendments. His son later used it in his own air pollution bill, and it was accepted by both presidential candidates (and their vices) in the 2008 election. The whole idea is to use the power of the market to reduce the harm is without resorting to government mandates.

Within the 200-page plan that CARB approved, there are a few issues that have been controversial. The first is that for 2012–14, emission permits are going to be free. Businesses will have to pay for additional permits beyond their baseline level, but at the beginning of the cap and trade program, all permits are given to those who have emitted in the past. This gets into an essential question for regulators and California at large — whether industry has a vested interest in emitting GHG, or whether they have to pay the public for that right.

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A second issue that has split the environmental community is whether or not to issue GHG credits (net GHG reductions that are sold — the “Trade” of cap and trade) for clear-cutting forests. Some groups oppose any program that would promote clear cuts, while others value the carbon fixing that clearing way for new trees can produce. This is an issue that is not essential for the environmental community to agree upon, but could potentially cause problems as reduction credits become more valuable in coming decades.

A third issue that was not specifically tied to the cap and trade plan approval was a loosening of diesel emission standards. This was voted on the day after the implementation plan, but because of the overlap of issues, it has to be connected. Industry representatives were very pleased with the looser standards, claiming that it would free up shipping during the down economy. Whether or not this was part of the AB 32 discussions, it is unknown; but it is foreseeable that the issues were linked in the minds of negotiators and regulators.

So while the plan was approved as expected, it is still necessarily unclear what the full AB 32 regulatory plan will be. It is clear that major sources of GHG will reduce their outputs, and most utilities and industries are making those changes now. California’s out of state power sources will also have to make changes to their generation, or begin selling their power elsewhere. And the subsidies given to fossil fuels, at least on the state level, are likely to begin disappearing. In this way, the plan’s approval follows the direct line from AB 32’s passage in 2006, through the early scoping documents, to a renewed dedication to renewable energy and GHG reductions that voters made in rejecting Proposition 23. CARB is simply heeding voters’ support for AB 32 on Election Day by voting to implement the plan 9–1.

Non-California Impacts

While the passage was not really a surprise to anyone, there are major impacts on the national and international stages. CARB’s California-specific plan will necessarily impact the international market for renewable energy-related goods. And it will continue to impact the national debate that ended so bitterly with a thud as the American Clean Energy and Security Act fell apart.

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In recent years, China has made a move to dominate the renewable energy industry in a way that only a centralized, top-down government can. California might lead the U.S. in implementing solar cells, but China leads the world in making solar cells and wind turbines. Without addressing the trade disputes, it is likely that China’s push to build the power generators of the 21st Century is succeeding. So CARB’s approval of this plan is a welcome sign for those that want to see California continue to challenge for the lead in engineering and building the world’s solar cells and turbines.

Approving the AB 32 implementation plan, and the message California voters sent by rejecting Prop 23 by over 22% is also important on the national scale. Just two years ago, a federal climate bill was considered to be a certainty, as both candidates made a climate bill a major part of their energy platform. Of course since then, even with control over the legislative and administrative branches, Democrats could not get a bill through. This was because of late defections and a number of other problems outlined in a New Yorker article.

Now nationally, the conversation is no longer about Saudi oil or coal particulates, but rather about whether science has any role to play in politics at all. With a Republican House, the 2010 narrative incorrectly alleges that Democrats lost the election because of their support for climate legislation. As a result, prospects do not look good for national action. In this environment, states are thrust into the lead role. On what is a global issue, where the federal government should really be dictating policy, individual states and their regional pacts are going to lead the way.

So for those that wish to see California continue to lead the way on energy and environmental policy, last week’s CARB vote was a huge step. It allows for the certainty that business considering locating here (or moving from here) need to continue to lead the way on renewables. It also allows utilities and major GHG emitters the certainty to begin long term planning that will actually lead to the reductions in carbon emissions that AB 32 envisioned. In short, it is the exact type of work that California must do to retain our spot in the environmental leadership position.

— Araceli Ruano is CAP’s Senior Vice President and Director of California. Andrew Fitzgerald Adams contributed to this post.