California's carbon price rollout

California's cap-and-trade scheme begins in 2013, so how will it work and how similar is it to Australia's policy?

Crikey

Australia is certainly not going it alone on a carbon price – the latest cab off the rank will be California, which begins its cap-and-trade scheme in January 2013. Erwin Jackson from The Climate Institute talks to George Peridas from the US Natural Resources Defense Council on how the scheme will work, and how similar it is to Australia’s carbon laws …

EJ: Let me start by asking you what that scheme entails. What percentage of the Californian economy does the carbon price cover and what sectors?

GP: California is moving ahead on implementing a comprehensive climate program to comply with Assembly Bill 32, the Global Warming Solutions Act of 2006. The program sets out to meet AB32’s goal of reducing greenhouse gas emissions (GHG) to 1990 levels by 2020, and ultimately to achieve an 80 per cent reduction from 1990 levels by 2050.

One of the mechanisms to achieve this is the cap-and-trade program. When fully implemented, the cap-and-trade program will cover approximately 85 per cent of California’s GHG emissions; it will cover industrial, utility and transportation fuels. Agriculture is not required to hold allowances.

The regulations for the program are in place and underlying infrastructure for implementing it is being put in place over the course of 2012. The first auction of emission allowances is scheduled to take place in November 2012, and compliance obligations begin in January 2013.

California is also expected to link its program to other trading partners through the Western Climate Initiative, including the Canadian province of Quebec, which has formally adopted a cap-and-trade program as well, and British Columbia.

The Californian scheme could link in with the Australian scheme (where permits float in 2015), but no linkage has been decided.

EJ: Is there political opposition to the carbon price in California?

GP: California’s global warming law received bipartisan support and was signed by a Republican governor (Arnold Schwarzenegger). Californians voted overwhelmingly to reject a bid to suspend the law (under the so-called Proposition 23). There have been some legal challenges to the ETS, and some are still pending, but implementation is intact and moving forward as planned.

EJ: What kind of emissions reductions is California expecting by pricing carbon? Is it significant?

GP: Action in California on climate change is a significant part of the overall US picture as well as internationally, given that the state has 37 million people, represents the world’s ninth largest economy ($US1.73 trillion in 2011), and is by far the largest state economy in the US.

Significantly, California has also led the way on environmental policy in the US. Several policies that were first adopted in California, such as clean car standards, efficiency standards for appliances, and carbon emission standards for new power plants are now national policies too, or on their way to becoming so.

EJ: In Australia there is criticism of the $23/tonne carbon price as being too high. California currently trades carbon at between $US18-$US20, a similar price to Australia. What is driving this high price in California?

GP: Cap-and-trade and other climate policies have proven to be a driver for economic growth. In the Northeast US, implementation of the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program limiting GHG emissions from the electricity sector, has already generated over $1 billion in energy savings for customers and contributed $2.6 billion to regional economic growth. Macroeconomic studies have shown that AB32 implementation will likewise save consumers money by improving energy efficiency and providing more fuel choices.

In fact, California annually attracts more clean energy investment capital than the rest of North America combined, helping jobs in the clean energy sector in California grow 10 times faster than the state-wide average.

In terms of cap-and-trade, there is a price ceiling set at $US40/tonne CO2, increasing at 5 per cent a year (plus inflation), and a floor price of $10/tonne, also increasing 5 per cent a year (plus inflation), to reduce volatility and keep prices in check. Other cost containment mechanisms include unlimited banking of allowances, three year compliance periods, and limited use of offsets under protocols approved for use in the program (four have been approved so far — use of Clean Development Mechanism credits is not currently allowed).

EJ: What else is California doing on climate change?

California’s approach is comprehensive and includes policies targeted at all the major emitting sectors in the economy, including clean car standards, a low-carbon fuel standard, 33 per cent of electricity procured by 2020 must be renewable, expanding and strengthening energy efficiency programs and standards, and policies and incentives for meeting transportation-related GHG emissions targets for regions throughout California.

There are also policies for local governments and cities to find ways for residents to rely less on cars, make cities more liveable and walkable, and expand public transit.

This article was originally published by Crikey on August 16. Republished with permission.