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Green: Cap and Trade, the California Way
2010-11-01 15:15:41.959 GMT
By FELICITY BARRINGER
Nov. 1 (New York Times) -- Months after federal
cap-and-trade legislation died in the Senate and days before
California voters will decide on a fiercely fought ballot
initiative to deep-freeze the state's global-warming-prevention
law, state regulators released hundreds of pages of rules on
Friday for how the law is to be applied, industry by industry.
With the late-mover advantage of being able to learn from
earlier failures - both economic and political, in Europe and in
Washington - specialists working with California's Air Resources
Board have drafted proposed regulations intended to cushion the
economic impact on the state's industries but still accomplish
the law's purpose: reducing emissions linked to climate change to
1990 levels by 2020.
That would mean a reduction of about 15 percent, or 273
million metric tons of carbon dioxide or its equivalent, between
2012 and 2020.
This California iteration of cap-and-trade rules comes to a
final vote of the Air Resources Board on Dec. 16. The broad-brush
elements are familiar: they set an initial ceiling on the amount
of climate-warming emissions allowed in the industrial,
electricity, transportation and other sectors, then gradually
lower this ceiling over the years, while creating emission
allowances that can be traded among polluting industries.
The policies were tailored to some extent to accommodate the
varying situations faced by the industries. The accounting system
is intended to mesh not just with local industry needs but also
with the greenhouse-gas accounting carried out by the federal
Environmental Protection Agency.
At the program's inception in 2012, electric utilities will
be awarded allowances free of charge that they must then resell.
Among potential customers are purveyors of wholesale electricity,
which are responsible for the amount of carbon-dioxide emissions
they create. The state air board will act as consignment agent.
Most of the coal-fired generating plants that supply power to
Southern California are in Arizona and New Mexico.
Retail utilities like Southern California Edison, San
Diego's Sempra or Northern California's Pacific Gas & Electric
must use the proceeds from the auctioning of their allowances to
give customers rebates for the increased price of wholesale and
retail electricity, and possibly also for things like
energy-efficiency programs and investments in renewable energy.
The program would not kick in until 2015 for the
carbon-dioxide content in the fuels either made by the 21
refineries that process crude oil or other wholesale suppliers.
These account for nearly 60 percent of the industrial sector's
emissions. The allowances would initially be set to match
existing CO2 emissions levels, and the program is intended to
cushion industries and prevent the loss of jobs to states that
are not trying to embed the price of carbon dioxide emissions
into their goods and services.
"This transition from the current state of the marketplace
is designed to be gradual, rather than sudden," the regulators
write in an explanatory section. "To ensure this is the case,
staff is proposing high levels of free allocation to all
industries deemed to have a significant level of exposure to
carbon costs."
When it comes to refineries, said Tim O'Connor, a lawyer
with the Environmental Defense Fund, the group that for two
decades has been closely associated with cap-and-trade proposals,
the promulgated rules have finessed the complexities of the
refinement and distribution markets. "The people that make fuel
and the people that don't make it but do sell it -- like the
importers -- are going to be responsible for the emissions when
that fuel is burned in California," he said.
Industries with particularly difficult technical problems,
like cement manufacturing, which produces about 14 percent of
industrial greenhouse gas emissions, would get free allowances
through 2020 under the proposal in the hope that this economic
cushion will keep operations from moving out of state.
The ability to offset overall emissions by contributing to
greenhouse gas reductions elsewhere is severely limited in the
California proposal. Only four activities -- forestry management,
landfill management, manure management and destruction of stores
of refrigerants -- will qualify.
Finally, the proposal sets aside a certain number of
allowances in a reserve fund, guaranteeing a set price for them.
(Over time, the price goes from $40 to $45 to $50 per tons of
emissions and creates other, smaller allowances that are set
aside for the future, including one envisioning an auction of
allowances to be traded in future years.) All seem designed to
guard against unforeseen shocks.
Derek Walker, the director of the E.D.F.'s Climate Change
Initiative, said the proposal was "a real and rigorous
environmental program that also is designed to give industry the
ability to compete and transition to a lower-carbon future."
A spokeswoman for the California Chamber of Commerce said
that the group's experts are still reviewing the proposal.
And foes and proponents of Proposition 23, the initiative to
put on hold the California law that set this rule-making into
motion, anxiously await the outcome of the vote on Tuesday.
(An earlier version of this post said that utilities had the
option to resell the allowances they are granted; the proposal
requires that they do so. It also said that industrial operations
would not be part of the system until 2015; all but fuel-refinery
operations would be included when the program is scheduled to
begin in 2012.)
Copyright 2010 The New York Times Company
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