Historic California Air Resources Board Meeting

UPDATE 12:30 P.M.: California Watch yesterday posted a report saying that the rules under consideration by CARB will create a potential windfall for the timber industry by allowing companies to earn carbon credits from the re-planting of clear-cut trees. The companies would then be free to sell those credits on the new carbon trading exchange.

ORIGINAL POST
The California Air Resources Board is meeting today and tomorrow and is widely expected to adopt proposed regulations from its staff that include a cap-and-trade carbon-trading system. The regulations are part of the state's AB 32 law, which aims to cut greenhouse gases to 1990 levels by 2020.

You can watch the meeting live or catch up on the story by listening to KQED's Craig Miller on The California Report. Miller, the Senior Editor of KQED's Climate Watch, is tweeting live from the CARB proceedings, and has also put up a post explaining the new carbon trading system, excerpted below:

...while Washington is "looking for other means" to reduce the carbon emissions that cause global warming, the table is set for cap & trade in California. By day's end Thursday, the state will likely have the nation's first system that covers more than electric utilities.

If the California Air Resources Board formally adopts a set of proposed regulations from its staff, as expected, then starting in early 2012, major emitters of greenhouse gases will come under the program. That 's anything that puts out more than 25,000 tonnes of C02 per year; we're talking power plants, cement kilns, glass factories and of course, oil refineries, where carbon emissions are measured in the millions of metric tons per year.

In 2015 the program will expand and follow these oil and gas products downstream; that means producers will have to account--and eventually pay for--not just the emissions from drilling and refining, but for that carbon produced when the fuel actually gets burned in trains and planes and automobiles.

I say "eventually" because the pay-to-play part doesn't really kick in right away. At first, the state will give away 90% of emissions permits. That will help ease the transition for industry and, in theory, keep companies from fleeing California.

Jamie Fine, a policy watcher with the Environmental Defense Fund in Sacramento, figures that by 2015, more than half the carbon permits will be auctioned off.

Last month, after the proposed rules were released, I interviewed Miller about them, as well as about Proposition 23, the failed voter initiative to suspend the anti-global warming law until the jobless rate vastly improved.

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.