Six months ago, California launched the largest economy-wide cap-and-trade program in the world, in what many have deemed a grand experiment.  Many people watched nervously as the market unfolded, despite California having applied the lessons  learned from the growing pains of the EU ETS and from six years of crafting the market rules in consultation with the state’s – and the world’s – leading experts. Results from the first and second auctions eased those initial fears and today's results continue to affirm the presence of a strong and viable market. That's good news for California.

Auction Results

The third auction held on Thursday, May 16^th offered 14.5 million 2013 allowances for sale and 9.56 million 2016 allowances. So, what happened?

Summary

Participation: Overall participation was high, with almost 1.8 times more credits bid on than were sold. A diverse array of 81 entities were approved to bid in the auction.

Current (2013) vs. Future (2016) vintage allowances: All of the 2013 allowances sold, while almost 80% of the 2016 allowances sold, an indicator that there is solid confidence the program will still be around. Entities are keeping their options open in not buying all available allowances for use three years out, which makes sense given the multiple options for achieving compliance.

Clearing price: As expected, the clearing price for 2013 allowances was high, settling at approximately 30% above the auction price floor of $10.71. Because 2016 allowances did not sell out, their clearing price remained at the floor of $10.71.

Auction proceeds: By selling more than 10 million state-controlled allowances, California's third auction raised over $117 million – that will be used to advance the goals of AB 32, to reduce climate pollution. The budget is still being finalized for this year, but at least 25% of the auction proceeds (or $64 million to date) must benefit disadvantaged communities.

Three Reasons to the Momentum is here to Stay

•  California’s Program is Proving to Be a Strong Model for Replication Elsewhere: Others are watching California's program closely. In a short period, a price on carbon has been established, all credits at the first three auctions were sold above the floor price, and most importantly, we have begun the process of breaking California’s dependence on fossil fuels and seen a decrease in carbon emissions.

Next year, Quebec will link with California's market – a first step towards a broader carbon market, and potential blueprint for other states and provinces to join the program.

• Innovation: Smart companies are innovating to reduce their emissions. For example, Kroger Company uses an anaerobic digester in Compton, California to convert spoiled food to energy, generating 13 million kilowatt-hours of electricity a year. Unleashing this type of innovation accelerates the clean energy revolution and puts us further along the path to meeting the state’s aggressive climate goals.

• Future Leadership: Today, EDF kicked off its sixth year of EDF Climate Corps, an innovative fellowship program that places grad students in companies, cities and universities to identify energy savings within those organizations. This year, 116 graduate students will be working in over 100 organizations this summer — 19 in California — including Apple, Adidas and the Los Angeles Community College System. Many of the alumni continue the work they do in corporate, public and non-profit spaces to address the largest environmental issue of our time. As Van Jones said at the Greenlining Institute Summit last week, “young people are fighting for us.”

We have solid reasons to be optimistic about California’s carbon market, and the continued growth of the clean energy economy. The skeptics aren’t staying silent, but their case is losing steam.  After all, facts are facts, and for California, today’s auction results proved once again the numbers are on our side.

“The cream cheese just fell off the roof of the car,” my 7-year old daughter said as I turned into my driveway after a trip to the grocery store.  Right now you might be asking yourself, “What does this have to do with time-of-use pricing?” Allow me to explain.

We live in Alameda, CA, where plastic bags are prohibited and stores must charge for a paper bag. Alas, I had forgotten to bring a reusable one.  To teach my children a lesson and avoid the public scorn (not so much the $0.05 per bag), I carried our groceries and asked the kids to lend their hands. And yes, I put the cream cheese on the roof of the car to free a hand to unlock it.

Once home, I realized that, in addition to almost losing my cream cheese, I’d been making potentially risky tradeoffs.  After all, exiting the supermarket with full hands prevented me from holding my children’s hands while crossing a busy – and dangerous – parking lot.

Don’t get me wrong; I’m not lamenting the ban on plastic shopping bags.  I think it makes perfect sense, but it takes time to start making the adjustment and the risk tradeoffs aren’t always obvious.

This scenario– making adjustments that may seem inconvenient and a bit scary, but are well worth the effort– plays out in other areas of life as well.  Particularly in rethinking how Americans use and pay for electricity.

Most of us don’t think about how the time of day affects the cost of serving us power.  In California, we aim to change that by moving to Time-of-Use (TOU) pricing – which will make electricity more expensive during times of peak, or high, energy demand and cheaper off-peak.  In fact, just yesterday, the Sacramento Municipal Utility District (SMUD) recommended moving all residential customers to time-of-use rates by 2018 in an effort to give customers more control over energy costs.

Source

EDF believes that TOU pricing will be best for people and the environment, just as banning plastic shopping bags effectively reduces their environmental impact.  This approach can encourage conservation and reduce peak energy use while providing customers with more choices that can ultimately lower their monthly bills.

Switching to TOU electricity pricing may feel to some like being thrust into a busy parking lot with an armload of groceries and two children to monitor.  When should I use my dishwasher?  Do I need to reset my air conditioner?  Well, yes and no.  You can choose to do nothing, or you can exercise a choice you don’t have with our current pricing structure: shifting energy use to times of lower electricity prices.  It’s quite doable.

A recent survey of nearly 5,000 customers by PG&E and So Cal Edison found that 75 percent have tried shifting their energy use already – even though they don’t get paid to do it.  Two-thirds of respondents said they’d be willing to risk higher bills for the chance to save energy for environmental purposes.  This willingness, combined with wise policies – such as the “Try-Before-You-Buy” bill protection that prohibits bill shocks for up to one year after a customer changes rate plans – bodes well for the union of can-do attitudes and technology innovations like digital electricity meters and automated “set-it-and-forget-it” learning thermostats.

The rewards will be significant: TOU pricing will reduce the amount of peak electricity needed from dirty fossil fuel “peaker” power plants, thereby avoiding costs from blackouts and new energy infrastructure investments.  It can also help to incorporate more renewable, clean energy resources onto the grid – like wind and solar – with significant benefits for energy independence and reduced air pollution that will put us on a pathway toward stabilizing our climate.

Source

Most consumers will see lower energy bills from TOU electricity pricing without doing anything.  Others will need to make adjustments, particularly homes that use a lot of energy during peak energy times of the day.  With a little planning, knowledge and helpful technology, it can be as easy as keeping extra shopping bags in your car.

Just as banning plastic bags is helping to reduce environmental degradation, so too can TOU electricity pricing.  We just need to get comfortable with the idea.  That way we can have our cream cheese and clean environment, too.

California’s clean economy is dominated by industries like clean transportation, energy generation, and energy efficiency. So it comes as no surprise these areas were targeted for cap-and-trade auction proceeds investments in the draft investment plan released by the California Air Resources Board (CARB) last week and discussed at today’s CARB hearing.

Specifically, the plan lays out three major categories for investing auction proceeds: 1) Sustainable Communities and Clean Transportation 2) Energy Efficiency and Clean Energy, and 3) Natural Resources and Waste Diversion. Transportation and energy represent the two largest sources of GHG emissions in California, while natural resources and waste represents a huge untapped potential for reductions that will also create multiple benefits.

What are the facts though?  Why are we so sure that these are the right investments that will create a winning formula for California?

1.         It has worked before. A similar investment strategy in New England turned $912 million of proceeds from selling carbon allowances to the electricity sector into $1.6 billion in benefits which included reduced electricity bills and job creation.

2.         It targets our disadvantaged communities. There is clear data indicating  these communities are the most vulnerable to severe pollution and environmental harm and existing law requires at least 25% of auction proceeds benefit these communities. This investment plan lays out ways to exceed that target so that they can expect to disproportionately benefit from California’s plan.

EDF’s Invest to Grow Report showed that …

3.         Investing in the state’s clean economy is investing in job growth. In California, it has added jobs up to 178% faster than traditional economic sectors over the past 15 years, meaning that we can expect investing auction proceeds in the clean economy will continue to spur job growth for years to come.

4.         California’s clean economy has proven more resilient during economic downturns than traditional economic sectors. While overall state unemployment fell seven percent during the recent recession, clean economy sectors remained stable. This means investing in the clean economy is a safe strategy for long term prosperity.   For example, the following graph shows that during economic downturns in 2002 and 2010, the green economic sectors either grew or remained stable while the rest of the economic retracted.

Investing in clean transportation makes sense because it …

5.         Will improve our health. California suffers from some of the dirtiest air in the nation. Forty percent of California’s GHG pollution comes from the transportation sector (cars, trucks, trains, etc.). Traffic pollution from cars also costs California nearly $15 billion in health damages annually. A recent report by the American Lung Association in California confirmed that in 2012, California was home to 11 of the nation’s 25 most polluted cities – so these investments are needed both now and in the future.

6.         Will create jobs. Every $1 billion invested in public transportation creates approximately 24,000 jobs in California – where the state unemployment rate is still about the national average.

Investing in clean energy and energy efficiency makes sense because it …

7.         Has already proven to be a game-changer for California. Energy efficiency projects have saved Californians over $66 billion in the last 35 years. and lowered energy use 25% below 2008 standards.

8.         Benefits recipients from cities and counties to businesses. An EDF’s Climate Corp program demonstrated that cities in North Carolina could save between $534,000 and $2,192,000 over a five year period.  Department of Energy assessments found that on average industry could reduce its electricity bills by 17% with energy efficiency projects that would pay for themselves in 1-2 years.  

Investing in natural resources makes sense because it …

9.         Helps farmers and the planet. Fertilizers commonly used in agriculture have a heavy GHG impact so reducing their use can generate big GHG savings; it can also save farmers money while reducing the release of harmful air and water pollutants.

10.      Protects open space and agricultural land. Together they can reduce vehicle miles traveled by preventing urban sprawl.  Estimates show that protecting 25 square miles of agricultural land would save an amount of energy that is sufficient to power 48,000 homes and would create health saving of $38.7 million by reducing air pollution.

There are many conceptions of the smart grid; what it is and what it should do for us – the “ratepayers” – who will finance the necessary upgrades to California’s electrical system.  I find the concept of a “smart grid ecosystem” — with smart customers, smart utilities and smart markets — to be a helpful guidepost as we seek to evaluate what should be accomplished by the utilities trusted to deploy our smart grid.

Ecosystems achieve resiliency through diversity.  We want a variety of clean energy resources on the supply side – hydropower, wind, solar photovoltaic, solar thermal – spread across a variety of locations (but never too far from customers).  Similarly, on the demand – or customer – side, Californians, buildings, appliances and electric vehicles create an intricate, synergetic web that can be made more efficient and flexible with customer education and empowerment, customer-focused energy pricing policies, and demand response (which allows customers to voluntarily reduce peak electricity use and receive a payment for doing so in response to a signal from their electric utilities).

There are other ways to contemplate diversity in the energy context:  Unlike some other states, most Californians can’t choose their power providers, though they can choose among rate “plans” (which are payment schemes, not plans to help manage energy use and costs).  EDF recognizes that a smart energy marketplace will thrive with a greater variety of competitors, products and services, and would like to see “3^rd party energy service providers” able to participate (that catch-all term includes organizations that deliver energy services and products to customers at a variety of levels throughout the smart grid ecosystem).

Yesterday’s announcement by Nest Labs (Nest) is more proof that the smart grid ecosystem is alive and well.   With utility partnerships in California and Texas, among other places, Nest uses their intelligent, WiFi-connected thermostat to help customers smartly and painlessly trim energy use by learning, and mimicking, their temperature preferences automatically.  For example, the Nest’s Seasonal Savings services will alert your thermostat when new rates apply with a change of season and the device will begin slight adjustments to presets to adapt to predictable weather trends.

Source: Nest Labs

Even more exciting is Nest’s Rush Hour Rewards service that provides centralized, automated small reductions to heating or air conditioning at times of peak demand, when energy use is highest.  The offering in particular is designed to enable customers to be good environmental stewards by enrolling in peak energy trimming programs, such as Southern California Edison’s Peak Time Rebate rate.  Another benefit of participation is lower energy bills.

While customers retain the ultimate authority to override thermostat settings, the basic premise is to accept a payment to adjust settings by a couple of degrees when the electric grid is most stressed.  The trouble is involving people in energy conservation actions is less reliable and slower than communicating directly to appliances with computers.  Enter the Nest, strategically located at the interface between utility and customer, with specific dominion over the biggest energy hog in your home – the heating and cooling system.

The reality is that the electric grid as we know it is changing, driven by California’s quest to secure an environmentally safe and affordable energy system. Increasing the amount of clean, renewable energy on the grid will mean that more generation is variable (meaning electricity output from solar and wind depends on sunshine or windiness, respectively).  Up to this point, California has met this challenge by backing up clean resources with dirty fossil fuels.

Smart grid ecosystems can provide hot beds for innovation, like Nest’s learning thermostat, but they must start by getting energy pricing right.  Nest’s business model will thrive when residential customers see time-variant prices (where the price customers pay reflects the cost of electricity produced at a given time of day) that align with the actual costs of delivering power.  We’ve already seen it work in large, statistically-valid studies.

This is how Nest’s learning thermostat will make a difference to your electricity bill and the environment:

1. Customers would upgrade their old programmable thermostat,
2. Customers would sign up for a time-variant electricity rate (perhaps at the same they are online for the utility rebate on the new learning thermostat),
3. On peak demand days when electricity use is highest and the utility will pay consumers handsomely to trim their energy use for a few hours, Nest Labs will signal customers’ thermostats via WIFI.  It’ll feel to customers like an air conditioner turned up a few degrees when it’s over 100 degrees outside (aka, hard to notice any difference).

For California overall it will add up to avoiding more harmful  pollution from fossil fuel power plants in the coming years and, eventually, could be tuned to work harmoniously with variable clean energy resources like wind and solar.  Nest thermostats are among a growing number of products capable of precooling buildings in advance of peak electricity demand, a strategy that will become commonplace once time-variant pricing pervades.

California has already spent billions of customer dollars installing a robust digital metering infrastructure – and it’s time to put these meters to work by enabling customers to participate in demand response and other demand-side programs, such as building weatherization.  Coupled with technologies that now allow for fast, reliable, automated ‘set-it-and-forget-it’ adjustments to electricity use – like Nest’s learning thermostat and other exciting energy innovations – we can seamlessly integrate variable clean energy resources, such as wind and solar.  In California’s energy ecosystem, customers can now choose to actively, or passively, be part of the clean energy revolution without leaving the comfort of their own nests.

Don’t look now, but California’s cap-and-trade program is going global.

With California Air Resources Board (CARB) approving linkage between California and Quebec’s cap-and-trade programs today, these two programs will now be able to trade emissions allowances across borders starting in 2014.  CARB’s action comes on the heels of Governor Brown’s recent decision to approve the linkage, which will increase the size of California’s cap-and-trade market by 20 percent. More importantly, linkage will boost California’s clean energy economy by creating a broader market for innovative, low-carbon technologies.  The linkage is also a shot in the arm for global efforts to cut greenhouse gas emissions, and it sends a positive signal to other jurisdictions that are working on building their own carbon markets and might ultimately seek to join with California and Quebec.

This linkage comes at a moment when momentum for carbon market development has been building around the world. Many other regions, including Europe, Australia, South Korea, and the Northeastern U.S., have instituted or are currently developing carbon markets. Australia also announced plans last August to phase-in a linkage with the EU system starting in 2015.

Governor Brown also recently returned from a trip to China where he signed an agreement with their Minister of Environmental Projection to help reduce air pollution and an agreement with Guangdong Province to share best practices related to cap-and-trade, clear evidence that if we want to get serious about climate change, California or one region can’t do it alone.

Before full linkage is possible, it’s often helpful for governments to develop ‘unofficial links’ in the form of partnerships to share policies, best practices, and goals. This cooperation – which California and Quebec have had since 2007 – is important and beneficial for the overall growth, rigor and integrity of carbon markets. The California cap-and-trade system uses a similar platform to the RGGI system in the Northeastern U.S., and the California system has been carefully crafted based on lessons learned from the EU ETS.

It took many steps to get to this point, but with a first joint cap-and-trade auction now scheduled for early 2014, California and Quebec are finally there. CARB’s approval of linkage is a big milestone for California and the nation, and another strong signal of California’s leadership in fighting climate change, while moving further down the path to a clean energy economy.

Climate pollution threatens the health of California’s families and the prosperity of our economy. Last November, California began a vitally important program that reduces climate pollution, rewards clean energy innovation, and helps ensure that the biggest emitters are responsible for their own pollution.

The program places a firm limit on overall climate pollution from the largest industrial emitters in California, allows flexible solutions to achieve that limit across sources, and requires major industrial emitters to bear a small portion of their pollution costs by requiring them to obtain carbon emissions allowances under the state’s cap-and-trade program, under which allowances may be obtained in public auctions or trades on the open market.

Fast forward five months, Californians are already realizing critical health and economic benefits from this groundbreaking environmental policy.  And, the Golden State continues to lead the way in clean energy and transportation jobs due in large part to AB 32, which has opened the door for greater investment in the clean energy economy. More good news: Yesterday, the state fulfilled a requirement of 2012 AB 32 Legislation by releasing its blueprint for how to expand these benefits by investing proceeds from auctions to strengthen our economy, our health, and the environment.

California’s plan focuses on making key greenhouse gas reductions in three sectors: transportation, energy, and natural resources. The goal is to create multiplier effects that allow Californians to draw benefits from these opportunities that far outweigh the investment.  And every day new research shows just how widely the benefits of clean economy investments can ripple.  EPA recently released a study showing that if energy costs accounted for the health impacts of burning fossil fuels, they would increase by between $361 and $886.5 billion annually.  When California invests in clean energy those hidden health benefits accrue for years to come – and they protect our families and our children.

Yet some polluters in California lag behind California’s innovative clean energy economy.   They continue to delay, deny and obstruct.  On the same day the state released its plan, the Pacific Legal Foundation (PLF), on behalf of certain companies, filed a lawsuit challenging whether California could auction carbon allowances at all.  The timing was no coincidence; a similar lawsuit was filed last November the day before California’s successful first auction.  So it comes as no surprise to see PLF attempt to block the good news for California’s clean energy economy.

So who’s behind the lawsuit?  The usual suspects.  The Pacific Legal Foundation (PLF) has a long history of being a loyal partner to special interests like big tobacco in its effort to avoid legal responsibility for the health impacts of cigarette smoke.  More recently, PLF petitioned the United States Supreme Court to reconsider EPA’s scientific finding, affirmed by a unanimous panel of judges in the U.S. Court of Appeals, that climate pollution negatively impacts human health and welfare.

Given PLF’s history, it’s not surprising that the group has chosen to focus its obstructionism on California’s most important health and environmental regulation.  But it is unfortunate.  As Californians work together to address dangerous pollution and strengthen our economy, PLF and its allies lag behind yet again, investing in litigation rather than innovative solutions to urgent societal challenges.

California has a thriving clean economy. In fact, the Golden State boasted more green jobs in clean energy and transportation last year than the other top 4 states combined, according to a new report by Environmental Entrepreneurs.

Here are some more highlights:

Innovation – The state is a hub for clean energy innovation. Clean technology patents grew by 26 percent in the past 2 years, outpacing the country and the rest of the world.   It is the “undisputed leader in solar technology patents” according to Next10.org, with totals greater than the cumulative solar patents of the next eight highest states. 

Energy Generation – Total renewable energy generation has grown 28 percent between 2007 and 2011 and wind energy has doubled during this same period.  Earlier this month, the state broke its own record for solar power – over 15,394 megawatt-hours of power to the grid, enough for every Californian to keep a 100-watt bulb lit for four hours.  Not to be outdone, the state also surpassed 4-gigawatts of wind power – similar to what California's two nuclear plants can churn out at full power, or enough to momentarily supply over 2.5 million homes.

Jobs – Green jobs are growing four times faster than the rate of all other jobs nationwide, with the majority happening in California according to the Bureau of Labor Statistics.  EDF’s analysis of California’s clean economy finds that jobs in core sectors like energy efficiency, renewable energy, clean transportation, and advanced storage and materials have not only remained resilient during the worst of the Great Recession (2008-2010), they outpaced all other job growth and grew 109 percent from 1995 to 2010.

Green jobs are also good jobs in California.  They are diverse, across a wide range of education-level and skills, and almost half of all jobs in the clean economy don’t require a college degree according to the Brookings Institution.  On average, green jobs offer a higher median wage and career advancement opportunities. An analysis by Philip Romero, the former Dean of CSU Los Angeles College of Business and Economics finds that “workers command wages with a 50-to-100 percent premium over the average job,” and estimates that the overall clean economy will grow “by at least 60-to-100 percent” by the late 2030’s.

Something exciting is happening in California, and at this point you may be wondering what our secret is? 

It’s policy.   California boasts a legacy of innovation stemming from the state’s leadership in environmental policy – it happens here first and it transforms markets.  It is evidenced in everything from improved tailpipe emission standards and higher performing gas mileage in cars, greater efficiency in household appliances, and greener building practices that has transformed the sector and created hundreds of billions of dollars in economic value.  All these innovations started with policy

I believe good stuff can happen when you set clear policies that signal markets and influence behaviors.  There is a reason why 24 percent of hybrid and 32 percent of electric vehicles in the US are registered in California:  good policy that led to better cars and consumers who could see the improvement to their bottom line at the gas pump.  California leads in renewable energy, efficiency, and clean transportation in strong part because of strong policies like AB 32 which puts a price on carbon and sets a statewide Renewable Portfolio Standard, providing a clear market signal for greater investment in clean technology.

And by the way, someone local has to install all those solar panels and wind turbines, weatherize all those homes, as well as maintain and operate all those buses and rail cars – good jobs in the clean economy follow smart policy.

It turns out that California’s “secret” to growing green jobs and a thriving clean economy is not so secret at all…it’s good policy.

In the past two weeks, California’s California Low Carbon Fuel Standard (LCFS) received a heavy dose of positive news: strong support from major companies to develop cleaner transportation fuel options and solid evidence to prove the standard is working.

On April 2^nd, major business interests and non-profit organizations across the state filed four separate briefs supporting the LCFS in the state Appeals Court in Fresno. The briefs, filed in response to a letter from the court in February, say definitively that the LCFS is a necessary program for California because it creates a market signal for new, cleaner fuels and solutions that can grow California’s economy and improve air quality.

The impressive diversity of interests weighing in is a who’s-who list of energy giants, including the nation’s largest supplier of natural gas for vehicles (Clean Energy), a 108-year old utility with 15 million customers (Pacific Gas & Electric), a consortium of alternative diesel companies (National Biodiesel Board and the California Biodiesel Alliance), and a coalition of five environmental organizations.

Notable excerpts from the briefs include:

 With the impetus of the LCFS, the biodiesel industry in California is poised to triple in the next few years with substantial investments and new jobs in many of California’s most economically disadvantaged areas.

-          The National Biodiesel Board/California Biodiesel Alliance

Companies with the potential to exceed this target… can sell credits to regulated entities who can’t…creating a strong financial incentive for lower-carbon fuel innovation.

This is why the LCFS is so important- it provides a long term investment signal to create a robust alternative fuel market in a reasonable timeframe.

-           Clean Energy

 PG&E supports the California Air Resources Board (CARB) in its efforts to preserve the LCFS…the LCFS is an important part of the overall California strategy to reduce greenhouse gas emissions, contributing 16 million metric tons of reductions…with a significant disruption to the LCFS program, it will make it less likely that California will reach its GHG emission reductions goals.

-           Pacific Gas & Electric

The LCFS encourages companies to invest in low-carbon fuels to meet increasingly stringent performance targets.  Based on statements from alternative fueling industries and the CARB LCFS Fourth Quarterly 2012 Update, even at this early stage of implementation, the LCFS has resulted in rising quantities of lower carbon fuels being consumed in California and the market is rewarding investments in cutting edge, low-carbon fuels.

-          NGO Coalition that includes American Lung Association, Coalition for Clean Air, Conservation Law Foundation, EDF, and the Sierra Club

In addition to the legal filings, California also released its latest progress report on LCFS implementationin March showing growth in low carbon fuel deliveries to the state. Credits from the cleanest biofuels have grown by 300% in just nine months, and the data shows that regulated companies have over-complied with the standard by 45% — that’s more than a million tons over the past two years.

Reports have also begun surfacing that major deals for bulk volumes of low carbon fuels are on the horizon.  For example, Neste Oil submitted a letter to the California State Senate stating they have already delivered commercial volumes of renewable diesel from tallow (an ultra-low carbon fuel) to California and “expects to deliver approximately a hundred million gallons of NExBTL renewable diesel fuel into California this year.”

In a similar story, San Diego-based Sapphire Energy recently entered into its first commercial agreement for “green crude” (made from algae) sales – an agreement with oil giant Tesoro. According to Sapphire’s president, “This moment is enormously important for the industry as it validates the benefits and advantages of [our] crude, and confirms its place as a market-viable, refiner-ready, renewable crude oil solution.”  In a story on Sapphire’s website, the new partnership with Tesoro was described as potentially helping supply clean energy to meet the demand created by new fuel standards, including California’s Low Carbon Fuel Standard.

Implementation of the LCFS is still in the early stages, but in just over two years the standard has started to deliver tangible economic and environmental benefits.  The regulation is poised to change a fossil-fuel dependent transportation system that has been developed over the last one hundred years and that costs California drivers almost one hundred billion dollars every year – most of which leaves our state (and nation) the moment it’s spent.

Using Californian ingenuity and the American entrepreneurial engine, we can change the status quo – toward a more sustainable system that doesn’t poison the air and pinch our pocketbooks.

Yesterday the California Air Resources Board (CARB) launched a rulemaking process to develop a rice carbon offset protocol.  EDF is excited about the development of this protocol – it is a market-ready solution which paves the way for the agriculture sector to participate in California’s landmark cap-and-trade program.  The agriculture sector represents a potential of more than 100 million metric tons by 2020.  At today’s prices that represents more than $1 billion in carbon offsets revenue for growers and landowners.

Rice farmers are leading the way on developing crop-based offsets.  This isn’t surprising.  The rice industry has long been at the forefront of agricultural-environmental innovation – whether it is conserving critical habitat for 230 species of wildlife to modernizing irrigation and pesticide management.  From research to modeling methane management practices to developing a protocol to pilot practices in the field, no other farming sector has done this amount of work to scientifically prove compliance-grade credits from the agriculture sector.

Through developing this protocol CARB sends a signal to rice farmers specifically and all farmers in general that growers can generate additional revenue by adopting practices that reduce greenhouse gas emissions without having an adverse impact on yield.  What is equally as important is to do this in a way that allows multiple landowners to aggregate their fields into a larger project that can reduce transaction costs.

EDF looks forward to continuing to work with CARB to develop protocols that generates high quality, environmentally sound offsets from U.S. agriculture.

This article was originally posted at Market Forces.

One of the goals of EDF’s Ecosystems work is to provide farmers with revenue opportunities in reducing their greenhouse gas (GHG) footprint. Under AB 32, California’s landmark legislation aimed at reducing GHG emissions, regulated entities may purchase carbon offsets to meet up to 8% of their obligations. Over the past six years, EDF has worked closely with growers to capitalize on the anticipated demand for these offsets, by developing protocols that will allow landowners to generate and sell agricultural offsets. On March 28, we reach a milestone in these efforts: the California Air Resources Board will host a workshop to begin a rulemaking process to consider the adoption of an offset protocol EDF has developed with the American Carbon Registry, crediting rice producers for GHG abatement practices.

We’ve put a great deal of work into understanding and piloting a myriad of rice farming techniques, while studying their implications for GHG emissions. A major conclusion from our analysis is that there exists a subset of viable alternative practices for rice producers in California with potential agronomic, economic and environmental benefits. The ones we’ve decided to focus on for our offset protocol are: baling, dry seeding, and early drainage of fields before harvest.

Agricultural activities account for an estimated 12% of global GHG emissions – the majority of these arise from sources of nitrous oxide and methane gases, composing ~60% and ~50% of the global total, respectively (as of IPCC AR4). Rice cultivation accounts for 5-20% of worldwide methane emissions; much of it is emitted as a byproduct of organic decomposition under flooded paddies. California’s goal to reduce its emissions to 1990 levels by 2020 through its cap-and-trade program (AB 32) provides an opportunity for rice farmers to help the state meet its reduction goal.

There are multiple approaches for rice farmers to reduce GHG emissions. Some of these practices can be carried out before the harvest and others post-harvest. We’ve carried out some in-depth analysis on the various options, to better understand the incentives and revenue possibilities we will be encouraging through our policy work – we have found that there are a handful of ways that farmers can reduce GHG emissions while maintaining yields, earning some revenue for their efforts, and potentially save on costs in some circumstances.

Our analysis builds on a prior study by our partners Applied Geosolutions, UC Davis and the California Rice Commission that estimates GHG emissions and yields for the majority of rice producing acreage in the state. They use the DeNitrification-DeComposition (DNDC) model, simulating 6,316 rice fields for 16 farming practices. In our analysis, we first estimate the potential greenhouse gas abatement of a suite of specific practices: dry seeding the rice fields, baling harvest residue, and hydroperiod adjustments (draining of fields in midseason, before harvest and/or reducing winter flooding).

We then tabulate the cost of each management practice through a combination of literature, farmer and farm advisor consultation and combine these with abatement estimates to generate marginal abatement cost curves for each practice. Our preliminary results indicate a wide variability in abatement costs, depending on farming conditions. Of course, this is before factoring in the role of a carbon credit.

Unfortunately, not all of the practices we’ve studied are tenable in the Californian setting. One practice (midseason drainage of the fields) is accompanied with a significant decrease in yield and therefore does not lend itself well to the Sacramento Valley climate. In the case of stopping winter flooding, there could be negative habitat impacts for waterfowl that use this ecosystem as a feeding ground. Striving to understand such risks has been crucial in determining the extent to which producers will consider the new incentives created through the market.

Because the practices listed above have not been widely adopted, they are key opportunities for the generation of offsets.  To better understand adoption rates, EDF is conducting further research in determining the quantitative and qualitative barriers that are limiting farmers from adopting such farming methods.

California will be one of the first rice producing regions in the U.S. to present abatement opportunities in conjunction with a carbon market. Combining economic principles such as abatement cost curves with biogeochemical models (e.g. DNDC) is useful in studying such opportunities. Further, the ability to simulate practices at the field level is central to understanding the economic potential of offset protocols granting agricultural producers access to carbon markets. In turn, this can create new incentives to abate GHG emissions from agriculture while potentially providing new sources of revenue to landowners – potentially a win-win situation.

We are excited that Thursday’s California Air Resources Board workshop will kick off the rulemaking process and that farmers can soon benefit from these interesting prospects.