Selected category: California

Good news in California as carbon auction results improve, and carbon emissions continue falling

Co-authored by Erica Morehouse and Jonathan Camuzeaux.

While we hope President-elect Trump will listen to the almost unanimous global voice of governments and business leaders who all understand that we must act to avert catastrophic climate change, it’s indisputable that leadership from U.S. states will be of paramount importance. Amidst this chaos and uncertainty California and Quebec are now four years into a successful cap-and-trade program with shrinking carbon pollution footprints and thriving economies.

California and Quebec released results today from a much anticipated carbon auction that took place on November 15, and sold a greater number of allowances than in the past two auctions resulting in proceeds for the state Greenhouse Gas Reduction Fund.  This good news comes after California’s 2015 greenhouse gas reporting data earlier this month showed another year of carbon pollution decline for the Golden State.

These year-over-year pollution declines are the most important indicator of success.  But understandably the auction performance and amount raised for climate investment priorities will get a lot of attention in California, Quebec, and Ontario, which is slated to launch its own cap-and-trade program in January with linkage likely to California and Quebec in 2018.

Auction results see increased demand

The November 15 auction offered more than 87 million current vintage allowances (available for 2016 or later compliance) and sold almost 77 million. Approximately 10 million future allowances were offered that will not be available for use until 2019 or later; over one million of those allowances were sold.

These auction results represent a significant increase in demand from the August auction which offered a similar number and sold about 31 million allowances, up from a little over eight million allowances sold at the May auction, the first auction to experience very low demand for allowances.  The May and August auctions raised almost no revenue for the California Greenhouse Gas Reduction Fund (GGRF).  While final numbers won’t come in for another few weeks, based on the allowances sold, this auction likely raised over $360 million for the California GGRF. 

Impacts on demand for this auction

A number of factors, good and otherwise, contributed to this quarter’s results.

  1. One of the most immediate factors that likely contributed to increased demand in this auction is the knowledge that the minimum sale price or “floor price” will rise to about $13.50 in 2017. This is the last auction that participants will be able to purchase allowances for $12.73 before the annual increase.
  1. A constant during this and previous auctions is litigation brought by the California Chamber of Commerce and others challenging California’s cap-and-trade program design. The case was brought the day before California’s very first auction in 2012 and California won at the trial court level. The plaintiffs appealed, and the Court of Appeals will hear oral arguments on January 24, 2017. This outstanding litigation may be leading some potential auction participants to take a wait-and-see approach.
  1. This wait-and-see approach is only possible if regulated businesses in California already have enough allowances to cover their 2016 obligations. California just released preliminary data for 2015 which shows emissions were about 14 percent below the cap. This suggests a successful set of climate policies that are incentivizing polluters to lower levels of pollution below required levels if they are able.  Some have referred to this as an oversupply of allowances, but it’s perhaps more accurate to refer to it as over-compliance.  Businesses have a choice of how to respond when they over-comply: avoid buying allowances in a future auction or buy allowances when they are presumably cheaper and bank them for future use.

A big question is how much the passage of SB 32 in August has impacted auction demand.  Governor Brown had previously established a target of reducing carbon pollution 40 percent below 1990 levels by 2030 through an executive order, but SB 32 cemented this requirement into law making it much more certain.  Setting a 2030 target could increase demand for allowances, but the market will not necessarily get certainty about that target or how California will meet it in one fell swoop.  While SB 32 set the 2030 target, like AB 32 it was silent on policy tools to meet that target so decisions about cap-and-trade post-2020 are still outstanding.

Greenhouse gas emissions decline again in 2015

California’s Mandatory Greenhouse Gas Reporting program requires that state’s largest polluters to report their emissions annually. The California Air Resources Board released the final tally of 2015 greenhouse gas emissions on November 4th, which showed yet another year of carbon pollution decrease.

In 2015, California’s emissions covered under the cap-and-trade program decreased by roughly one percent compared to the year before. California is on track to meet its target of reducing pollution to 1990 levels by 2020.  Carbon pollution for capped and uncapped sources was down in 2015.

Meanwhile, data from the Bureau of Economic Analysis shows the state’s gross domestic product increased by almost six percent in 2015 – while California also experienced an increase of total employment of a little over two percent in 2015 – proving again that economic output and emissions don’t necessarily go hand in hand.

With these results California is on solid footing to continue as a beacon of hope for climate action in the United States and perhaps even to attract new partners inside or outside the country who are ready to join a successful program.

 

Posted in California| Leave a comment

California’s ambitious new climate commitments follow 10 years of success

Photo credit: Joseph Thornton | Flickr.com

California made history a decade ago this month by being first in the nation to pass legislation (AB 32) putting an absolute limit on carbon pollution through 2020.

The California Legislature made history again last week by extending and strengthening those limits to 2030 (SB 32 and AB 197). SB 32 requires California to reduce pollution 40% below 1990 levels by 2030 – as ambitious as Europe’s climate policies – and provides the flexibility to use a variety of tools to accomplish this goal. The governor has announced he will sign both bills.

Legislators also passed a spending plan yesterday that will direct approximately $900 million in cap-and-trade proceeds to reduce pollution and benefit California communities, especially the most disadvantaged.  Another bill passed yesterday, AB 1550, increases the commitments of those disadvantaged communities and makes low-income communities beneficiaries as well.

California’s decision to set these new targets and establish this new spending plan was not just based on hope and necessity, but on a 10-year foundation of success and a solid understanding that this next set of targets are ambitious but achievable.

Here’s why California’s climate program has been a success, and why the new long-term emissions reduction target will help the state continue to thrive.

California’s carbon pollution is declining.

AB 32 requires California reduce its greenhouse gas emissions to 1990 levels by 2020, a reduction estimated at about 15% below where emissions would have been without regulation.  To meet these reductions, California has adopted a suite of climate policies anchored by a cap-and-trade program, which puts an absolute limit on carbon pollution, while providing cost-effective options for businesses to meet their reduction obligations.

California’s carbon pollution has steadily declined in the last 10 years. In the first two years that the cap-and-trade system was in place (2013 and 2014), California’s carbon emissions declined by an amount equivalent to taking over 1 million passenger vehicles off the road for a year.

California is ahead of schedule in meeting its 2020 goal. Emissions have been below required levels in every year we have data for. Regulators expect that in 2020 California will exceed its own requirements by an amount that is equivalent to taking 3.3 coal burning power plants off-line for one year.

California’s economy is growing.

Historically economic growth has been accompanied by a corresponding increase in emissions, but California is charting a different course. The state’s Gross State Product has increased steadily since the recession as emissions have continued to fall, as shown in this figure:

In the first two and a half years of California’s groundbreaking carbon market, the state added over 900,000 jobs, a growth rate that eclipsed the national rate.

Carbon markets are going global.

The impressive outcomes from the first decade of California’s AB 32 implementation have attracted numerous partners. States, provinces, cities and countries are taking note and action.

At the Paris negotiations at the end of 2015, California Governor Jerry Brown showcased a “Memorandum of Understanding,” bringing together states and regions committing to reducing greenhouse gas emissions to at least 80% below 1990 levels by 2050, or to less than 2 metric tons per capita by 2050. Over 100 states, provinces, and cities, representing one quarter of the world economy, signed on the agreement.

In addition, California is partnering directly with several Canadian provinces to implement joint cap-and-trade programs. It has also established an agreement to share information and work with China and Mexico on their carbon pricing efforts.

2030 target is ambitious but achievable.

Estimates suggest that after on-the-books polices are implemented, California will still have to find a way to reduce pollution another 17-29 percent to meet the 2030 target. The Air Resources Board has proposed relying on a ratcheting up of existing polices and a reliance on the existing cap-and-trade program to ensure the 2030 target is met.  Research from the Lawrence Berkeley National Laboratories shows that meeting the 2030 target is possible with a ratcheting up of existing polices

The world will be watching whether California can repeat its gold medal performance under these new targets, and all indicators seem to point in the state’s favor.

Also posted in Emissions trading & markets| Leave a comment

California carbon market's August auction results see slight rebound, but show need for post-2020 climate action

The results released today from California and Quebec’s latest cap-and-trade auction show a slight rebound in demand from results seen in May, but still demonstrate the need for a continued commitment on ambitious climate action beyond 2020. The results were released minutes after members of the California Assembly voted on ambitious 2030 targets; the final legislative votes are expected tomorrow.

The August 16 auction offered more than 86 million current vintage allowances (available for 2016 or later compliance) and sold just over 30 million. Approximately 10 million future allowances were offered that will not be available for use until 2019 or later; 769,000 of those allowances were sold.

These auction results represent a slight increase in demand from the May auction, where approximately 10% of the current and future vintage allowances that were offered sold. More allowances were also offered at this auction since allowances consigned by utility participants that were not sold in May were offered again at this auction.  The number of allowances offered for sale by utilities meant that the only state controlled allowances that sold were a small number of future vintage allowances.

California state controlled allowances that were not sold in August will not be offered again until two auctions clear above the floor price, representing a temporary tightening of the cap and a way for the program to self-adjust to temporary decreases in demand.

What changed and what is the same since the May auction

After May’s auction we pointed to several major factors that contributed to low demand: secondary market allowances were available for purchase below the floor price; regulated emissions have been below the cap allowing businesses to take a wait-and-see approach to purchasing allowances in advance of a pending appeal challenging the cap-and-trade auctions in the court of appeal; and need for increased certainty about the post-2020 cap-and-trade program.

Here’s what affected the August auction results:

  1. Secondary market prices have increased to right around the price of the current auction floor. This is likely the main factor contributing to the August auction’s slightly higher sales.
  2. There have been no further developments on the litigation as parties wait for the court to announce an oral argument schedule.
  3. There has been some movement on California’s effort to provide post-2020 certainty but not definitive action. In July, California's Air Resources Board released proposed amendments to set rules and a cap-and-trade carbon budget in-line with achieving a 40 percent reduction below 1990 levels by 2030. Final agency action is not expected until spring of 2017. The California Legislature is also considering a package of bills that would cement the 2030 target, currently in executive order, into statute. Assembly members voted today on climate targets and we will see whether legislative members will fulfill the will of over two-thirds of the California electorate by passing these targets.

California’s package of climate programs, including cap and trade, must first be evaluated based on whether emissions are going down – and the latest data from ARB in June showed that emissions do continue to decline. Selling out an auction and raising a set amount of revenue does not equate to overall success for the cap and trade program.

That said, once climate proceeds are in the Greenhouse Gas Reduction Fund (GGRF), spending them wisely to reduce emissions and benefit communities, especially disadvantaged communities, is a metric of program success. To date, about 1.4 billion dollars have been languishing in the GGRF, not creating benefits, and resulting in consequences for real Californians.

In addition to passing climate targets, Legislators should continue to act on proposals like the one Pro Tem Kevin de Leon has put forward to spend existing climate dollars this session.

Also posted in Emissions trading & markets| Leave a comment

California's new spending proposals benefit communities and the environment, and highlight need for long-term climate policy

caption

Cropped image via Flickr/ mikeslife

California drivers, communities, and businesses have endured degraded roads, unending traffic, choking pollution, and limited transit options for years.  As the population continues to grow, so too will the problems of the transportation sector (and many other sectors) unless major investments are made.

Given the profound need to clean-up California’s infrastructure, Tuesday’s $390 million expenditure award by the California State Transportation Agency (CalSTA) and yesterday’s proposal by the State Senate to spend $1.2 billion of available dollars generated by California’s cap-and-trade auctions are important steps in reaching communities that need these upgrades most. What these critical spending plans also clearly demonstrate is that cementing 2030 pollution reduction targets into statute ensures continued investment in reducing emissions and benefiting communities.

The value of long term climate policy

It’s been no secret that a political debate is underway in Sacramento over setting long-term climate pollution targets for California. Why? Setting long- term policy will support the state’s low-carbon, prosperous economy. This process is important not just for climate change, but to ensure growth and stability in the business and investment climate that will enable our economy to flourish.

Long-term climate policy – including cap and trade and a suite of other measures – aimed at cutting pollution has been a boon to the state over the past decade, allowing the economy to flourish, resulting in massive venture capital investment, innovative products, and reduced pollution.

Within the cap-and-trade program, auctioning emissions credits has become an integral way to make the program work, though the purpose has never been to raise and maximize revenue. As a result, within the existing landscape, the auctioning of permits has allowed for additional environmental improvements through investments such as the 14 different transit projects just announced. Similarly, and as outlined by the State Senate’s proposal, the cap-and-trade program can drive myriad other investments that cut climate pollution, such as traffic flow improvements, low- carbon vehicles, energy efficiency, urban greening, and sustainable community development.

When completed, the 14 projects funded by the CalSTA will benefit nearly every major urban area in the state, transcending political boundaries, bridging economic divides, cutting air pollution, growing jobs, and reducing congestion. And, with 30 million cars on the road consuming gas at some of the highest prices in the nation, improved transit and transportation systems simply give drivers more options – saving money and creating better mobility in the long run.

The massive need to invest in California and cut carbon

Unfortunately, California has a far greater need than what this $390 million can meet (the California Transit Association projects a total need of nearly $175 billion), or what the $1.2 billion State Senate proposal would deliver. Fortunately, policies like cap-and-trade work to cut pollution through a declining cap on carbon and a price on carbon, resulting in innovation and investments in regulated businesses. As permits are auctioned, targeted investments of proceeds generated through those auctions can also produce air quality benefits while leveraging private capital and inspiring innovation.

Over the next couple weeks, Sacramento lawmakers can positively impact the long-term certainty of California climate policy and its ability to drive pollution reductions and ensure vital investments in areas like transit and improved transportation systems. The current expenditure plans and proposals — along with several billion dollars that have already been allocated — illustrate how programs such as cap and trade create real investment options that benefit people, communities, and the environment across the state.

Also posted in Emissions trading & markets| Leave a comment

Six benefits of California setting a 2030 climate pollution reduction target

Setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership. Image credit: Flickr/ Jeff Turner

It’s summer recess for the California Legislature which means we have some time to reflect before the race to the end of the legislative session on August 31. A big question is whether the Legislature will pass a climate bill package that would cement ambitious 2030 carbon reduction targets into statute. With the climate spotlight shining brightly on Sacramento – as usual – it’s worth considering why legislative action and leadership is so critical now.

Here are six ways setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership, especially the groundbreaking cap-and-trade market we forged three years ago with Quebec.

  1. Cap-and-trade allowance values will more accurately reflect the long-term cost of hitting emissions reductions targets – This is the classic impact that we consider. A 2030 target means that a carbon allowance sold in 2017, for example, will be a valuable asset not just through 2020 but through 2030 as well. This could translate into higher allowance prices, but if it doesn’t, there could be good news reasons for that too, such as the market anticipating a low cost of reducing emissions.
  1. Regulated polluters will value emission reduction opportunities more highly, potentially leading to lower direct emissions – This relates back to the first point. Imagine that a business needs to buy a new boiler that they expect to last 20 years. They have the option to pay more now for a more efficient boiler or pay less now for a less efficient boiler. They are more likely to invest in the more efficient boiler if they know there will be a price on carbon catalyzing ambitious reductions for at least 15 more years rather than just five more years.
  1. Allowance banking could increase, creating more incentives for faster emission reductions – This creates an important, but more subtle, environmental benefit. If carbon prices are expected to increase in the future as the cap gets tighter, regulated and non-regulated participants alike will have an incentive to “bank” allowances for future use. (Note that an important California design feature allows a “current vintage allowance”, say 2016, to be used for emissions that occur in 2016 or in any future year.) This banking is equivalent to a reduction that occurs earlier than expected and provides a net benefit to the atmosphere. The concept of banking promotes innovative solutions that cut pollution more quickly, and makes the overall program more flexible for California companies.
  1. Demand for allowances could increase – If banking increases, the uptick in demand for allowances may mean that all or most allowances offered at the quarterly auctions sell out, even if emissions remain below the cap through 2020. Out-performing the 2020 cap would be a great outcome, meaning that the long-term price signal is likely incentivizing emissions reductions (as in the boiler example above) or that complementary measures (like the Renewable Portfolio Standard) are succeeding.
  1. Offsets developers will have a stronger incentive to reduce emissions where possible and bring projects to market – Offsets provide an opportunity for all sectors of the economy, like the agricultural sector, to be rewarded for high-quality, innovative emissions reductions. Because robust actions that cut pollution take time and investment, a longer-term commitment by the state is essential. This means that, for example, a rice farmer would be much more likely to transform their growing practices to cut methane emissions if those actions reaped a payoff for 15 instead of just five years.
  1. Communities, the California work force, and the economy will continue to benefit from Greenhouse Gas Reduction Fund (GRRF) investments – The cap-and-trade program is first and foremost about reducing emissions not raising revenue. While the program’s purpose isn’t to maximize revenue, auctioning is an integral part of California’s well-functioning system and the undeniable benefits of the investments through the GGRF, especially for disadvantaged communities, are an important aspect of program success now and beyond 2020. California’s investments so far have furthered and enhanced the purposes of AB 32 which emphasize reducing carbon pollution in a way that maximizes benefits to the economy and environment, promotes social equity, and transforms the state into a low carbon economy. By sticking to these principles, California is creating benefits that far outweigh the initial investments. And these benefits need to continue!

A process not an event

Setting a 2030 target has been a gradual process in California. And the market may already be operating with some expectation that the cap-and-trade program will continue beyond 2020.

The market has received increasingly specific indications since 2014 that ambitious reductions will continue beyond 2020. For example, before AB 32 was ever passed, Governor Schwarzenegger signed an executive order calling for 1990 levels of emissions by 2020 and an 80% reduction below 1990 levels by 2050. In 2014, the Office of Planning and Research and the Air Resources Board (ARB) started calling for an ambitious mid-term 2030 target, foreshadowing Governor Brown’s 2015 executive order setting that target at 40% below 1990 levels by 2030. Since then, ARB has reopened the Scoping Plan process to meet that 2030 target and begun the regulatory process to amend the cap-and-trade program to extend it to 2030.

With a decade of world-leading, successful climate action behind it, California is on the verge of another momentous step forward. The market will gain even more certainty, and California communities and the economy will score a huge win if the Legislature does the right thing and passes a climate package this year that places a 2030 target in statute.

Posted in California| Leave a comment

California carbon market's latest auction results show continued resilience

Source: Wiki

May 2016 auction results show an ongoing lawsuit challenging California's cap-and-trade program’s allowance auctions is likely impacting market dynamics, but the market is proving resilient. Image Source: Wikipedia

The results of California and Quebec’s latest carbon auction show that an ongoing lawsuit challenging the cap-and-trade program’s allowance auctions is likely impacting market dynamics, but that California’s market is proving resilient, in part due to the strength of its design.

The May 18 auction, the second of 2016, offered 67,675,951 current vintage allowances (available for 2016 compliance) and sold only 7,260,000. Just under one million of the just over ten million future vintage allowances (available for use in 2019 and after) were sold. The unsold California state allowances will go back to the auction holding account and will not be available for sale until the auction clears above the floor price for two consecutive auctions, a critical regulatory feature that removes unexpected, excess supply from the market and provides further price support. Utility allowances that were consigned to auction and did not sell will be offered again for sale at the next auction.

Increased attention to the litigation brought by the California Chamber of Commerce and the Morning Star Packing Co. et al., as well as higher participation in the secondary market, caused lower demand for allowances in the May auction. Secondary market prices have traded as low as 44 cents below the floor price in the last couple of months. But the real story is the positive and stabilizing impact of the floor price itself.

Other markets without such a strong floor price have seen price drops that are much more dramatic when the market receives a disturbance. But in California, the volume of trades on the secondary market has been higher than usual, showing that some entities are taking the opportunity to buy allowances at a discount.

It's worth noting that these results in no way impact the overall performance of California's program, which will continue to incentivize carbon pollution reductions.

EDF’s take on the litigation of the cap-and-trade auction program’s legality

At this critical juncture, opponents continue to litigate and challenge carbon auctions, an integral component of the cap-and-trade program that promotes equity and a healthy carbon market.

We are confident, however, that California courts will ultimately confirm the Legislature’s broad grant of authority to the California Air Resources Board (ARB) to design effective programs to address the imminent threat of climate change, and will reject the claim that auctioning valuable, marketable emission allowance constitutes an unconstitutional “tax.”

In supplemental briefings submitted May 23 to the California court, ARB argued persuasively that, even if the intermediate appellate court were to find a legal flaw in the auction, there would be no valid legal justification for disrupting the cap-and-trade program including its auction components while the state Supreme Court considers the case or ARB develops a suitable solution. This outcome is well-grounded in legal precedent affirming courts’ obligation to avoid remedies that imperil public health and welfare or cause needless disruption to public and private interests that rely on the current status quo.

California’s ability to continue utilizing a cap-and-trade program designed to meet its needs through 2020 and beyond is essential to California and to global climate momentum.

While EDF has a high degree of confidence that the lower court decision rejecting the challengers’ claims will be upheld, even if it is not, settled judicial procedures should help to ensure that the environmentally and economically important cap-and-trade program continues with minimal disruption.

California’s ability to continue utilizing a cap-and-trade program that is designed to best meet the state’s needs through 2020 and beyond is essential not just to California itself, but also to global climate momentum.

We’re at a watershed moment for climate action, and California is at the forefront. The U.S., China, and 173 other countries signed the Paris Agreement last month, and a group of leaders convened by the World Bank and the International Monetary Fund expressed a goal of moving from 12% to 50% of global carbon emissions covered by carbon pricing by 2030. All the while, California is providing one of the most successful examples of economy-wide carbon pricing that is reducing emissions and promoting equity while the state’s economy is thriving.

There is every reason for confidence both in the legality of CARB’s choice to auction allowances and in the commitment of California’s leaders to deliver on California’s climate goals. We expect that a resilient cap-and-trade program will remain at the heart of the state’s increasingly ambitious and effective climate strategy long into the future.

Also posted in Emissions trading & markets, News| Leave a comment
  • Get blog posts by email

    Subscribe via RSS

  • Categories