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California Approves Cap and Trade, But Toughest Decisions Lie Ahead

What was left to do later is almost as revealing – and important – as what was done.

By Robert Collier

Dec 21, 2010

Leakage – Industries that can prove the regulations are putting them at a competitive advantage to companies in other states – creating the risk of emissions “leakage,” in cap-and-trade jargon – can petition for additional free allowances. Environmentalists have reluctantly accepted the concept because they have long justified California’s climate laws as having huge potential for “green jobs,” and they are loathe to admit the possibility of job loss. But they warn that the extra allowances could become a wasteful form of corporate welfare.

Offsets – Companies will be allowed to satisfy a maximum of 8 percent of their annual emission obligations by purchasing offsets, which are credits for reduced emissions in domestic projects in forestry management, urban forestry, dairy methane digesters, and the destruction of ozone-depleting refrigerants. Some of the regulatory details have already been decided, such as adhesion to the Climate Action Reserve Forest Protocol as the yardstick for domestic offset credits. Yet environmental groups have complained bitterly that these rules could stimulate clear-cut logging because some measurements show second-growth tree plantations absorbing more carbon than old-growth forests.

International – The Air Resources Board also suggested it will develop international offset programs that could include the preservation of tropical rain forests. California officials have signed a Memorandum of Understanding with the state governments of Chiapas, Mexico, and Acre, Brazil. Many environmentalists insist that these programs should conform to the fine print emerging out of the U.N. climate negotiations. In particular, they say, California should explicitly recognize the rights of indigenous peoples in forest projects, and should expressly adopt the so-called REDD+ system of improved forest management practices.

Markets – Carbon trading in California is likely to start small because most emission allowances are being given away for free. What’s more, companies do not have to trade through exchanges. However, offset prices have doubled from about $4 a ton of carbon dioxide to $8 a ton amid higher volumes of trade in recent weeks. Experts estimate California’s emissions market volume could be worth anywhere from $3 billion to $58 billion by 2020.

Linkage -- The regulation is designed so that California may link up with programs in other states or provinces within the Western Climate Initiative, including New Mexico, British Columbia, Ontario and Quebec. Yet New Mexico’s Republican governor-elect, Susana Martinez, has said she will pull the state out of the cap-and-trade system once she takes office from the Democrat Bill Richardson in January.

Biofuels – The cap-and-trade regulations currently exempt emissions from all biodiesel and fuel ethanol and do not address any other type of biofuels. This could create conflicts with California’s pioneering Low Carbon Fuel Standard, adopted in 2007, under which state regulators have determined that ethanol made from corn starch and biodiesel derived from soybeans can have higher greenhouse gas emissions than some petroleum-based fuels. Environmental groups are warning of a dangerous loophole and are urging the Air Resources Board to require low-carbon fuel standard analyses of all transportation biofuels.

Biomass – Another loophole to be filled is the exemption of biomass power generation facilities from compliance obligations. Some of these facilities, using fuel derived from landfills, wastewater treatment facilities or waste-to-energy facilities, have higher greenhouse gas outputs than conventional natural gas power plants.

Revenues – The cap and trade program did not specify how the billions of dollars in future auction revenues would be spent, saying only that it be used for the benefit of ratepayers “consistent with the goals of AB 32.” On Thursday, the Board authorized a Community Benefits Fund to spend revenues in poorer communities, but left the details for further analysis by staff and a separate decision next year.

See Also

California Climate Law Details to Get Grand Unveiling

Polluters Protection Act

PROP 26 or the Polluters Protection Act is a treacherous, Big Oil rip-off, which "passes the buck" from oil corporation, clean-up fees to the taxpayer, who will pay the oil recycling fees, the toxic waste fees and other fees. Repeal Prop 26 and restore democracy. Power to the people. Big Oil snookered Californians with Prop 26.

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