Dispatch from the bureaucratic trenches:

The notion may be losing momentum in Washington but in Sacramento, California’s Air Resources Board continues the trudge toward a carbon trading program mandated under the state’s 2006 climate law, AB 32. This week its staff held the latest in a series of public meetings to discuss “program development” and “allowance allocation.” The topic may be a certified snore for most people but the CalEPA auditorium in Sacramento was nearly packed with representatives from utilities, environmental groups, public health advocates and an assortment of other interested parties, many with diametrically opposed views of how carbon allowances should be meted out for trading.

One of them was Chris Busch of the Center for Resource Solutions, who gave voice to a contingent disillusioned with what they read as momentum toward giving away allowances to industry. Busch coined what was probably the phrase of the day, accusing the Air Board of some “creative re-framing” of how carbon allowances might be distributed. Environmentalists have been pushing for something close to a “100% auction” of permits, while many business interests are hoping to get them free of charge, at least in the early stages of the program.

To many in the room, the update from the Air Board staff appeared to indicate a drift toward free permits. The Board’s Kevin Kennedy stressed that the staff had never come out officially for a 100% auction and said they’re “taking a close look” at how best to distribute them. His colleague, Matt Zaragoza put it more bluntly, saying “We’re strongly considering the need for free allocations.”

Regarding the state’s plan to join in a regional carbon market with several other states and some Canadian provinces known as the Western Climate Initiative, Kennedy insisted that “reports of it’s death have been greatly exaggerated.” But when pressed on how many US states are actually prepared to move forward, he confirmed that only New Mexico is in lockstep with California. Arizona’s governor recently signed an executive order pulling that state out of the proposed regional carbon market.

Here in the Golden State, industry is still angling for anything it can get to keep emissions fees to a minimum. Some complain that valid considerations are being left out of the plan.

“A lot of us are producing products today that are very focused on energy savings.,” said Phil Newell, who heads energy and environmental affairs for Guardian Industries, a maker of “low-E” glass products which promote energy efficiency. Newell says that a system of traded carbon permits and offsets should account for the energy savings achieved by his company’s products. “Every time we use a unit of energy in producing a coated product, we’re reducing 500 units of pollution elsewhere,” Newell claimed in a hallway interview. “We need some recognition of that.” Newell said that without that recognition, the high cost of carbon allowances might force his company to shut down manufacturing in California. Guardian operates a plate glass manufacturing plant near Fresno.

The Air Board’s staff says it is pushing for a “design document” describing a plausible allowance system by mid-summer.