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Market-Based Approaches in AB 32 Implementation

Environmental Law Conference at Yosemite. Market-Based Approaches in AB 32 Implementation. October 20, 2007 Charles M. Shulock California Air Resources Board. Definitions. Market-based compliance mechanism

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Market-Based Approaches in AB 32 Implementation

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  1. Environmental Law Conference at Yosemite Market-Based Approaches in AB 32 Implementation October 20, 2007 Charles M. Shulock California Air Resources Board

  2. Definitions • Market-based compliance mechanism • System of market-based declining annual aggregate emission limitations for sources or categories of sources • GHG emissions exchanges, banking, credits, and other transactions that result in the same reduction as direct compliance

  3. Statutory Framework • Scoping Plan • “Shall identify and make recommendations on direct emission reduction measures, alternative compliance mechanisms, market-based compliance mechanisms, and potential monetary and nonmonetary incentives…” • Board shall consult with PUC and CEC on elements of plan that pertain to energy matters

  4. Statutory Framework • In adopting regulations to implement Scoping Plan, the Board shall • Be equitable, minimize costs and maximize total benefits, encourage early action • Avoid disproportionate impacts • Ensure that voluntary reductions get appropriate credit • Consider cost-effectiveness, overall societal benefits • Minimize administrative burden • Minimize leakage • Consider significance of sources

  5. Statutory Framework • Regulations may include use of market-based compliance mechanisms • Regulation must ensure • Reductions are real, permanent, quantifiable, verifiable, and enforceable • Reductions are in addition to any reduction that is required or would otherwise occur • If applicable, reduction is equivalent to direct emission reduction in timing and amount

  6. Statutory Framework • Prior to inclusion of market-based approaches, to extent feasible the Board shall • Consider potential for cumulative and localized impacts • Design system to prevent increase in criteria or toxic emissions • Maximize additional environmental and economic benefits

  7. Statutory Framework • Board to adopt • Methodologies for quantification of voluntary reductions • Regulations to verify and enforce any voluntary reductions used to comply with emission limits

  8. Major Issues • Role of markets in overall program • Many existing regulations have market components • Design issues • Scope and point of regulation • Load based, first seller • Allowance allocation • Use of offsets--should there be restriction (quantitative, geographic)

  9. Process • October Board meeting • Discuss development of methodologies for quantification of voluntary reductions • Scoping Plan workshops • November 30—plan structure • December 14—sector-based potential reductions (will look at suitability for market) • January 16—further design and evaluation of mechanisms

  10. Market Advisory Committee • Committee appointed by CalEPA • Final report released June 29, 2007 • Presented to ARB at July Board meeting • ARB will review Committee input and consider as part of public process • ARB responsible for program adoption

  11. Key MAC Recommendations • Eventually incorporate all major GHG-emitting sectors into cap-and-trade program • Take “first-seller” approach to cap emissions associated with electricity • Use combination of free allocation and auction • Allow offsets, both within and outside state • Provide linkage with similar initiatives in other jurisdictions

  12. Joint Development of Electricity Sector Recommendations • CPUC and CEC will jointly develop recommendations for AB 32 implementation for entire electricity sector (IOU, muni, other) • Recommendations will be integrated into broader economy-wide approach

  13. Emissions Cap Policy Development • Development of policy being handled jointly by CPUC and CEC • Designed to dovetail with Air Resources Board implementation of AB 32 • CPUC/CEC will develop guidelines forelectricity sector (investor-owned and publicly-owned utilities) for ARB adoption; separate track will also address natural gas distribution utilities • Major outcome of proceeding: size of contribution to 2020 required reductions from electricity and natural gas sectors • CPUC adopted policy framework in February 2006 (prior to AB 32 consideration), based on workshops and rulemaking conducted in 2004-2005

  14. Proceeding Organization Work happening on six separate tracks: • Reporting issues • Baseline development • Emission reduction measures and annual emissions caps • Flexible compliance mechanisms • Allowance Allocation • Modeling to support evaluation of costs

  15. Allowance Allocation • Currently evaluating policy issues surrounding allowance allocation – track addresses issues about how to set emissions caps for each entity in the electricity and natural gas sectors • CPUC held workshop on June 22 to discuss options with stakeholders. • CPUC staff preparing a set of questions and a straw proposal on which to take comments from parties in writing.

  16. Flexible Compliance • Track encompasses such issues as trading, compliance periods, banking, borrowing, and offsets • CPUC staff held workshop in April • CPUC staff preparing a proposal to be issued in September for comment • Comments on this will help narrow what scenarios are being modeled

  17. Summary • The CPUC and the CEC will jointly adopt a “framework” policy decision in the February/March 2008 timeframe to give some key initial policy recommendations to CARB before their multi-sector integration workshop in March or April 2008. • The CPUC and CEC will continue to refine analysis during 2008 and MAY issue a subsequent decision in September 2008 in time for CARB to incorporate into their final scoping plan.

  18. Western Regional Climate Action Initiative • Set overall regional goal consistent with state by state goals • Developing design for regional market-based multi-sector mechanism to achieve goal

  19. Western Regional Climate Action Initiative • Subcommittees established • Allocations: Steve Owens, AZ • Data Reporting: Jim Norton, NM • Electricity: Dave Van't Hof, OR • Offsets: Tim Lesiuk, BC • Scope: Michael Gibbs, CA

  20. California Recommendations for Federal Legislation • Effective and enforceable targets are critical • Encouraged by inclusion of emissions trading; recommend careful review of MAC report • Cost containment • Efficient trading system • Banking, offsets, linkage • Safety valves or circuit breakers jeopardize integrity of cap and prohibit linkage • Allocation • Majority of allowances should be auctioned • Any free allocation should be transitional

  21. Contacts and More Information • ARB Climate Change Web Site • http://www.arb.ca.gov/cc/cc.htm • Stay informed - sign up for list serve • California Climate Change Portal • http://www.climatechange.ca.gov • Chuck Shulock (916) 322-6964 cshulock@arb.ca.gov

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