In the last six months, California has held three very special auctions, and the items in question are much harder to put your finger on than the gilt rim of a tea cup. In this auction, the objects are less tangible — the so called greenhouse gases, or GHGs, known to warm earth’s atmosphere — but more likely to influence the course of human history than any mahogany credenza or dueling pistol.
When it passed the Califor nia Global Warming Solutions Act in 2006, the golden state firmly embraced the singular role of leading our frustratingly reluctant nation on climate change action. AB 32 set the goal of returning the state to 1990 emission levels by 2020 and launched a dozen different initiatives to get there, from renewable energy investments to a low-carbon fuel standard. It also created the nation’s first economy-wide cap and trade program for emissions.
“Cap and trade covers 85% of emission sources in California. If we get rid of it, we’re probably looking at command and control from the Air Resources Board,” said Jane Luckhardt, a Downey Brand lawyer and one of 15 speakers at a Bay Planning Coalition workshop on cap and trade hosted by URS Corps in Oakland this June.
The program is basically a market in which you can buy and trade emissions. The main premise is that while one entity, say an oil refinery, might be able to reduce its GHG emissions 50% by replacing some ancient boilers with newer technology for a reasonable cost, another entity, say a cement maker, might have very few options for reducing emissions. So the latter can buy credits from the former, or other traders, during the new auctions.
“Initially any industrial facil ity that generates 25,000 or more metric tons of GHG comes under the cap,” explained environmental and sustainable development lawyer Cleve Livingston, another one of the speakers. In 2013, these included oil refineries like Valero, Chevron, and Shell, cement manufacturers, big power plants, and co-generation facilities at various universities. Under the cap, these emitters have three years to show compliance, and can either buy allowances from other industries, invest in energy efficiency, or purchase offsets (dairy methane capture programs, urban tree planting, or forest management — blue carbon credits from wetlands are not quite yet auction-ready). “The point is to allow industry to find the most efficient measures to reduce carbon,” said Livingston.
The state has held three auctions in the last six months, with prices settling in between $10-$14 per metric ton. In the most recent auction, the state approved 81 entities to bid in the auction for 14.5 million MT in 2013 allowances, and 9.56 MT in futures for 2016. In this last auction alone, they sold 100% for 2013, and 80% for 2016, and raised $117 million to help the state advance AB 32 and prevent climate pollution. Governor Brown is already angling to borrow the auction money, arguing that other AB 32 spending programs are “not ready yet for prime time,” according to Luckhardt.
At least 25% of funds raised from the auctions are supposed to go to climate pollution reduction related projects in the most impacted communities. But first these communities have to be identified. Speaker John Faust from the state’s Office of Environmental Health Hazard Assessment described the screening method his team is developing, which uses 18 environmental and socio-economic indicators ranging from exposures to pesticides, toxics, and ozone to the presence of impaired water bodies or toxic clean up sites. Indicators also try to take into account the sensitivity of specific communities due to poverty, asthma, low birth weight, or the presence of lots of children or elderly people. Faust showcased the new screening tool at the workshop, which maps these communities based on ZIP code. A first version of the tool was released in April, but the team is still considering improvements.
Other speakers covered what Bay Area local and regional agencies are doing in terms of transportation and sustainable development planning, how the state may be impacted economically by AB32, how California’s food processing industry is responding, and how groups like the Environmental Defense Fund are both championing and watchdogging the program. Not only can the program serve the public trust, but it is also an opportunity for private speculation that makes some wary.
At press time there was some uncertainty about the nitty gritty of the future cap and trade program as Morningstar Packing and the California Chamber of Commerce are arguing that allowances held back and auctioned by the air board amount to the imposition of an illegal tax. Their cases go to court this August.
Speakers also expressed some worries about “leakage” — where a big employer like Sacramento’s Campbell soup factory moves out of state or out of country to avoid expensive retrofits. Everyone mentioned the need for a national GHG control program to reduce leakage to other states like Texas, where climate change does not officially exist.
“Some argue emissions reduction strategies will be an economic disaster, but others argue it will be one of the greatest shots in the state’s economic arm in generations,” said Livingston. “Somebody’s got to be on the leading edge, and though some companies may move out, others may move in. Within the next few years, the results of our efforts will get much clearer, but until then the jury is out.”