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Prior posts have described the various elements that go into the AB 32 plan pursuant to which
California is to reduce GHG emissions to 1990 levels by 2020. Following the release of the June draft, the Air Resources Board (the lead agency) received comments from 42 thousand individuals. A number of modifications were made to add a "margin of safety" so that, at least theoretically, if all the measures were successful more than enough GHG reduction would occur to meet the statutory requirements. [See http://www.arb.ca.gov/cc/scopingplan/document/scopingplandocument.htm for the plan and appendices.] However, one glaring omission is detail related to the cap-and-trade aspect of the scoping plan. The Plan now commits ARB staff to develop regulations by Jan. 1, 2011. Two key questions related to the cap-and-trade program are: (1) the amount of offsets (emission reductions outside the program) that can be used to meet GHG emission standards; and, (2) how the allowances will be allocated.
California is part of the Western Climate Initiative ("WCI"), as has been described in prior posts. In September the WCI released its recommendations for a cap-and-trade program; the WCI proposes to limit the use of offsets generated by WCI members to no more than 49% of cumulative reductions required by the program (thus ensuring that a majority of emission reductions will occur within the state of the emitting entity). The WCI also provides that at least 10% of emission allowances will be auctioned initially, increasing to 25% by 2020. Further complicating the picture the California Energy Commission and California PUC adopted a joint opinion recommending that vis-à-vis the electricity sector at least 20% of allowances be auctioned initially, increasing to 100% by 2020. The Scoping Plan appears to suggest that the WCI standards will be the floor for allowances and offsets, and one can speculate that the CEC/PUC recommendation will be applied to the electricity sector. The Plan also intends to set aside allowances to reward those entities that took early action to reduce GHG emissions (reductions made before the law took effect), to provide incentives to local government to promote energy efficiency, and to target projects to reduce emissions in low-income and disadvantaged communities. Yet, the entire rationale for a cap-and-trade system is to create a marketplace for allowances that will assure that reductions are made because the cost of the reduction is less than the cost of buying an allowance. It is not unreasonable to be concerned that by creating a huge supply of allowances that will not be placed in the auction process there will come to be a bureaucratic apparatus that will be subject to political pressure [read lobbying and bribes], and which will thus not propel emissions down based on a cost-effectiveness analysis. As noted in prior posts, the environmental justice task force has made clear its opposition to a cap-and-trade system because of their concern that offsets will mean that low-income and minority communities will be disproportionately subject to emissions from existing and new facilities; they generally advocate a carbon tax. There is good reason for skepticism that a program in which bureaucrats decide the distribution of a huge part of the allowances will operate efficiently or fairly.