Tag: California

Climate Policy Innovation: California Considers a New Approach Post-2020 – The End of the Offsets System?

With the introduction of Senate Bill SB 775 (California Global Warming Solutions Act of 2006: Market-based Compliance Mechanisms) into the California Senate on May 2, 2017, California is innovating on climate policy once again. Although it has a long journey to complete before becoming law, SB 775 is significant because it would completely revamp California’s cap and trade system once the current program ends in 2020.  Under SB 775, the key features of California’s proposed new system are as follows:

  • The cap and trade system would be completely overhauled with a new program commencing on January 1, 2021; no allowances and offsets from the current system would be transferred over.
  • All allowances under the proposed new program would be auctioned, meaning that no allowances will be allocated for free. Further, no offsets will be permitted for use as a compliance mechanism.
  • A price collar would be established in 2021, with the price floor starting at US $20 and a price ceiling of US $30 (the initial auction price would be set at US $30 per allowance). The price floor would rise at $5 per year plus inflation; while the price ceiling would rise at US $10 per year plus inflation. The proposed program is designed to operate in perpetuity, so in the absence of amendments to the program, the price ceiling could exceed US $300 by 2050.
  • A broad revenue structure would be established to allocate revenue into three programs: (1) California Climate Dividend Program, which will rebate revenue on a per-capita basis; (2) public infrastructure investments and investments in disadvantaged communities; and (3) climate and clean energy research and development.
  • The new cap-and-trade program will not link to any other jurisdiction until that jurisdiction has a minimum carbon price that is equal to or greater than California’s. Also, the Governor must be satisfied that the linkage will not adversely impact California dividends.
  • The proposed cap-and-trade program would impose a border adjustment tax on imports based on their carbon intensity, which would be administered by a newly created Economic Competitiveness Assurance Program. The border adjustment tax would seek to ensure that in-state industry is not unduly impacted by California’s carbon pricing regime. In the event that a border adjustment tax is reduced or eliminated following a legal decision, SB 775 provides a safety net for California businesses in the event the border adjustment tax is reduced or eliminated following a legal challenge. In particular, free allowances, would be made available to eligible companies for the purpose of maintaining economic parity between producers of carbon intensive goods that are subject to the cap and trade system and those who produce or sell similar products that are not.

The introduction of SB 775 comes on the heels of Bill SB 584, which was introduced in February 2017 and calls for 100% of the state’s electricity to come from renewable sources by 2045. Bill SB 32, which was passed in 2016, establishes an ambitious emissions reduction target for 2030 – i.e. beyond the current emissions reduction target of returning to 1990 emission levels by 2020, SB 32 mandates a reduction of an additional 40% in emissions by 2030.

The passage of SB 775 in its current form will no doubt have implications for the existing cap and trade programs in Québec and Ontario. Since 2014, California’s cap and trade program has been linked to Québec’s emissions trading system and Ontario is expected to link to both California and Québec’s cap-and-trade programs in 2018. Since any jurisdiction looking to link with California’s program from post-2020 would first need to match the state’s level of carbon pricing, Québec and Ontario may have limited incentive to link to California from 2021, since California’s minimum carbon price in 2021 will already be close to or exceed the carbon pricing requirements of the Canadian federal government (starting in 2018, provinces and territories are expected to implement a carbon price of CAD $10, which will increase by $10 per year until it reaches CAD $50 in 2022). SB 775 is now undergoing review by the Committee on Environmental Quality, after which it will be sent to the state Senate and then on to the state Assembly, before it is sent back fro reconciliation. California Governor Jerry Brown has asked for reauthorization of the cap and trade program by July 2017.

British Columbia joins Sub-National “Under 2 MOU” Climate Change Initiative

On May 19, 2015, British Columbia (BC) joined a new sub-national climate change initiative known as Under 2 MOU. The Under 2 MOU brings together states and regions willing to commit to reducing their greenhouse gas (GHG) emissions and will galvanize action at the Conference of the Parties (COP 21) in Paris this December. The founding signatories, who were present at the May 19 signing ceremony in Sacramento, California, include the following:
• Acre, Brazil
• Baden-Württemberg, Germany
• Baja California, Mexico
• British Columbia, Canada
• California, USA
• Catalonia, Spain
• Jalisco, Mexico
• Ontario, Canada
• Oregon, USA
• Vermont, USA
• Wales, UK
• Washington, USA
The Subnational Global Climate Leadership MOU is nicknamed “Under 2 MOU” in reference to (i) the goal of limiting warming to below 2°c, and (ii) the MOU’s shared goal of limiting greenhouse gas emissions to 2 tons per capita, or 80-95% below 1990 level by 2050. By joining the Under 2 MOU initiative, signatories also commit to establishing midterm targets, increasing energy efficiency and renewable energy, coordinating on a number of issues from transportation to short-lived climate pollutants, and working towards consistent monitoring, reporting, and verification of their emissions. All signatories will submit an appendix to the MOU that will outline their unique set of actions and plans to reach their goals.
The Under 2 MOU originated from a partnership between California and Baden-Württemberg out of the desire to bring together ambitious states and regions willing to make a number of key commitments towards emissions reduction and to help galvanize action at COP 21. Jurisdictions are invited to sign the MOU up to COP 21 in December. Interested jurisdictions are asked to submit a letter expressing their intent to sign on to the MOU and to complete an appendix that outlines the unique set of actions that are in place or planned to reach their emissions reduction targets.
According to the United Nations Development Program (UNDP), 50 to 80% of the mitigation and adaptation actions necessary to tackle climate change will be implemented at the subnational or local levels of governance. Subnational governments are particularly well placed to address climate change for a number of reasons, including:
• They are often responsible for the development and implementation of policies that have the most impact on climate change, including in the following areas: air quality; transportation; energy and energy efficiency; the built environment; natural lands; technology innovation, development, and transfer; and others that have direct implications for greenhouse gas emissions levels.
• Sub-national governments often serve as the laboratories for policy innovations which are then adopted at the national and even international level.
• Sub-national governments provide the critical link in the vertical integration of climate policies between national and local governments.

Québec’s First Cap & Trade Permit Auction Results

 
In the first auction of permits under Québec’s cap-and-trade scheme on December 3, 2013, bidders purchased only about one-third of the emission allowances offered – or 1.03 million of the 2.97 million 2013 permits. As a result of the low demand, the permits cleared at the lowest possible price of $10.75 per metric tonne of carbon dioxide equivalent.

Québec said it sold a combined CAD $29 million in 2013 and 2016 allowances in the auction.  The province plans to sell the remaining 2013 carbon allowances in future auctions, which will be held every quarter starting March 4. Regulated entities will have until November 1, 2015 to acquire carbon allowances covering emissions generated in 2013 and 2014.

Yves-François Blanchet, Québec’s Minister of Sustainable Development, Environment, Wildlife and Parks said that the province is very satisfied with the results of the first auction and is confident that the remaining units will be sold at the upcoming auctions.  Bloomberg New Energy Finance market analyst William Nelson observed that it was a “surprisingly under-subscribed auction”, but went on to say that the province’s failure to sell all the allowances in the first auction was a “one-time freak result”. Nelson anticipates that future auctions will fare better as the entities that did not participate in the auction this week will eventually show up as they still need to cover their emissions for the next two years.

Quebec’s program will be integrated with the larger California cap-and-trade market in 2014, when entities from both jurisdictions will be able to buy and sell emission allowances and offsets in either jurisdiction. At California’s last auction on November 19, 2013, the state sold 16.6 million tons of carbon allowances at a price of $11.48 each, which was in line with market expectations.

The results of the Québec auction are available online (in French only)

The results of California’s November 2013 auction are also available from the state’s Air Resources Board.
 

BC signs Climate Action Plan with California, Oregon and Washington

 
On October 28, 2013 the leaders of British Columbia, California, Oregon and Washington signed the Pacific Coast Action Plan on Climate and Energy committing their governments to a comprehensive and strategic alignment to combat climate change and promote clean energy. The region covered by the Action Plan has a combined population of 53 million people and a GDP of $2.8 trillion, which represents the world’s fifth largest economy.

Through the Action Plan, all four jurisdictions will account for the costs of carbon pollution and where feasible, link programs to create consistency and predictability across the region.  In addition, the Action Plan provides for the following actions:

  • harmonizing 2050 targets for greenhouse gas (GHG) reductions and developing mid-term targets needed to support long-term reduction goals;
  • cooperating with national and sub-national governments around the work to press for an international climate change agreement in 2015;
  • enlisting support for research on ocean acidification and taking action to combat it;
  • adopting and maintaining low carbon fuel standards in each jurisdiction;
  • taking action to expand the use of zero-emission vehicles, aiming for 10% of new vehicle purchases by 2016;
  • continue deployment of high-speed rail across the region;
  • supporting emerging markets and innovation for alternative fuels in commercial trucks, buses, rail, ports and marine transportation;
  • harmonizing standards to support energy efficiency on the way to “net zero” buildings;
  • supporting federal policy on regulating GHG emissions from power plants;
  • sponsoring pilot projects with local governments, state agencies and the West Coast Infrastructure Exchange to make infrastructure climate smart;
  • streamlining approval of renewable energy projects; and
  • supporting integration of the region’s electricity grids.

The Action Plan provides a much needed boost to regional and national efforts climate change policy efforts.

The Pacific Coast Collaborative was established in 2008 to address the unique and shared circumstances of the Pacific coastal areas and jurisdictions in North America by providing a formal framework for co-operative action, a forum for leadership and the sharing of information on best practices, and a common voice on issues facing coastal and Pacific jurisdictions.
 

California Governor Gives Green Light to Link Carbon Market to Quebec

 
In a letter dated April 8, 2013 to the state Air Resources Board (ARB), California Governor Jerry Brown approved a proposal to link the California’s cap-and-trade system with Quebec’s program, paving the way for companies to trade carbon permits across borders.

In the April 8 letter, Governor Brown found that the request from the ARB met all necessary state requirements. The ARB, which has been working with Quebec for several years to develop complementary systems, will consider changes to its cap-and-trade program on April 19 that will allow it to link with Quebec.  Quebec is the first region that California has proposed to partner with, which will lay the foundation for a broader system that other governments may join.

ARB staff has said a link with Quebec would expand investments in low-carbon technologies, many of which are being developed in California, and improve market liquidity for carbon allowances by increasing the pool of both permits and companies trading them. According to the Governor’s letter, California will not link systems with Quebec until January 1, 2014.  In the meantime, the ARB and Quebec’s Ministry of Environment will test their auction platforms and trading systems to ensure they are compatible.  Governor Brown has asked the ARB to file a report with his office by November 1, 2013 outlining how the ARB will review and take public comment on changes to a linked program and whether there are any impediments to linkage occurring on January 1, 2014.

Quebec plans to reduce emissions to 20 percent below 1990 levels by 2020 with its cap-and-trade program, which applies to about 75 companies in the province. Under California’s program, carbon emissions from power generators, oil refineries and other industrial plants will be capped and then gradually reduced to 1990 levels by 2020. The system will eventually regulate 85 percent of the greenhouse gases released in California.

Regulators in both California and Quebec are issuing carbon allowances through a combination of free allocations and auctions, each permitting the release of 1 metric ton. Companies must turn in allowances to cover their emissions, and those with more allowances than they need, can sell or trade the excess.



 



	


	





	

		
		
California Holds Successful First Auction of Carbon Allowances
	


	
	
	

		
 

The California Air Resources Board (CARB) held its first auction on November 14, 2012 for the purchase and sale of carbon allowances for its planned cap-and-trade regime. Mary Nichols, chairman of CARB, declared the auction a success:


“The auction was a success and an important milestone for California as a leader in the global clean tech market. By putting a price on carbon, we can break our unhealthy dependence on fossil fuels and move at full speed toward a clean energy future.  That means new jobs, cleaner water and air – and a working model for other states, and the nation, to use as we gear up to fight climate change and make our economy more competitive and resilient.”


The auction results were released to the public on November 19th (available online) .  A tonne of carbon for the 2013 vintage year sold for $10.09, which is slightly above the $10.00 price floor set by CARB. The highest bid was a whopping $91.13.  Also, there was three times the number of bidders at the auction than actual buyers, indicating a healthy and competitive market. Furthermore, 97% of allowances were purchased by regulated entities indicating that prices were not influenced by speculative buyers. Instead, it seems to indicate that regulated entities are looking to retire allowances for compliance purposes.  Perhaps most importantly, the auction sold out with all 23,126,110 2013 vintage year allowances being purchased, raising approximately US$233 million. This auction kicks off the largest carbon market in North America and the second largest in the world, behind the European Union Emissions Trading Scheme.


California’s partners in the Western Climate Initiative (WCI) – including British Columbia, Manitoba, Ontario, and Québec – are no doubt paying close attention.  Apart from Québec, which will launch its emissions trading system on January 1, 2013 with California, the success of California’s cap-and-trade program may spur the other WCI partners into action to implement a similar scheme.


 





	


	





	

		
		
California to hold First Auction of GHG Emission Allowances on November 14, 2012
	


	
	
	

		
 

Bill AB 32 requires California to reduce greenhouse gas emissions to 1990 levels by 2020. The cap and trade regulation (“Regulation”) is a key element of California’s climate plan. The Regulation is designed to provide regulated entities with the flexibility to seek out and implement the lowest cost options to reduce emissions.  California’s cap and trade program will be second in size only to the European Union’s Emissions Trading System based on the amount of emissions covered. In addition to driving emission cuts in the ninth largest economy in the world, California’s program will provide critical experience in how an economy-wide cap and- trade system can function in the United States.


It is anticipated that California’s emissions trading system will reduce greenhouse gas emissions from regulated entities by more than 16% between 2013 and 2020. Starting on January 1, 2013, the Regulation will apply to large electric power plants and large industrial plants. In 2015, it will extend to fuel distributors (including distributors of heating and transportation fuels). At that stage, the program will encompass around 360 businesses throughout California and nearly 85% of the state’s total greenhouse gas emissions.


Under a cap and trade system, companies must hold enough emission allowances to cover their emissions, and are free to buy and sell allowances on the open market.  As part of the cap and trade program, the California Air Resources Board (ARB) will hold allowance auctions to allow market participants to acquire allowances directly from ARB.  ARB will conduct the first auction on November 14, 2012 from 10am to 1pm PST.  ARB will also conduct the first quarterly reserve sale on March 8, 2013. Auction participants will have to apply to participate in an auction, or submit a bid for reserve sales, and meet financial regulatory requirements in order to participate in an auction or reserve sale.


The November 14th auction will mark the beginning of the first greenhouse gas cap and trade program in the United States since the Regional Greenhouse Gas Initiative (RGGI), a cap and trade program for power plants in nine northeastern US states, held its first auction in 2008.


California covered entities, opt-in covered entities, and voluntarily associated entities are eligible to participate in the November 2012 GHG allowance auction. Approved offset registries, verification bodies, and offset verifiers are not eligible to participate in auctions as they are not allowed to hold compliance instruments under the Regulation. Prior to participating in an auction, the Primary Account Representative (PAR) and Alternate Account Representative (AAR) that will be authorized to bid on behalf of entities eligible to participate in the auction must be approved users in the Compliance Instrument Tracking System Service (CITSS) and the entity must have an entity account in the CITSS.


The detailed auction requirements and instructions are available online

 



	


	





	

		
		
California Completes Successful Trial Auction for Cap-and-Trade Program
	


	
	
	

		
 


In advance of the November 2012 launch of California’s carbon trading scheme, the state’s Air Resources Board (ARB) completed in August a successful trial of its carbon allowance auction system, where companies pretended to bid for carbon allowances in order to test out the system ahead of its official launch on November 14, 2012.  According to ARB officials, the trial auction ran smoothly, with approximately 150 companies submitting bids during the simulation.


Following the roll out of the platform in November, more than 400 companies will be able to buy and sell carbon credits through quarterly auctions.  From 2013, a statewide cap on carbon emissions will be imposed. This cap will be gradually lowered year-on-year, thus providing companies with a financial incentive to curb their greenhouse gas emissions.


Under the planned scheme, companies will need to hold carbon allowances to cover their own emissions and they will be required to purchase additional allowances if they exceed their cap. In the first year of the scheme, the ARB plans to give away the vast majority of credits and auction only 10% in order to put a price on carbon. However, the amount of free carbon allowances will be reduced each year so that by 2020, 50% of allowances will be auctioned, providing a clear price signal for firms to invest in low emission technologies.




 



	


	





	

		
		
Climate Action Reserve Board Adopts Nitrous Oxide Reduction Methodology for Synthetic Nitrogen Fertilizer Management
	


	
	
	

		
 

The Climate Action Reserve (CAR) has developed a Nitrogen Management Project Protocol (NMPP) for the agricultural sector to provide guidance on how to quantify, monitor and verify greenhouse gas (GHG) emission reductions from improving nitrogen use efficiency in crop production. The protocol was adopted by CAR in June 2012. It is available online.

 Within the same field, scientists at the National Science Foundation’s (NSF) Kellogg Biological Station (KBS) Long-Term Ecological Research (LTER) are putting the finishing touches on a program called the nitrous oxide greenhouse gas reduction methodology. This program, which is being conducted in partnership with the Electric Power Research Institute, would pay farmers to apply less nitrogen fertilizer in a way that doesn’t jeopardize yields.  When farmers reduce their nitrogen fertilizer use, they can use the methodology as a means of generating carbon credits. These credits can then be traded in carbon markets for financial payments. The methodology was recently approved by the American Carbon Registry and is in its final stages of validation by the Verified Carbon Standard.


In the United States, agriculture accounts for almost 70 percent of all nitrous oxide emissions linked with human activity. Nitrous oxide is one of the major gases contributing to human-induced climate change and has a lifetime in the atmosphere of more than 100 years. In addition, a molecule of nitrous oxide has more than 300 times the heat-trapping effect in the atmosphere as a molecule of carbon dioxide.


To achieve desired production levels of crops such as corn, most farmers apply synthetic nitrogen fertilizer to their fields every year. While the production of nitrous oxide through microbial activity is a natural process in soils, the large-scale application of fertilizer has greatly increased the amount of nitrous oxide in soils. Once nitrogen fertilizer hits the ground, it is hard to contain and is easily lost to groundwater, rivers, oceans and the atmosphere. Nitrogen lost to the environment from agricultural fields is nitrogen not used by crops, which costs farmers money and degrades water and air quality. Farmers already manage fertilizer to avoid large losses, but to reduce losses further it currently costs more money than the fertilizer saves.


Carbon credits provide an incentive for farmers to apply fertilizer more precisely, rather than to reduce yields.  In addition to providing an economic incentive, the methodology is a tool that farmers can apply to enhance their land stewardship.




 



	


	





	

		
		
Legal Challenges Unlikely to Delay 2013 Start of California’s Cap-and-Trade Program
	


	
	
	

		
 


According to a panel of legal experts, it is unlikely that recent legal challenges to California’s cap-and-trade program will delay the start of compliance with the system on January 1, 2013. Speaking at the Navigating the American Carbon World conference in San Francisco on April 12, 2012, lawyers said that state regulators have done a good job in designing a system that can withstand legal challenges from regulated industries including the oil, gas and power sectors.


“Even if lawsuits are filed, I don’t think we’re going to see anything between now and the end of 2012 that will actually delay it,” said Tim O’Connor, a lawyer with the Environmental Defense Fund (EDF).  He added that: “There might be lawsuits that are continuing, but nothing that will actually derail it at December 31, 2012,” when compliance with the program begins. Other panel members agreed that it was difficult to envision a scenario where a lawsuit would knock the program completely off course.


The majority of the lawsuits filed so far against the California Air Resources Board (ARB), the state agency that designed and is implementing the program, have come from environmental groups, not industry.


A lawsuit by an environmental justice group known as the Association of Irritated Residents (AIR) last year contributed to the ARB’s decision to delay compliance with the program until 2013.


In March 2012, two employees at the Environmental Protection Agency (EPA), acting as private citizens, filed a lawsuit claiming the ARB overstepped its authority when it said offset credits could count for compliance with the system. State officials and independent legal experts at the conference said they were confident the state would prevail in that case.


One reason lawsuits from industry have yet to materialize may be because the state has designed a system that stands on firm legal ground, EDF’s O’Connor said: “I would hope that the reason we haven’t seen a lot of legal challenges so far is because there are a lot of options that have been taken off the table because of smart design and design that is in compliance with the law”.


(Sources include: Thomson Reuters Point Carbon)