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California Enacts New Cap and Trade Program

Again and again renewable energy advocates have rued the U.S. federal government's failure to come up with real clean energy goals for the nation to stand behind. No national program to require a certain amount of renewable electricity be part of the country's energy mix by a certain date. No national program to limit carbon emissions.

But the lack of national goals doesn’t mean that no one in America cares about renewable energy or protecting the environment.  Indeed, states across the country have stepped up and taken leading roles in this nation-wide play, enacting aggressive renewable portfolio standards, feed-in tariffs and even and cap-and-trade programs. 

Last week California took another big step forward enacting its own cap-and-trade program that aims to bring the state’s emissions to 1990 levels by 2020. 

The regulation  sets a statewide limit on the emissions from sources responsible for 80 percent of California’s greenhouse gas emissions and establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy.  The program is designed to provide covered entities the flexibility to seek out and implement the lowest-cost options to reduce emissions.

The cap-and-trade program also works in concert with other measures, such as standards for cleaner vehicles, low-carbon fuels, renewable electricity and energy efficiency, and complements and supports California’s existing efforts to reduce smog-forming and toxic air pollutants.

The cap-and-trade program and the other measures to reduce greenhouse gases provide a model for action that could be used at the federal, state and regional levels.  As climate policies are being addressed worldwide, California’s early actions are positioning its economy to reap the benefits on the world stage and are catalyzing action throughout the country and the world.

“The cap-and-trade program provides California with the opportunity to fill the growing global demand for the projects, patents and products needed to move away from fossil fuels and to cleaner energy sources,” said California Air Resources Board (ARB) Chairman Mary D. Nichols.

The regulation will cover 360 businesses representing 600 facilities and is divided into two broad phases: an initial phase beginning in 2012 that will include all major industrial sources along with utilities; and, a second phase that starts in 2015 and brings in distributors of transportation fuels, natural gas and other fuels.

Companies are not given a specific limit on their greenhouse gas emissions but must supply a sufficient number of allowances (each covering the equivalent of one ton of carbon dioxide) to cover their annual emissions.  Each year, the total number of allowances issued in the state drops, requiring companies to find the most cost-effective and efficient approaches to reducing their emissions.  By the end of the program in 2020 there will be a 15 percent reduction in greenhouse gas emissions compared to today, reaching the same level of emissions as the state experienced in 1990, as required under AB 32.

To ensure a gradual transition, ARB will provide a significant number of free allowances to all industrial sources during the initial period (2012-2014).  Companies that need additional allowances to cover their emissions will need to purchase them at regular quarterly auctions ARB will conduct, or buy them on the market.

Electric utilities will also be given allowances and they will be required to sell those allowances and dedicate the revenue generated for the benefit of their ratepayers and to help achieve AB 32 goals.

Eight percent of a company’s emissions can be covered using credits from compliance-grade offset projects, promoting the development of beneficial environmental projects in the forestry and agriculture sectors. Included in the regulation are four protocols, or systems of rules, covering carbon accounting rules for offset credits in forestry management, urban forestry, dairy methane digesters, and the destruction of existing banks of ozone-depleting substances in the U.S. (mostly in the form of refrigerants in older refrigeration and air-conditioning equipment).

RGGI Program Creates Jobs and Reduces Emissions

To see what a thriving cap and trade program looks like, and the jobs that it creates, look no further than the successful Regional Greenhouse Gas Incentive (RGGI, pronounced “reggie”) that has been in the works since 2005.  Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont agreed about five years ago to cap and reduce power sector CO2 emissions 10 percent by 2018.

The program works by having each state set its own independent regulations that are based on the RGGI Model Rule.  The states’ CO2 Budget Trading Program then limits emissions of CO2 from electric power plants, issues CO2 allowances and establishes participation in regional CO2 allowance auctions.

Regulated power plants can use a CO2 allowance issued by any of the ten participating states to demonstrate compliance with an individual state program. In this manner, the ten state programs, in aggregate, function as a single regional compliance market for CO2 emissions.  RGGI was the first mandatory, market-based CO2 emissions reduction program in the United States.

To date the auctions have produced some $729 million that has been funneled into clean energy projects throughout the region, according to an article by John Buntin “A Cap-and-Trade Program That Works” in Governing.  Buntin points out that “RGGI states have used auction proceeds to create hundreds, if not thousands, of green jobs closer to home. A study in New York State found that every dollar devoted to green energy generated another six dollars in economic activity.”

An article in Bloomberg states that in New Hampshire, the home state of RenewableEnergyWorld.com, the auction of carbon allowances from electric power plants raised $24 million. Of that number, as much as $17.6 million went to programs that helped nonprofits, utilities, residents, schools and other groups to reduce emissions through energy efficiency and renewable energy projects. “The programs funded with RGGI proceeds are currently supporting approximately 200 full-time jobs in New Hampshire,” said Clifton Below, Commissioner of the New Hampshire Public Utilities Commission.

According to the U.S. Department of Energy, every one million dollars invested in building weatherization creates more than 50 jobs in the installation of weatherization measures and another 10 to 20 jobs in the production of energy-efficient building materials.

"Expanded efficiency programs, funded in part by RGGI, are expected to create or maintain nearly 4,000 jobs in Massachusetts over three years," said Phil Giudice, Commissioner of the Massachusetts Department of Energy Resources.

States are also investing in job training programs to provide workers with the skills needed to enter the green workforce. Maryland recently invested $750,000 of RGGI CO2 allowance proceeds to provide energy efficiency-related job training to more than 600 contractors at 13 community colleges across the state. "We are training people every week to become home energy retrofit professionals," said Malcolm Woolf, Director of the Maryland Energy Administration. "Construction workers can easily learn to install air-ducts, insulate homes and improve overall home energy efficiency."

Similarly, New York State is investing RGGI proceeds to train hundreds of workers needed to improve the efficiency of homes and businesses to meet the state's aggressive energy efficiency targets. As part of its $112 million investment in building sector energy efficiency improvements and job training the New York State Energy Research and Development Authority (NYSERDA) will partner with constituency-based organizations, community colleges, unions and other groups to build and expand training and certification programs for emerging workers, building remodelers, HVAC technicians, energy auditors and engineers.

More information is here on how each state is investing RGGI auction proceeds.

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