California Cap and trade rules Governor Lauds Climate Action Heroes

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Published Dec. 17, 2010

Half a century after California became the first state to limit vehicle emissions by requiring a PCV valve on cars and trucks – a device still used today – it has taken another historic step by approving an emissions trading program.

Regulators hope the so-called cap-and-trade system, like other pollution control measures enacted in the state over the decades, will become a national model.

Over time it is expected to result in electricity and fuel costs that more accurately represent the effects on society of spewing pollutants into the air, by setting a price on emissions. Proponents say that it will promote energy efficiency and the use of cleaner sources such as solar, wind and geothermal power, and that developing renewable energy will create sustainable jobs.

“This program is the capstone of our climate policy, and will accelerate California’s progress toward a clean-energy economy,” said Mary D. Nichols, chairwoman of the California Air Resources Board, part of the state Environmental Protection Agency.

The regulations are an outgrowth of AB 32, the state’s climate change law, enacted in 2006 with the zealous support of Gov. Arnold Schwarzenegger.

Mr. Schwarzenegger, whose term of office ends Jan. 3, 2011, appeared at a meeting Thursday at which the Air Resources Board adopted the rules. He congratulated the board and spoke off the cuff for more than eight minutes. His last year as governor has been marked by the start of a transformation in how energy is produced and used by Californians.

“In this economic recession, this downturn, the biggest recession since the Great Depression, the real jobs that we are creating right now are green jobs,” he said. “Since 2006 or so, green jobs have been created 10 times faster than in any other sector.

“We have been approving one solar plant after the other. What is it right now, 5,700 megawatts this year alone that we have approved? That’s billions of dollars that are being poured into California, just in green technology,” he said.

The regulations adopted Thursday set a statewide limit on the sources responsible for more than three-fourths of California’s greenhouse gas emissions. The board said the program is designed to be flexible so that affected companies and organizations can find and adopt the lowest-cost means of reducing emissions.

Los Angeles Mayor Antonio Villaraigosa and First Deputy Mayor Austin Beutner, who has been interim chief of the city’s Department of Water and Power, issued a joint statement applauding the final adoption of the AB 32 regulations.

“We appreciate Gov. Arnold Schwarzenegger’s unwavering stewardship in moving our state forward on renewable energy and carbon reduction,” the statement said. “We would also like to thank CARB Chairwoman Mary Nichols for her efforts and commitment to finding a strong, balanced approach that will allow the city of Los Angeles and the L.A. Department of Water and Power to continue on its aggressive path toward reducing greenhouse gas emissions.”

The department has drawn sharp criticism recently because its latest long-term plan calls for obtaining 33 percent of its electricity mix from renewable sources by 2020, in line with the state’s requirement. The mayor in his second-term inaugural speech had mentioned a 40 percent target, which was never formally adopted.

Los Angeles, which has a substantial lower-income population, has lower electricity rates than most of the surrounding region in large part because it imports the largest share of its electricity from out-of-state coal-fired power plants. Cleaner and more costly natural gas-fueled generation is the predominant source of electricity in the surrounding region and the state as a whole.

However, the city is in a fix in part because of high present and future costs for employee wages, benefits and pensions. In addition, some of the fossil-fueled power plants it has been using require expensive upgrades. An immediate move toward renewable energy would put further upward pressure on electricity prices.

“Environmental preservation and conservation efforts must be based on economically sustainable and affordable rates, and the regulations adopted by CARB today will support these ongoing efforts,” the statement by the two Los Angeles officials said.

The cap-and-trade program is part of a package of steps the state is taking toward cleaner air and a greener economy. A state law calls for clearing any roadblocks to the wide use of plug-in vehicles, and other measures promote the use of low-carbon fuels, renewable electricity generation and energy efficiency.

“The cap-and-trade programs and the other measures to reduce greenhouse gases provide a model that can be used at the federal, state and regional levels,” the Air Resources Board said in a news release. “As climate policies are being addressed worldwide, California’s early actions are positioning its economy to reap the benefits on the world stage and are catalyzing action throughout the country and the world.”

California’s emissions regulations will cover about 360 businesses, which operate about 600 facilities that will be affected.  These businesses include electricity generators; electricity importers; industrial operations, including cement plants, co-generation facilities, hydrogen plants, petroleum refiners, and general stationary combustion facilities; and many fuel providers, including wholesalers of gasoline, distillates, propane and natural gas.

The initial phase of emissions rules, starting in 2012, will cover major industrial sources and utilities. The second phase, which is to start in 2015, will affect distributors of transportation fuels, natural gas and other fuels.

Companies will not face specific emissions limits but must supply enough allowances to cover their annual emissions. Each credit or allowance will represent a ton of carbon dioxide emissions. The total number of allowances to be issued in the state will drop annually, prompting companies to seek the least costly and most efficient ways to cut emissions and reduce reliance on allowances.

Under AB 32, California is to reduce its emissions to the 1990 level. At the same time, the state must accommodate expected population increases and economic growth, creating increased energy demand.

The Air Resources Board will provide free allowances to industrial emitters between 2012 and 2014. Companies that need more than their initial free allotment, for example, because of increased need for power production, will be able to buy them at quarterly auctions the board will conduct or on a tradable market.

Electric utilities will be required to sell allowances they are given and dedicate the revenue generated for the benefit of ratepayers and to help achieve AB 32 goals, the board said.

Companies will be able to cover 8 percent of emissions using credits from certain “offset” projects involving forestry management, urban forestry, methane digesters at dairy farms, or the destruction of existing sources of ozone-depleting substances in the United States, such as old refrigerators and air-conditioning equipment.   

The regulations allow for the development of international offset projects, including forest preservation. At the recent Governor’s Climate Summit 3, Mr. Schwarzenegger signed a memorandum of understanding with Chiapas, Mexico and Acre, Brazil that anticipates the establishment of these programs.

California is a key member of the Western Climate Initiative, a group of governing jurisdictions working together to identify, evaluate and implement policies addressing climate change at a regional level. In New Mexico, another member, the Environmental Improvement Board voted last month to adopt greenhouse gas regulations. The program will not be triggered unless at least 100 million tons of emissions are included regionally, which ensures that New Mexico, with annual emissions of about 24 million tons, will not establish a trading program alone.

The regulations now adopted in New Mexico and California are designed to link up with other initiative members, beginning with those two states and the provinces of British Columbia, Ontario and Quebec. Efforts are under way to tie the Western Climate Initiative with the Midwest Greenhouse Gas Reduction Accord and the Northeast’s Regional Greenhouse Gas Initiative.

Although Congress has been unable to agree on a national emissions-reduction program, a framework is emerging in North America with less publicity and less controversy.

In addressing the audience at Thursday’s meeting of the Air Resources Board, Mr. Schwarzenegger spoke of the health effects of air pollution and the process of legislating measures such as AB 32, and lavished praise on the board and its staff.

“They give you these documents that are 1,000 pages long and then the governor goes out and talks about it and has bill-signing ceremonies and all of those things that we had,” he said. “But then someone has to follow through and make it become a reality. And the people you see in front of you here are the people that make this become a reality.”

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