As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.
Carbon and the Constitution
State GHG policies confront federal roadblocks.
sustainable carbon policy is imperative and urgent. Some of the most knowledgeable climatologists argue that we have only until 2015 radically to reduce the emission rate of CO 2, or face a very different planet. 7 The first lawsuit against the East Coast RGGI carbon regulation was initiated by Indeck Energy in 2009. It does little to meet these urgent goals if state carbon restrictions result in protracted litigation.
GHGs in the States
Twenty-three U.S. states have elected to regulate carbon emissions, with all focusing initially on the power sectors. The 10 states that are participating in the RGGI scheme and California are significant because in scale-combined, they approach the entire emissions total of the nation of Japan, one of the largest Kyoto participants. California alone is among the sixteen highest GHG-emitting entities among world nations. California’s GHG emissions are comparable to those of Indonesia, the fourth most populous nation in the world.
Beginning in 2003, Governor George Pataki of New York initiated the effort by inviting neighboring states to participate in a regional cap-and-trade emissions program. The RGGI program 8 Guiding Principles Agreement provided: “The initial phase of the cap and trade program will entail the allocation and trading of carbon dioxide allowances to and by sources in the power sector only.” However, the 10 states implementing the RGGI will auction allowances to essentially any bidder, not an allocation to affected facilities as contemplated in the Guiding Principles Agreement. This change is legally significant. In 2009, CO 2 emissions from power plants in the region are capped at current levels and the cap will remain in place until 2015. RGGI states then would begin the process of incrementally reducing power-plant emissions, with the goal of achieving a 10-percent reduction by 2019.
It’s unprecedented in U.S. environmental regulation history for emissions allocations to be auctioned rather than given to existing sources. 9 Some observers have noted that even five years ago, auctioning allowances for emissions was thought to be a “crazy idea.” 10 For Massachusetts, this auction even at only $5 per allowance would raise more than $100 million annually. 11
There also is little experience internationally for auctioning any emission allowances. In the history of the European Union (EU) carbon program, allowances have been given away for free, mirroring the U.S. Clean Air Act emission-allowance programs in which almost all allowances have been given away to regulated emitters without charge. The EU European Trading Scheme after 2012 likely will shift to an auction of all power-sector allowances in the EU, 12 building on the earlier decisions on RGGI in the United States.
On the other side of the country, California is taking a different approach to regulating GHGs. The California carbon scheme requires that California reduce GHG emissions to 1990 levels by 2020, counting all in-state and out-of-state generation used to serve California’s electric load. 13 California’s GHG emissions in 2004 already were almost 15 percent greater than in the 1990s. This equates to an eventual estimated 25-percent reduction from business-as-usual levels. 14
In its Final Report, the California Market Advisory Committee