California Prepares to Auction Carbon Credits

California Prepares to Auction Carbon Credits
June 19, 2012

Whitney Stewart

Whitney Stewart (whitney.stewart04@gmail.com) writes from Minnesota.  (read full bio)

The central component of California’s Global Warming Solutions Act (AB32) takes effect this year, and with the state facing a $15.7 billion deficit, political leaders have ended a long debate over how to spend revenue the Act is expected to generate.

The central component is “cap and trade,” a complex system aimed at reducing greenhouse gas emissions generated in the state by capping the amount of gas emissions businesses may produce.

The goal is to reduce carbon emissions to 1990 levels by 2020, then cut them another 80 percent by 2050. Starting this November the state will begin auctioning carbon permits to companies that surpass the emissions limit.

In January 2013 greenhouse gas emissions by the state’s major energy users and pollution emitters will begin to be counted against the cap. Companies with emissions below the cap may sell carbon emissions credits to those that exceed the cap.

Funding Debate

Officials are betting more companies will be buying than selling credits. The state Legislative Analyst’s Office projects quarterly carbon auctions will raise $660 million to $3 billion annually.

Cap and trade critics predict the program will drive companies out of the state.

“In this budget, we actually bank on $500 million scored in extortion money that we’re going to take from businesses known as cap and trade—it’s absolutely insane,” said state Assemblyman Tim Donnelly (R-Hesperia) in a June 15 speech on the Assembly floor. “It’s as if the government of California is the mob. We are going to drive businesses out of the state. This has nothing to do with fixing California’s problems.”

Originally, legislators planned to allocate proceeds from AB32 to technologies and programs aimed at reducing greenhouse gas emissions. They also discussed offering utility rebates for lower-income consumers.

But in the 2012-13 state budget legislators passed in mid-June, the projected $1 billion in revenue over the next two years is slated to offset part of the General Fund’s gaping budget deficit and finance emissions regulation enforcement.

Republican lawmakers have long called cap and trade a moneymaking scheme, not a well-intentioned climate change effort.

More Modest Initiative

When California passed AB32 in 2006, the state government was on a mission to create a massive multi-state coalition to fight climate change through carbon trading and taxation. The Kyoto Protocol had just entered into force the year before, with 37 industrial countries committing to develop national enforcement measures on carbon emissions reduction.

By 2010, California was leading the way for seven states and four Canadian provinces to set and enforce targets for greenhouse gas emissions in the western half of the continent through a coalition called the Western Climate Initiative.

But carbon trading is neither easy nor cheap, and in 2011 Arizona, New Mexico, Oregon, Washington, Montana and Utah dropped out to join a different initiative, North America 2050, which pursues climate change prevention but forgoes cap and trade. British Columbia, Manitoba and Ontario are still a part of WCI but bowed out of the first round of carbon auctions. That means California and Quebec will go it alone this fall.

“It reminds me of the old Chinese proverb that the person who thinks he is a leader and has no followers is just simply taking a walk,” said Tom Tanton, president of T2 & Associates, a California consulting firm for the energy and technology industry. “The 2006 law preamble said California was going to be a leader. But they’re just taking a walk because no one is following us on cap and trade.”

Innovation Imperative

Innovation, not heavy-handed regulation, is the way to improve carbon emission practices, says Tanton, who spent nearly three decades with the California Energy Commission and wrote energy legislation.

The reason for last year’s breakup of the WCI was simple, said Arizona Department of Environmental Quality Communications Director Mark Shaffer: Over-regulation kills jobs, which hurts state economies.

“It became very apparent three or four years ago that cap and trade was going nowhere in Arizona, so we started looking for alternatives,” Shaffer said. “[Cap and trade] was far too regulatory and it felt like it was impossible to economically improve with all those regulations hanging over the state.”

Whitney Stewart

Whitney Stewart (whitney.stewart04@gmail.com) writes from Minnesota.  (read full bio)