State faces ‘giant’ questions about slashing emissions

Source: Debra Kahn, E&E News reporter • Posted: Friday, December 15, 2017

California’s climate regulators are set to vote on a plan to reach the state’s ambitious greenhouse gas goals through 2030, but heavy political lifting still remains to fill in the details.

The state’s “scoping plan,” which is updated every five years, envisions continued progress on California’s targets for renewable energy, energy efficiency, alternative fuels and vehicles, plus the continuation of the state’s greenhouse gas market. Carbon trading is seen as the backstop to ensure that the state actually meets its goal of reaching 40 percent below 1990 emissions by 2030.

The California Air Resources Board (ARB) predicts that “direct” regulations — including the state’s renewable portfolio standard, low-carbon fuel standard and new rules to slash methane, refrigerants and soot from fuel combustion — will account for 62 percent of the cumulative reductions needed through 2030.

Cap and trade is intended to fill in the gap, or roughly 38 percent of cumulative reductions. That’s a far bigger share than it has contributed to date. The state originally estimated that cap and trade would account for 20 percent of reductions through 2020. Estimates based on recent data find that it may have spurred much less than that so far, due to complementary policies like the renewables target as well as a generous cushion of excess allowances (Climatewire, Nov. 15).

The large role reserved for cap and trade hints at policy fights yet to come, say observers. The market is due for substantial revisions, and tough decisions remain about how to balance the program’s environmental stringency with the need to keep allowance prices manageable for covered businesses. The fact that ARB expects cap and trade to account for nearly 40 percent of reductions in the 2021-30 period, but also for supplies to remain high through mid-decade, indicates that a steep share of the reductions would need to happen in the final years of the program.

“That’s the unanswered question,” said Danny Cullenward, a research associate at the think tank Near Zero, who was named by state California Senate President Pro Tempore Kevin de León (D) earlier this year to a committee that tracks the economic and environmental performance of the cap-and-trade market. “It is the giant, gaping analytical problem that needs to be resolved.”

The tussle over the specifics of the plan will play out over the next year, through rulemaking mandated by A.B. 398, a bill by Assemblymember Eduardo Garcia (D) enacted earlier this year that authorizes the use of cap and trade through 2030. The law requires ARB to install a price ceiling for allowances and to at least consider what to do about the cushion of excess allowances that are projected to persist into the mid-2020s.

While regulators aren’t required to take action on the projected oversupply, some market analysts are hoping that they will.

“I expect it’s going to be a continuing topic of interest, and my belief is that eventually CARB is going to want to make some adjustments,” said Chris Busch, director of research at the advisory firm Energy Innovation. The firm released a report earlier this week calling for ARB and other jurisdictions linked to California’s market to reduce the allowance budget after 2020 in order to account for the current oversupply.

The state’s Legislative Analyst’s Office also issued a report yesterday recommending that the Legislature keep an eye on ARB’s decisionmaking. Depending on decisions made about the price ceiling, the oversupply and the amount of allowances given away versus auctioned, revenues could range from $2 billion to $7 billion in 2030, the report says.

An October workshop on the post-2020 program provided some early indicators of the battle lines.

Pacific Gas & Electric Co., the state’s largest utility, filed comments arguing that oversupply is not an issue because demand is projected to eventually exceed supply before 2030. Reducing the supply could cause “greater negative impacts to household income,” PG&E’s Nathan Bengtsson wrote.

Oil industry representatives warned that tightening the supply could come at the expense of the stringency of other state programs. “If ARB desires to have more emission reductions occur under the cap-and-trade program, it may want to consider, where feasible, reducing the stringency of complementary measures such as the LCFS [low-carbon fuel standard],” wrote Cathy Reheis-Boyd, president of the trade group Western States Petroleum Association.