Author Archives: Katie Hsia-Kiung

Practice Makes Perfect for California and Quebec Joint Auctions

KHK pictureOver many decades, the United States and Canada have developed what is now the largest trade relationship in the world. This achievement is measured by the goods and money that cross their shared border, and does not even account for the trade of ideas and exchange of information currently underway between the two countries. The linkage of the California and Quebec carbon markets is yet another demonstration of the mutually beneficial relationship that these neighboring countries have cultivated. The two jurisdictions are taking the final steps in what started off as a virtual marketplace of ideas and best practices and has since grown into a real market for tradable carbon credits.

Last Thursday, the California Air Resources Board (CARB) and Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDELCC) of Quebec held a practice joint auction for the linked California and Quebec cap-and-trade programs. This trial was run as though it were a real quarterly auction, requiring participants to establish a Compliance Instrument TrackingSystem Service (CITSS) account if they did not already have one, submit an application to participate, and await approval from the auction administrator. CARB and MDDLECC published an auction notice and ran webinars for auction participants in the days leading up to the practice auction. The auction administrator and independent market monitor for both jurisdictions also monitored the auction while the bidding window was open and the appropriate help desks were available to take questions, just as they would have for a real auction. As such, interested parties were able to become familiar with the actual processes and materials required to participate, as well as test out and provide feedback on the updated features of the auction platform, which was refined to support bidding from both jurisdictions. The careful completion of this important exercise demonstrates CARB and MDDELCC’s dedication to thoroughness in their implementation of the cap-and-trade regulation.

Practice auction deemed a success

The two regulatory bodies released an auction summary report today that provides information on how the trial run went, as well as a summary of the responses CARB and MDDELCC received through a post-auction survey they administered to the 28 participants of the auction. Three quarters of the survey respondents rated both their experience with the auction platform and the training materials provided prior to the auction as excellent or very good. CARB and MDDELCC report that all procedures were run correctly on their end, indicating the practice auction went smoothly and that both participants and auction administrators were able to successfully prepare for the first real joint auction, scheduled for November.

This marks a huge step forward on the road to full program linkage and underscores the commitment on both sides to join in the effort to curb greenhouse gas pollution. Linkage is extremely important as it creates a larger overall market, which means more trade activity and a greater array of options for greenhouse gas pollution reductions. More options means greater compliance flexibility, which reduces the costs for companies to meet the reduction target and makes the overall program cheaper for businesses and consumers alike.

Small, yet critical changes made to support bidding from both jurisdictions

The most significant difference that participants presumably saw in this practice auction was added capabilities to handle the two different currencies used in these jurisdictions, US dollars (USD) and Canadian dollars (CAD). This included updates to how the reserve price (the minimum bid price allowable in the auction) is displayed and calculated. While California entities are only able to apply and submit bids in US dollars, Quebec entities can participate using either currency. No mention of problems regarding the added dual currency capability of the auction platform was included in the post-auction report.

auction platform

For this practice auction and future joint auctions, the reserve price will be determined and displayed in both USD and CAD based on the conversion rate on the day before the auction begins (shown in green).

While this may seem like a small change, it is critical to ensuring the successful linkage of the two programs. This partnership is setting an example that other jurisdictions can follow in expanding the scope and influence of what is already the most ambitious cap-and-trade program in the world. This is especially important as we approach the 2015 United Nations Climate Change Conference in Paris, where leaders from all over the world will meet and attempt to create a legally binding agreement to address climate change.

Before real joint auctions begin, there will be one more California-only auction and one more Quebec-only auction. California’s will take place next Monday, August 18th and the results of this auction will be posted the following Thursday. Look back here on our blog for our coverage of that auction.

Posted in Cap and trade, General, Global Warming Solutions Act: AB 32, Litigation| Leave a comment

New Report Doesn’t CARE about Getting the Facts Right

With billions of dollars in profits, oil companies can pay a lot of consultants to write a lot of really impressive-looking reports.  But look past the fancy cover page and you will often find these documents are nothing more than spin. Case in point: the recent report from Californians for Affordable and Reliable Energy (CARE) and the Valley Industry and Commerce Association (VICA).

For those looking for the real facts about California’s world-leading climate change law, let us correct the record:

1.       Californians spend LESS on energy than people in 45 states.

 The CARE report uses the usual scare tactics about the price of energy. But the truth is that on average, Californians spend less on their energy bills than residents of 45 other states (see graph below) and almost $60 less than the national average per month. This is due to in-large-part to California’s energy efficiency measures, which have led Californians to use almost 45% less electricity per capita than the U.S. average.

Californians spends less on energy than residents of 45 other states. Source: U.S. Energy Information Administration (EIA)

Californians spends less on energy than residents of 45 other states. Source: U.S. Energy Information Administration (EIA)

 2.       California’s climate law will yield significant environmental AND economic benefits for its citizens.

Not only are the costs of AB 32 policies much smaller than the VICA/CARE report would lead you to believe, California’s climate policies actually yield significant economic and health benefits. Read More »

Posted in Cap and trade, Clean Energy, Climate, Global Warming Solutions Act: AB 32, Jobs, Transportation| 1 Response, comments now closed

California and Quebec: Friends in Low (Carbon) Places

KHK pictureA crucial feature of the U.S. EPA’s groundbreaking new Clean Power Plan for existing power plants is the flexibility with which states can pick and choose the emission reduction measures that work best for them. Instead of prescribing a silver bullet solution across all fifty states, the new rule allows each state to tailor its policies, resulting in the most cost-effective solution to climate change.

According to EPA Administrator Gina McCarthy, this flexibility can mean collaborating with others in joint programs: “If states don’t want to go it alone, they can hang out with other states and join up with a multi-state market based program, or make new ones.”

For states thinking about cross-border collaborations to comply with the new rule, they can find a promising example in California.

In an announcement today, the California Air Resources Board (CARB) and the Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDLECC) of Quebec revealed that the two markets are taking the final step in linking their markets with the initiation of joint auctions. The first will be held in November, following a practice auction to be held in August. The practice auction will allow the program regulators, as well as auction participants, to get comfortable with the updated joint auction platform.

Not only is the Golden State leading the way in transitioning to a low-carbon economy ahead of EPA’s recently-announced power plant standards, but California is forging ahead to show that working across state lines on climate policies is possible – and can be productive. Read More »

Posted in Cap and trade, Cap-and-trade auction results, Clean Energy, Linkage| Comments closed

Latest Auction Results Show that California’s Cap-and Trade is in Full Swing

KHK pictureThere are certain key fundamentals of swinging a bat that must be mastered before you can hit a home run; proper posture, a strong stance, and good contact with the ball. The last essential step is the follow-through.

In fact, success in nearly everything relies on putting an idea or solution in motion, and then following through to make sure it achieves the goals that it set out to achieve. The same can be said for building a successful cap-and-trade program.

In 2012-2013, California’s cap-and-trade program celebrated a strong launch, during which companies were able to purchase emissions credits through five quarterly auctions and a well-established secondary market. This stretch brought the start of the first compliance period, the first auctions, and the issuance of the first California Air Resources Board-verified offset credits. In 2014, there may not be as many “firsts,” but executing a strong follow-through is as important as a good launch.

Today, the California Air Resources Board (CARB) published the results of the seventh cap-and-trade auction. All current vintage year allowances offered for sale by CARB were purchased, signaling continued confidence in the program. The complete sale of 2014 allowances also demonstrates that some of California’s worst polluters are paying for their emissions.

Bids for 7.8 million more 2014 vintage allowances were placed than could be filled, signifying a competitive current auction. The price for 2014 vintage allowances, which can be used for compliance from now on, was $11.50, which is 16 cents above the minimum floor price of $11.34. Read More »

Posted in Cap and trade, Cap-and-trade auction results, Climate, Global Warming Solutions Act: AB 32| 3 Responses, comments now closed

The Link Between Water and Energy in California – And Why It Matters

KHK pictureTomorrow is World Water Day and this year’s theme is the “energy-water nexus,” the critical, interdependent relationship between water and energy. The generation and delivery of almost all types of energy requires water and, conversely, treating and transporting clean water requires energy. In fact, water-related activities, such as treatment and distribution, account for almost 20 percent of California’s total electricity use. A disruption in access to one of these precious resources can have a detrimental effect on access to the other, creating a vicious cycle that unsettles our way of life.

The Challenges

Unfortunately, California is learning the hard way about the inextricable link between water and energy. The Golden State is having major water shortage problems and despite some much needed rain a few weeks ago, the state still remains in a severe drought. In fact, this past winter in California was one of the driest on record.

The drought has had perceptible effects on California’s energy production, substantially decreasing hydroelectricity levels, compared to 2011. Due to the decrease in hydroelectricity in the state, which usually makes up about 10% of California’s fuel mix, the state has been forced to increasingly rely on dirty, unsustainable fossil fuels, and energy costs have increased. Energy generation from traditional forms of power, such as natural gas, nuclear power, and coal, are not without their own water demands as well. Read More »

Posted in Clean Energy, Climate, Energy Efficiency| Comments closed

Carbon Auction Results Show Stability Amidst Eventful Time for Cap and Trade

KHK pictureIt’s early in 2014, but it’s already been a busy year for cap and trade in California.

On the upside, several major developments have set off a series of conversations around the state’s landmark program, including Governor Brown’s plans for how to invest cap-and-trade auction proceeds to reduce greenhouse gas pollution. Similarly, the California Air Resources Board just released an update to the state’s AB 32 Scoping Plan, laying out the continued need to cut pollution across the Golden State. And, just this past week, Senators Fran Pavley and Ricardo Lara proposed a bill requiring the Air Resources Board to provide recommendations on post-2020 climate pollution reduction targets including for short-lived pollutants. 

On the flip side, new legislation was also proposed to exempt oil companies from the cap-and-trade regulation for the fuels they sell – instituting a carbon tax in its place.  At the same time, the California Chamber of Commerce renewed a year-long challenge to the legitimacy of cap and trade by appealing a prior court judgment that upheld the program.

Yet through all of this activity, one thing has remained certain: California’s landmark AB 32 cap-and-trade program remains a strong, stable and viable example of a successful carbon-cutting program.

Today, results of the cap-and-trade program’s quarterly auction were published and show that, for the sixth straight time, California businesses were able to successfully bid on and acquire allowances to fulfill their compliance obligations. This was the first opportunity to purchase 2014 and 2017 vintage allowances from the state, and every allowance offered for sale was purchased – a clear signal that companies are taking the program seriously.

Although overall demand for 2014 and 2017 credits was reduced compared to prior auctions, there were 6.29 million more bids than could be filled because of high demand. These conditions reflect continued interest in the market, coupled with an expectation of allowance availability in future auctions.

2014 vintage allowances, which can be used for compliance starting this year, sold for $11.48, which is 14 cents above this year’s floor price of $11.34. 2017 vintage allowances cannot be used for compliance until the year 2017, yet a complete sell-out of these allowances in last week’s auction at a price of $11.38 indicates that companies continue to be confident in the program’s strength and longevity. It is clear that companies remain focused on planning their compliance strategies despite recent distractions.

71 companies registered for this auction, representing all regulated sectors of the market, which shows California companies are factoring the cost of carbon into their financial strategies. This all leads up to November 2014, when companies will, for the first time, have to demonstrate they can satisfy a portion of their compliance obligations by holding enough allowances to cover 30% of 2013 emissions. The state raised an additional $130.7 million from this auction, which will be invested in further greenhouse gas reduction projects. At least $32.7 million of this money will go to projects that benefit disadvantaged communities in California – as required under state law.

It’s clear from this auction, and the five successful auctions preceding it, that California has a program that is working. It’s also a program that has support from the majority of Californians. Given the demonstrated staying power and the progress achieved in the first year of the AB 32 cap-and-trade program, it’s no wonder that the market has remained strong despite a flurry of activity surrounding the program.

Current Auction (2014 Vintage Allowances)
Number of allowances offered19,538,695
Percentage purchased100%
Settlement price$11.48

Advance Auction (2017 Vintage Allowances)

Number of allowances offered9,260,000
Percentage purchased100%
Settlement price$11.38

 

Posted in Cap and trade, Cap-and-trade auction results, Global Warming Solutions Act: AB 32| Comments closed

California’s Pioneering Spirit Endures under Cap and Trade

KHK pictureCalifornia’s state motto is “Eureka,” (Greek  for “I found it”) referring to the discovery of California gold in 1848. Shortly thereafter, the Golden State quickly became the land of opportunity, spurring new technologies and catapulting California to the forefront of global innovation.

While California may no longer be flush with gold, it remains a leader in emerging industries, innovation, and technology.  In 2013, it stayed true to its pioneering spirit with the successful launch of the state’s ambitious cap-and-trade program, which is now attracting international interest.

All metrics indicate that a strong, healthy, and enduring carbon market was established in California during its first year of cap and trade, amidst a recovering economy and continuing job growth . The state has seen five successful auctions of carbon credits and an actively traded secondary market. Through this market mechanism, California has placed a price and a cap on carbon pollution while holding the state’s top polluting companies accountable for spewing harmful emissions.  Carbon credit prices have been both reasonable and stable, evidence of a smooth transition to a capped economy with none of the catastrophic results predicted by the program’s opponents.

To mark the one-year anniversary of cap and trade in California, EDF will be releasing an in-depth analysis of the program’s first year on January 8th. This report examines the state’s progress in implementing the cap-and-trade regulation and includes market performance analysis by industry experts and academics, details on auction outcomes and identification of trading trends on the secondary market. It also covers updates regarding ongoing litigation, proposed regulatory amendments and international collaboration. From the extensive data presented in this report, it is evident that cap and trade in California is off to a successful start.

Though challenges lay ahead, there is no doubt that California will rise to the challenge of accommodating the emerging carbon market. As it did during the Gold Rush, the state will continue to develop new technologies and build infrastructure while serving as a model to the world.

With the close of the first year of cap and trade, it is clear that California has found something more valuable than gold – a viable cap-and-trade program that gives the state a chance to address climate change, one of the biggest challenges of our time, and usher in a new era of opportunity and prosperity.

Posted in Cap and trade, Cap-and-trade auction results, General, Global Warming Solutions Act: AB 32| 1 Response, comments now closed

One Year Later, Carbon Auctions Thriving in California

KHK pictureAt this time last year, an 11th hour lawsuit was brought by the California Chamber of Commerce on the eve of the state’s first carbon auction —and with it a wave of questions aimed to cast doubt on the landmark program. Will the auction actually happen? Will companies participate? Will allowances sell?

What a difference a year makes.

Since the first auction took place in November of 2012, we’ve come to find out the answers to those questions are – yes, yes, and yes. And, despite attempts to create uncertainty and confusion it’s held true for all four auctions to date.

The Golden State’s carbon market received another dose of confidence last week when state courts upheld California's ability to auction carbon allowances and hold polluters accountable for their harmful emissions.  The ruling came just in time for the state’s fifth auction, which will take place tomorrow.

While the court decision is good news for cap and trade, perhaps even better is the progress that participants and other stakeholders have made in their discussions about the market over the past year.  From the 2013 California Carbon Summit to a recent Lawrence Berkeley National Laboratory Report, discussions are turning to the future of the carbon market post-2020 and potential linkages with other emissions trading programs.

A year later, the overwhelming sentiment is that the carbon market is here to stay.

Part of this confidence stems from the auction results themselves. In the last auction, all 2016 vintage allowances offered were purchased, signaling belief in the future of the carbon market, as these allowances cannot be used before 2016.  In addition, California companies have become more comfortable participating in the carbon market. This is reflected in the healthy volumes traded daily on the secondary market and the increased stability of prices over the past few months.

The settlement price for 2013 vintage allowances for tomorrow’s auction is forecasted to be lower than that of the previous one, which doesn’t indicate a weak market but rather the increased understanding that compliance will be less costly than previously expected. However, with a floor price of $10.71, which will continue to increase every year, a strong price signal for clean energy improvements remains.

Furthermore, the latest 2012 emissions data released by the California Air Resources Board show an increase in emissions from 2011 in California. This was expected for several reasons including the closure of the San Onofre Nuclear Generating Station, the shortage of hydropower generation in 2012, and the state’s significant economic recovery  during that time. California’s economy continues to rebound and the cap-and-trade program will play an important role in the landmark achievement of decoupling this economic growth from growth in carbon pollution that threatens our communities and the world.

Creating an entirely new market around the buying and selling of carbon emissions has been a long and rigorous process, but California’s record over the last year proves it is possible. Look out for EDF’s complete analysis of the successful first year of cap and trade in California at the beginning of 2014.

Posted in Auction revenue, Cap and trade, Climate, Global Warming Solutions Act: AB 32| 1 Response, comments now closed

Another California Industry Capitalizing on Energy Efficiency Opportunities

After almost seven years since California’s landmark global warming law was passed, and after nearly a full year of implementation of the nation’s most comprehensive cap-and-trade regulation, it is apparent that major companies have begun making significant investments to improve efficiency and cut pollution.

Forward thinking investments have already been observed among California’s biggest refineries, many of whom have dedicated significant capital to explore and implement on-site energy efficiency improvements. Now, according to a follow-up report released last week by the California Air Resources Board (CARB), the same can be seen among California cement manufacturers.

In this report, CARB identified 79 efficiency improvement projects that have been completed, scheduled, or examined by the state’s cement production facilities. The majority of these projects focus on improvements to the facilities’ thermal equipment (the heat making components needed to turn cement feedstock, limestone, into a powdery substance called clinker).

The total potential greenhouse gas (GHG) reduction from these projects is about 0.68 million metric tons of carbon dioxide equivalent (MMTCO2e), which is equal to the emissions from approximately 141,000 passenger vehicles.

Facility Name

Number of projects completed, ongoing, scheduled, or under review

Annual GHG Emission in 2009 (metric tons)

GHG Emission Reduction from Energy Efficiency Projects (metric tons)

CalPortland – Colton

14

330,000

4,300

CalPortland – Mojave

10

840,000

72,000

Lehigh Southwest – Cupertino

4

540,000

90,000

Lehigh Southwest – Tehachapi

4

320,000

29,000

National Cement

7

420,000

103,000

Cemex Cement

13

1,650,000

127,000

Mitsubishi Cement

18

930,000

211,100

TXI Riverside Cement

9

710,000

42,000

TOTAL

79

5,740,000

678,400

Despite the substantial one-time investment that exists for some of these projects, it is clear that cement manufacturers are thinking about the long term benefits of energy efficiency improvements.  Of the opportunities identified by CARB in the report, approximately 93% have already been completed or started. What’s more, these projects aren’t just saving money for companies; they are helping to slow climate change.

As seen by date from the state’s mandatory emissions reporting data, between 2010 and 2011, reductions of climate change pollution have already been recorded in this sector. For example, Cemex Cement, the biggest GHG emitter out of all of California’s cement manufacturers in 2009, was able to reduce emissions from its Victorville plant by about 16,000 metric tons. Earlier this year, the company announced the commissioning of four wind turbines that will generate up to 6.2 megawatts of energy at their Victorville and San Bernardino County sites as well. From this investment, Cemex predicts an additional reduction of 11,000 metric tons of CO2 emissions annually.

The facility with the most efficiency projects in the pipeline is Mitsubishi Cement, with 18 projects that have the potential to reduce the facility’s emissions by 211,100 MMTCO2e – over 20% of its total climate change pollution. Furthermore, if Mitsubishi implemented these projects, as the company with the greatest amount of toxic air contaminant releases according to data from the US EPA Toxic Release Inventory, Mitsubishi could go a long way toward improving the air quality and health outcomes of communities living near the plant in Lucerne Valley, California.

It is clear from this report that California’s cement manufacturers, like the state’s refineries, are taking the task of reducing their greenhouse gas emissions seriously. They are obtaining ENERGY STAR plant certifications and investing in long-term efficiency projects that will pay back on their monthly energy bills and keep their emissions low. This is especially important as cement production in the United States begins to rebound from the economic recession, with predicted growth of approximately 8% in 2013.

With a bright production outlook ahead, it is important that the industry’s leaders make decisions now that will ensure GHG emissions do not increase in step with increasing cement production. California’s cap-and-trade program is, and will continue to be, an essential mechanism to spur innovation to achieve this goal by holding the state’s industries accountable for their carbon emissions. Seven out of the eight facilities included in this report are compliance entities within the cap-and-trade program and are required by law to hold emissions allowances that cover their carbon emissions.

Even with energy efficiency efforts already in place, there is still much more that can be done; according to Ernest Orlando Lawrence Berkeley National Laboratory, the cement industry in the United States can cut energy use by 67% through upgraded energy management practices and investments in new technologies, which could translate to $1.1 billion in energy cost savings. CARB expects to have corresponding data on the hydrogen sector, the power generation sector, and oil and gas production in the next few months. Let’s hope for more promising results.

Posted in Energy Efficiency, Global Warming Solutions Act: AB 32| Comments closed