State unlikely to spur federal emissions cap soon

Air Resources Board has begun auctioning permits for greenhouse gas emissions

By Jason Dearen
Associated Press

SAN FRANCISCO (AP) — California’s new system for limiting industrial greenhouse gas emissions by putting a price on carbon is not likely to spur a similar federal program anytime soon, but it might influence other states to follow suit, energy policy experts said.

The state’s Air Resources Board on Wednesday began auctioning permits called “allowances” for greenhouse gas emissions, launching the world’s second-largest marketplace for carbon emissions.

Under the “cap-and-trade” program, the state sets a limit, or cap, on emissions from individual polluters. Businesses are required to either cut emissions to the cap levels or buy allowances through the auction from other companies for each extra ton of pollution discharged annually.

The results of the closed, online auction — indicating the price companies paid to emit a ton of carbon, and how many companies participated — were released Nov. 19, the board said.
Energy policy experts said lawmakers in Washington, D.C., are watching California’s experiment closely, but it would likely take six months to a year to know its effects on the economy.
“In the short term, California’s carbon market is unlikely to change our paralysis on climate legislation in Washington. But it will carry immediate impact with other jurisdictions looking at carbon markets, whether they be other states or other nations around the globe,” said Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University.
“Over the longer term, the success or failure of California to limit emissions in the world’s ninth-largest economy will have a great influence on the conventional political wisdom regarding whether a federal climate approach is feasible.”

The cap-and-trade plan is a central piece of AB32, California’s landmark 2006 global warming regulations.

Only the European Union has implemented a similar plan in terms of scope, and it currently operates the world’s largest carbon marketplace. A much less inclusive cap-and-trade scheme covers only electricity producers in the northeastern United States.

If the California program fails, it would be a devastating blow to carbon control efforts nationally, said Severin Borenstein, a professor at the University of California, Berkeley, and an expert on energy economics.

“Cap-and-trade is still probably the most likely way we eventually could get to a national carbon mitigation program,” Borenstein said.

For the first two years of the program, large industrial emitters will receive 90 percent of their allowances for free in a soft start meant to give companies time to reduce emissions through new technologies or other means.

The cap, or number of allowances, will decline over time in an effort to reduce greenhouse gas emissions year-by-year.

If a business cuts emissions below its cap, it could profit by selling its extra allowances at a later auction.

Firms can also generate credits by investing in forestry and other projects that remove carbon from the atmosphere. Those credits can satisfy up to 8 percent of a company’s mandated emissions reductions.

Some businesses targeted by the program have argued the increased costs will drive jobs out of California. Executives also argue it could result in increased emissions by businesses in neighboring states that boost production to grab business.

“Raising costs in California will allow out-of-state firms to lower prices and take market share,” said Shelly Sullivan of the AB32 Implementation Group, a business coalition that supports greenhouse gas reductions but opposes the auctioning of allowances.

“As it stands now the auction equates to a tax for these businesses to continue to operate in the state,” Sullivan said. “Those costs will be passed through to consumers.”

The California Chamber of Commerce has filed a lawsuit challenging the air board’s authority to sell the allowances to generate revenue for the state. It claims the sale of allowances is an illegal tax because taxes need a two-thirds vote by the Legislature.

The board has said it expects cap-and-trade to withstand legal scrutiny.