Now California Needs to Cap Costs While it Caps Carbon

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By Carolyn Whetzel

Now that California has extended its carbon dioxide trading program through 2030 businesses are waiting to see how state regulators plan to keep compliance costs down.

Gov. Jerry Brown (D) claimed victory when he signed an extension of California’s landmark cap-and-trade program into law July 26, but several crucial components of the program still need to be worked out by the California Air Resources Board. Those include setting the annual emissions caps for the largest emitters of greenhouse gases from 2021 through 2030 and enacting new measures to control industry’s expenses while meeting the state’s goal of reducing its greenhouse gas emissions 40 percent from 1990 levels by 2030.

Adding provisions to guard against spikes in carbon dioxide allowance prices and energy costs were a big win for industry, Western States Petroleum Association President Catherine Reheis-Boyd told Bloomberg BNA July 26. The group’s members include Chevron Corp. U.S.A., Phillips 66, and Valero Energy Corp.

“This program is going to be expensive no matter what way we go, but it would cost 10 times as much without a market-based program,” she said.

The California Air Resources Board will consider amendments to the existing program July 27 that are designed to set the stage for extending cap-and-trade though 2030. In the works for over a year but shelved until the law was passed, the proposed revisions authorize the agency to set new emissions caps for the years beyond 2021, continue the link with Quebec’s program, and pave the way for Ontario to join the trading program in 2018.

‘The Potential Costs’

“The level of the price ceiling is very important” to protect the economy, Environmental Defense Fund senior attorney Erica Morehouse said in a July 25 webinar on the updated law. The law didn’t include a specific price, but it does provide CARB direction on keeping costs down, she said.

The updated cap-and-trade law also left unanswered questions surrounding the use of unsold allowances that could be used to keep prices down, Morehouse said. The law requires the use of those allowances be mitigated but doesn’t describe which types of instruments could be used.

The price ceiling needs to be based on solid data and research, Dorothy Rothrock, president of the California Manufacturers and Technology Association, told Bloomberg BNA July 26.

“We need to understand what the potential costs could be,” she said.

Details on Offsets Needed

CARB’s other hefty task involves rewriting the rules for the use of carbon offsets, projects that reduce greenhouse gas emissions, Jon Costantino, chief executive officer of Tradesman Advisors, a consulting firm, said during the webinar.

The extended cap-and-trade law cuts in half the use of offsets, which can involve projects that plant trees or reduce methane emissions. And beginning in 2020, half of the offsets must involve projects that benefit California, especially the state’s disadvantaged, Native American, and rural and agricultural communities.

The law is absent details on specifics about those projects, Costantino said.

To contact the reporter on this story: Carolyn Whetzel in Los Angeles at cwhetzel@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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