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California Realities and Federal Plans

A tale of two energy worlds.

Fortnightly Magazine - August 2009

meet the 2020 reduction goals, these sectors would have to account for more than 85 percent of the CO 2e reductions. Of these reductions, three-quarters would be achieved through traditional programs and one-quarter through a cap-and-trade program.

The cap-and-trade program would cap emissions from the largest GHG emitters beginning in 2012. Over time, the emissions cap would be lowered at a rate designed to meet the reduction goal mandated by AB 32. Once the cap is established, CARB can determine the total amount of allowances (permits to emit a specified quantity of carbon) available in the program. CARB envisions that some allowances initially would be allocated freely to the large emitters. However, initial plans call for a majority of allowances to be auctioned as part of the carbon-trading market. Offsets (verifiable emission reductions from individual projects) may be part of the program for compliance purposes, with a possible limit on how many offsets an entity could rely on in meeting its compliance obligations.

The CARB program eventually would link with a regional cap-and-trade program under the auspices of the Western Climate Initiative, an effort involving Arizona, New Mexico, Oregon, Washington, Utah, and Montana, along with the Canadian provinces of British Columbia, Manitoba, and Quebec. Regulations to implement the cap-and-trade program need to be developed by the end of 2010, which will of course require integration with any federal government GHG program developed by that time.

It should also be noted that, like 27 other states, California has RPS requirements. California’s RPS calls for investor-owned utilities to obtain 20 percent of their electricity from renewable resources by 2010 and 33 percent by 2020.

Federal Plans

On February 26, 2009, the Obama administration offered the initial view into its thinking on federal climate-change and carbon-trading legislation when it released an outline of its budget plan for Fiscal Year 2010. For the first time, the Office of Management and Budget (OMB) placed a dollar value on the right to emit GHGs, and used this value as the basis for a $645.7 billion assumption about a new and sustained source of government revenue generated from the auctioning of carbon-emissions allowances.

According to the Obama plan, the new emissions allowances would be created under a federal cap-and-trade system for greenhouse gases modeled on the acid-rain program launched following the 1990 amendments to the Clean Air Act. Under the acid-rain program, most emissions allowances were distributed at little or no cost to regulated industries according to one of several formulas that considered, among other things, each facility’s historic emissions. In contrast, the Obama cap-and-trade plan for GHGs called for 100 percent of the emissions allowances to be sold at auction to the highest bidders. By treating auction proceeds from a carbon cap-and-trade program as a revenue generator, the Obama plan spurred Congress and the regulatory agencies to proceed with implementing steps—the most recent step being the House’s approval of ACES. But whether that legislation prevails or not, GHG policies are moving forward at the federal level.

For example, on March 10, 2009, the EPA proposed regulations to