Climate 411

Western Climate Initiative auction strengthens as state has opportunity to increase its climate ambition

Caption: Solar farm in the Mojave Desert, California

Solar farm in the Mojave Desert, California

The results of the latest Western Climate Initiative cap-and-trade auction were announced today and showed stronger demand for allowances than in the May auction. This meant significantly higher revenue for California’s Greenhouse Gas Reduction Fund.

While the auction was still undersubscribed for the second quarter in a row, this is not a surprising outcome due to the ongoing COVID-19 crisis, the renewed closures in parts of California’s economy, and the overall economic uncertainty.

First, let’s do the numbers:

  • 52,627,000 current allowances sold of the 59,250,484 offered for sale. This is a substantially higher percentage, 89%, of allowances sold than the May auction where only 37% sold. Approximately 1.7 million additional allowances were offered in August as in May.
  • Current allowances again settled at the floor price of $16.68, which is $1.19 below the record-high clearing price in the February 2020 auction.
  • 8,672,250 future vintage allowances were offered for sale, 100% of them sold. This is also significantly higher than in the May auction were only approximately 20% of future allowances sold.
  • The future allowances cleared at the floor price of $16.73, 5 cents above the floor price. These allowances cannot be used for compliance until 2023.
  • The auction raised approximately $474 million for the Greenhouse Gas Reduction Fund, higher than the $25 million raised at the May auction.
  • Quebec raised over $171 million CAD (approximately $129.5 million USD) for their own climate investments.

The August auction saw stronger demand for allowances than the May auction, and this could be for a few reasons:

  • There is still a significant amount of uncertainty in the economy, but the second round of closures in California weren’t as far-reaching as the first round. Thus, more people are out on the road and more establishments are open for business. Without significant structural changes, COVID-induced emission reductions will be temporary, and the fast rebound that has been observed worldwide is a stark reminder of the critical importance of policies such as California’s cap-and-trade program that ensure pollution will continue to decline at the pace and scale necessary.
  • The August auction was the second-to-last opportunity to purchase state-owned allowances before the end of the 2018-2020 compliance period. While entities will have until November 2021 to turn in all allowances for the current compliance period, they will not be able to use allowances purchased in 2021 for a 2018-2020 obligation.
  • This was also the second-to-last auction where allowances are offered at the current floor price of $16.68. Starting in the February 2021 auction, the minimum auction price will be higher by 5% plus inflation.

Beyond today’s auction results, this year is revealing a great deal about California’s climate leadership and programs —and ways they can be strengthened moving forward.

Below are our top priority observations:

  1. Climate programs, and especially those focused on climate equity, deserve consistent and dependable funding.

While the purpose of the cap-and-trade program is to reduce emissions and be the backstop to ensure California meets its climate goals, the revenue cannot be ignored. The Greenhouse Gas Reduction Fund has raised over $12.5 billion for investment in the state’s climate priorities, with 57% of implemented funds benefitting disproportionately burdened populations and communities. The limited revenue from the May and August auctions means that programs like the Community Air Protection Program and the Safe and Affordable Drinking Water Program, both essential to human health, equity, and the environment, lack sufficient funding. The Legislature appears to be waiting to put together a GGRF expenditure plan until there is more clarity about revenue, which is wise. However, our elected leaders also need to find a more resilient source of funding for these essential programs, other than a mechanism that will actually be most successful if emissions decline and revenue decreases over time.

  1. California’s economy is shifting away from fossil fuels in potentially significant ways; the very real consequences to fossil fuel workers cannot be ignored.

Two Bay Area refineries recently announced dramatic shifts in their business models. Marathon Petroleum’s Martinez refinery is closed indefinitely, and they are considering transitioning the facility to produce renewable fuels.; Phillips 66 has announced a transition plan for the Rodeo Refinery, which would fully re-purpose the facility to produce renewable fuels by early 2024. Phillips 66 is reporting that this transition will create 500 construction jobs, result in 400+ “green” jobs after transition and reduce greenhouse gas emissions by 50% and criteria pollutants by 60%. This is good news for California because of the reductions in both climate and local air pollution, as well as being a needed step away from our reliance on fossil fuels. At the same time, the potential employment implications demand further consideration.

Related to this issue, EDF is embarking on a research project with Resources for the Future to inform policymaking on fairness for fossil fuel workers and communities in transition. This includes finding solutions to ensure that the needs of impacted workers and communities are met through economic development, workforce development, environmental remediation and infrastructure, and public benefits.

  1. We are living the impacts of climate change right now; California needs to increase its climate ambition and encourage others to do the same.

The US is seeing exactly what climate change looks like, and it is having a very real impact on everyone’s health. Two major storms are bearing down on the Gulf Coast, as the east coast braces for an “above average” hurricane season; the Midwest has been inundated by heavy storms and flood water; and the West is sweating out both a record-breaking heat wave, and the resulting rolling blackouts in California. This has sparked dozens of wildfires and the subsequent dangerous air pollution that has become all too familiar. These impacts are especially dangerous for members of our communities who are already most vulnerable. And it’s not going to happen in the future – it is happening right now.

While California has been a climate leader amid federal inaction, the state still needs to increase its ambition in fighting climate change. A crucial opportunity to do this is through the upcoming Scoping Plan process, where the state has the chance to increase the stringency of the cap-and-trade program. This is important as California plans for how to reach its 2030 emissions reduction goal of 40% below 1990 emission levels. At the same time, the state should codify a mid-century climate target in order to reach carbon neutrality by 2045 and achieve a 100% clean economy. Just as importantly, California should encourage and support other states and countries to take their own ambitious climate action—which at a minimum needs to include the adoption of binding, declining limits on greenhouse gas pollution consistent with scientific recommendations.

Today’s auction results further demonstrate the durability of cap and trade in reducing emissions, but they also reveal the need for a reliable source of funding for essential programs focused on equity. Additionally, this year’s onslaught of extreme weather events underscores the demand for even greater ambition to meet the scale of the climate challenge – and for crafting real solutions that can give workers and communities the support they need as California shifts to a clean economy.

Posted in California, Carbon Markets / Comments are closed

Western Climate Initiative auction results show resilience of cap and trade and benefit of long-term climate investment strategy

Yosemite National Park, California. iStock.

The results of the latest joint California-Quebec cap-and-trade auction were released today. As expected, the auction was significantly undersubscribed, something not seen since February 2017. The low revenue from this auction points to a need for California to develop a diversified, long-term strategy to fund critical climate programs, even as the state works to balance many important fiscal priorities. At the same time, the resilience of the cap and trade program even during periods of instability provides a critical backstop, ensuring California’s targets for reductions in climate pollution are achieved.

Here’s a quick recap of the results:

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Posted in California, Carbon Markets / Comments are closed

California’s experience with buyer liability shows how aviation can help ensure environmental integrity

https://www.flickr.com/photos/140970794@N06/30345941512

Airplane flying at sunset. Adam Clark, Flickr

The International Civil Aviation Organization is preparing to stand up its market-based emissions reduction program, the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA. As it does so, ICAO must maintain CORSIA’s environmental integrity.

To that end, airlines should not be allowed to count, for CORSIA compliance, carbon credits that have been found to be invalid, e.g., fraudulently issued or otherwise not meeting CORSIA’s standards for credit quality. To ensure that all credits represent actual emission reductions, such substandard credits should be invalidated – even if the fraud isn’t exposed until after airlines have canceled the credits in CORSIA. The emissions for which the credits had been tendered have occurred, and still need to be covered by valid reductions in order to meet CORSIA’s promise of “carbon neutral growth.”

California offers one approach to how CORSIA can do this. In its market-based climate program, California has developed a way to cover the emissions from invalidated credits to uphold the integrity of its program and encourage emitters to invest only in high-integrity offsets. It’s known as “buyer liability,” which means that if the California Air Resources Board (CARB), the regulatory body, invalidates offset credits, then those who purchased the credits for compliance with California’s emissions limit must replace the invalidated credits. This ensures that emitters meet their full compliance obligations and that they are more diligent in selecting offsets.

Early on, California’s buyer liability approach caused some uncertainty among offset project developers. But seven years of experience demonstrates that buyer liability has worked in California’s carbon market. Here’s how we know:

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Posted in Aviation, California, Carbon Markets / Comments are closed

California must defend rules to protect health, especially now

This post was coauthored by Katelyn Roedner Sutter, Pablo Garza and Lauren Navarro.

A man walks his two kids along the road during San Francisco Bike & Roll to School 2018. San Francisco Bicycle Coalition via Flikr.

A public health emergency is precisely the wrong time to undermine measures meant to improve air quality, address environmental health disparities, or ensure the sustainability of our common resources. In fact, the COVID-19 public health crisis makes it more essential that California upholds its bedrock environmental and health rules, and ensures clean air and water for all.

A preliminary nationwide analysis by Harvard University shows COVID death rates are higher in counties that had higher levels of air pollution in advance of the pandemic. This underscores the vital importance of pollution protections for human health, both during and after the COVID-19 crisis.

Understanding the importance of having rules to protect California’s health, environment and natural resources, 37 California legislators, led by Assembly Member Eloise Gomez Reyes, have called on Governor Gavin Newsom to “resist efforts to roll back any current protections” and to focus on the health and environmental impacts in the state’s most vulnerable and disadvantaged communities. They know that weakening these safeguards will mean more cancer, more asthma attacks, more heart and lung problems, and more loss of life for Californians.

The following summarizes some key programs and protections that appear to be under threat, and where California should heed the call of these legislators to stand firm:

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Posted in California, Cars and Pollution, Cities and states, Health / Comments are closed

California-Quebec carbon auction kicks off 2020 with record allowance price

Keywords: Perazzo Meadows, Truckee, CA, California. Natural and working lands are part of California’s climate strategy. EDF/Mathew Grimm

The results of February’s joint California-Quebec auction are in, and 2020 is off to a strong start in the Western Climate Initiative. Fewer allowances were available in this auction than in the past, which could help explain the record high settlement price.

Highs and lows of the February 2020 auction:

  • All 57,090,077 current allowances sold. Notably, this amount is over 10 million fewer allowances than what was offered at the last auction in November 2019. It is also the lowest volume of offered allowances since the very first joint auction in November 2014.
  • Current allowances cleared at $17.87, which is $1.19 above the price floor of $16.68. This is 87 cents higher than the November 2019 clearing price of $17.00 and 42 cents higher than the previous record-high price of $17.45 from the May, 2019 auction.
  • 8,672,250 future vintage allowances were offered for sale, and all of them sold as well. With over 350,000 fewer future allowances than the November 2019 auction, this was the smallest volume of future allowances ever offered.
  • The future allowances cleared at $18.00, $1.32 above the floor. These allowances cannot be used for compliance until 2023.
  • The auction raised approximately $600 million USD for the Greenhouse Gas Reduction Fund, which California will use for programs that further reduce climate and local air pollution and advance environmental equity.
  • Quebec raised over $240 million CAD (approximately $185 million USD) to support climate action in the province.

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Posted in California, Carbon Markets / Comments are closed

California climate program remains solid as transportation emissions fall

Bixby Bridge, California. Photo by Dave Lastovskiy on Unsplash

Today’s solid results from the latest Western Climate Initiative cap-and-trade auction demonstrate once again the resilience of the market. Yet this is not the only interesting news out of the California market this quarter as the state released the preliminary 2018 emissions inventory, which showed that transportation emissions fell for the first time since 2012.

First up, auction results:

  • All 67,435,661 current allowances sold, clearing at $17.00, $1.38 above the floor price of $15.62. This is $.16 lower than the August 2019 clearing price of $17.16.
  • All of the 9,038,000 future vintage allowances offered also sold at $16.80, $1.18 above the $15.62 floor price. These allowances are not available for use until 2022.
  • The auction raised approximately $739 million for the Greenhouse Gas Reduction Fund, which California uses for activities that further decrease greenhouse gas emissions, improve local air quality, and support the state’s most vulnerable communities.
  • Quebec raised over approximately $245 million CAD (approximately $185 million USD) to fund their own climate priorities.

These results are generally consistent with the past several auctions, but there are a couple of points worth noting:

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Posted in California, Carbon Markets / Comments are closed