Exploring California's Proposed Climate Change Rules and the Defeat of Prop 23

Today marks the final day of Gov. Schwarzenegger's Global Climate Summit at UC Davis. (Watch it live here.) Gretchen Weber reports on KQED's Climate Watch blog:

...more than 80 regional and local governments have come together for two days to try to figure out ways to reduce emissions and put the brakes on climate change. The idea is that since last year’s UN climate summit in Copenhagen failed to produce a binding international agreement, and the US Congress can’t get it together to agree on any sort of energy and/or climate bill, cities and states and provinces can’t stand by and do nothing while the international community haggles and CO2 levels continue to creep higher.

The whole thing kind of reminds me of Goonies. You know, the movie from the 1980s...when a whole neighborhood was going to be demolished because the residents couldn’t afford to save their homes? The parents didn’t know what to do and they just gave up, resigned to their fates. But then all the neighborhood kids, realizing that their parents weren’t going to protect them after all, got together in a rag-tag bunch and saved the day, and the neighborhood...

That’s kind of what’s happening here at the Governor’s Global Climate Summit. The parents (i.e. national governments) aren’t acting, so the kids (i.e. "subnational" governments) are getting together to fight climate change where they can. It might not be the most streamlined way to address the problem, but according to host governor Arnold Schwarzenegger, there's really no choice.

A large component of the "kids'" plan is AB 32, California's Global Warming Solutions Act. this which set a goal of reducing 2020 greenhouse gas emissions to 1990 levels. The recent defeat of Proposition 23, which would have suspended AB 32 until the state's unemployment rate vastly improved, has cleared a major stumbling block in implementing the law. On October 29, the Air Resources Board issued rules intended to meet the emission reduction goals. These included the kind of cap-and-trade program that has been left for dead in the U.S. Congress.

In order to understand AB 32 and the proposed new rules better, I interviewed Craig Miller, Senior Editor of KQED's Climate Watch initiative:

QUESTION
Just before the election, the California Air Resources Board released its plan to implement AB 32. Can you summarize the plan, including the cap and trade component?

CRAIG MILLER
The CARB staff is recommending that the state start meting out “allowances” (permits to emit carbon) in February of 2012, starting with electrical utilities and “large industrial” emitters, like oil refineries and cement plants. At first, 90% of the permits will be given away, as a nod to the current tough economic environment. In later years, the state will auction off a portion of the permits.

Each year the cap on total emissions shrinks a bit to attain the CO2 reduction goals of AB 32. The whole thing is up for public comment now. Board approval is expected at the December 16th meeting. Here’s a downloadable PDF overview of the whole program.

QUESTION
In the San Jose Mercury News, both the Natural Resources Defense Council and industry officials reported they were pleased with the rules. So has CARB hit that sweet spot where both sides are happy? What am I missing here?

CRAIG MILLER
Funny you should put it that way. “Sweet spot” is exactly the term used by Jamie Fine, a policy analyst with the Environmental Defense Fund in Sacramento. He told me he thinks the state has done a good job of finding that happy zone that serves the twin goals of achieving eventual carbon reductions and protecting the state’s economy from an ill-timed hit.

It’s true that many environmentalists were pushing for a “100% auction” of permits but CARB staffers have been saying for months that that wasn’t a realistic way to start. Fine figures that more than half the permits will be auctioned by 2015 and he’s happy with that.

QUESTION
Do you think there was some political motivation to releasing the rules the Friday before the vote on Prop 23?

CRAIG MILLER
Seems logical, as there was a chance there to show that full implementation of AB 32 wouldn’t be a job killer. But they also needed 45 days for public comment before the December board meeting.

QUESTION
What exactly did Valero and Tesoro have at stake so that they bankrolled Prop 23? And why did the really prominent big oil companies stay out of the fight?

CRAIG MILLER
For oil companies with major refining operations in California, tens of millions of dollars per year were on the line, in potential permit fees and upgrades to facilities. Valero, the nation’s largest refiner and biggest donor to Prop 23, estimated that AB 32 would cost the company $75 million. Both Valero and Tesoro have refineries in California, including Tesoro’s largest. We’ve mapped the state’s biggest industrial carbon emitters:

I’m not an oil industry analyst but the major oil companies can use profits from their “upstream” operations—their crude oil fields, basically—to offset the cost of AB 32. Valero & Tesoro are just refiners and are seeing their margins squeezed more than the big, vertically integrated players. It’s worth noting that Occidental, an LA-based oil company, was also a large donor to Prop 23.

QUESTION
Reports indicated that a lot of money was switched from going to Prop 23 to Prop 26 when it became clear 23 would not pass. How will Prop 26 impact AB 32? Will the state find it hard or impossible to institute fees necessary to implement the new rules?

CRAIG MILLER
We don’t know yet. But toward the end of the campaign, it was “the elephant in the room” that the No-on-23 people weren’t really talking about. CARB’s position is that Prop 26—having passed—will not affect any fees authorized by AB 32, which passed in 2006. Others say it’s not that clear-cut. Stay tuned.

QUESTION
Any other important issues related to AB 32?

CRAIG MILLER
Unsettled is exactly what will happen with the Western Climate Initiative, the nascent attempt at a regional carbon trading partnership between California and several other states and Canadian provinces. Recently it has seemed that only New Mexico and Quebec were really ready to move forward with WCI. Arizona has pulled out of the cap-and-trade plan. Other states are in limbo, still participating on paper but without the necessary enabling legislation. We may find out more from this week’s climate “summit” that Governor Schwarzenegger is hosting in Davis.

Related:

• QUEST Climate Watch: California at the Tipping Point