California Dream 2.0

An Effective Carbon Market for a Stronger California

By Emily Reyna and Katherine Hsia-Kiung


Last Friday, California companies participated in the fourth cap-and-trade auction since the program’s historic opening in November 2012. The results of this auction will be made public on Wednesday, but even without the exact numbers, the program’s previous success is proving the carbon market won’t be going anywhere anytime soon. Just look at the scoreboard so far and you’ll see California’s economy is rebounding. And, despite efforts by the program’s opponents to shut down the program, every auction to date has seen strong and diverse bidder participation, complete sale of current allowances, and steady demand for future allowances.

This shouldn’t come as a surprise, given California’s successful, albeit brief, history of cap-and-trade.  On the eve of the first auction, the California Chamber of Commerce filed a lawsuit to invalidate the auctions and spark doubt in the minds of the auction participants. However, this underhanded ploy was unable to achieve what it had intended, and the auction went off smoothly.

Similarly, just before the third auction last May — and on the same day as the release of the state’s plan for program expansion –Pacific Legal Foundation strategically filed a similar lawsuit on behalf of a handful of companies attempting to block the auctions. This once again did nothing to thwart the program’s success. Every current allowance was purchased come auction time at a settlement price an impressive 31% above the floor price. Almost 80% of the future allowances were also purchased, indicating the overall belief that the litigation brought against the program had no validity.

Since the third auction, the secondary market (for future sales of) carbon allowances has remained relatively stable. While there might be a bearish tone to this week’s auction with regard to price of allowances, we remain quite bullish with regard to the main goal of the program, which is to reduce carbon emissions in the most cost-effective way possible. This is happening. The program’s ambitious cap is in place, companies are already finding ways to reduce emissions, and the fact they can do it while paying around $14 per permit is also telling. It means they can grow their business without producing so much carbon that they need to surrender more allowances.

The continual success of the cap-and-trade program is evidence of a well-constructed, strong, and adaptive policy that will undoubtedly continue to achieve the ultimate goal of curbing California’s carbon pollution while growing the California economy.  The carbon market naysayers have long made claims that this program would increase the cost of business in California, decrease the number of jobs, and lead to economic disaster. But we’re seeing just the opposite. According to an analysis published by Bloomberg early last week, California’s economy is experiencing sustained and promising growth, prodded on by a strengthening housing market and decreasing unemployment rate. In June alone, more than 30,000 new jobs were created in the state, the largest increase for that month in the entire country. In the past 12 months, the unemployment rate in California has fallen by 2.1 percentage points, outpacing the rest of the country by a factor of more than three.

During nine of those months, the state has been regulated under the cap-and-trade program. It is clear that arguments mounted against the policy claiming negative repercussions on the state’s economy are completely unfounded.

California is leading the country in the number of green jobs  up and down the state, from Orange County to San Joaquin County.  As we await the results of the fourth auction, we can cite this data and be confident in a viable and efficient carbon market that’s helping to make California stronger than ever.

Also posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32, Jobs / Read 1 Response

Cap and Trade Needs Auctions like the Ocean Needs Whales

Source: National Geographic

Arguing that California’s cap-and-trade program doesn’t need to auction carbon allowances is like arguing that the ocean doesn’t need whales or that America doesn’t need bald eagles.  This is essentially what the California Chamber of Commerce and the Pacific Legal Foundation are arguing in a series of lawsuits against the Air Resources Board.  On Tuesday EDF and the Natural Resources Defense Council filed a brief with the Sacramento Superior Court pointing out just how ridiculous this argument is.

Like whales and bald eagles, auctions are quickly becoming a popular part of the cap-and-trade program because of the many environmental, health, and economic benefits that can come from investing auction proceeds to reduce GHGs.  But just as whales don’t exist because people think they are cute, auctions are not part of the cap-and-trade program because the public thinks they’re cool (although they are and people do).  If whales suddenly went extinct there may be a few (fishy) beneficiaries but the whole ocean ecosystem would be thrown off kilter. Like the whale, the auction is an integral part of a cohesive, functioning system for reducing climate change pollution.

Source: Flickr

Half of Plaintiffs argument is that AB 32 did not give ARB the authority to hold auctions under a cap-and-trade program when it gave them the authority to design a program to reduce GHG pollution to 1990 levels by 2020.  They argue that ARB doesn’t need to auction allowances in order meet this target.  But what they ignore is that ARB is supposed to meet this target while protecting low-income communities, maximizing total benefits to California, encouraging early pollution reductions, promoting equity, and encouraging cost-effective reductions. Auctions help California achieve all of these goals.

The other half of Plaintiffs argument is that the auction of carbon allowances is an illegal tax on businesses.  Interestingly they argue this not by comparing the auction to a tax and showing overwhelming similarities but instead by setting up a straw man that they can more easily shoot down.  To continue the whale analogy, it’s as if a scientist discovered a whale for the very first time.  The scientist really, really wants the whale to be a fish.  But instead of looking at whether whales have scales and are cold blooded, the scientist just says “well, it’s not a seal so it must be a fish”.  In our brief we take a more direct approach and lay out at least five reasons why auctions are different than taxes.  Just for starters, have you ever heard of a tax that people volunteer to pay?  Because as many as 12% of the participants in each auction have been buyers who have absolutely no obligation to turn over allowances under the cap-and-trade program.

Speaking of whales and bald eagles, some of the Plaintiffs in this case are no stranger to trying to drive them extinct.  The Pacific Legal Foundation which is representing some of the plaintiffs was a longtime proponent of DDT which nearly wiped out America’s bald eagles.

Also posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32 / Comments are closed

California Leading the Way to Clean Energy Innovation While a Few Lag Behind Investing in Litigation, Obstructionism

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.

Also posted in Climate, Global Warming Solutions Act: AB 32 / Comments are closed

EDF and NRDC Seek to Intervene in Defense of California Cap-and-Trade

NOAA just announced that 2012 was officially the warmest year on record for the United States.  With news like this coming out every day, the urgent need to take action on climate change could not be more clear and present.  Fortunately, California is leading the way through innovative solutions that will keep the Golden State at the forefront of new clean energy technologies.

Progress towards meeting the State’s goal of protecting public health and reducing greenhouse gas emissions to 1990 levels by 2020 can be seen all over the Golden State.  Polls show that the people of California overwhelmingly support the law (AB 32) that sets these pollution reduction goals and in 2010 they voted decisively to prevent out-of-state oil companies from delaying this vital progress.   California has made significant progress towards meeting its renewable energy goals having recently reached a 1000 megawatts solar power milestone, and leading power companies are developing a more intelligent and resilient electricity system that will deliver a steady flow of cost-effective clean power to Californians.

California has a long tradition of clean air innovation and leadership.   California spent years litigating during the 2000s, battling major automakers that went to court to block California’s landmark clean cars standards, the first binding limits of climate pollution in our nation.  Now even stronger vehicle standards have swept the nation with leadership from President Obama, the United Auto Workers, numerous states, consumers and — U.S. automakers.  And after this litigious history, the automakers recently stepped-in to defend the new standards in court!  We can begin to see why when we look at the wealth of innovation and car sales that these new, stronger standards have generated.   One of the State’s greatest strengths is that Californians – and thousands of California businesses – recognize that the State’s and the Nation’s economic future lies in a rapid transition to clean, renewable energy that provides good new jobs and sustains public health and natural resources.

The California  Chamber recently showed that they would rather litigate than innovate when they filed a lawsuit challenging California’s cap-and-trade program less than 24 hours before the first California auction for carbon allowances.  The lawsuit shows the California Chamber of Commerce just doesn’t get what so many California business people do understand.  The California Chamber should end the litigation, now, and instead help strengthen California’s vibrant clean energy economy.    We need to cut these harmful pollutants and protect our public health, our communities, our water — and our economy and that’s why EDF and NRDC have applied to the Sacramento Superior Court to join California in defending these protections against the legal attack brought by the California Chamber.

The California Chamber’s members include big businesses and big emitters like: The national meat Association, Vaquero Energy, the California Independent Petroleum Association and the Royal Petroleum Company.

We urge the California Chamber and its members to join those businesses across the Golden State that are investing in engineers, new technologies, and new ideas — not lawyers and obstructionism.  The time to lead, and reap the environmental and economic benefits of clean energy progress, is now.

Also posted in Climate, Global Warming Solutions Act: AB 32 / Comments are closed

Innovate, not Litigate

It’s no secret that California has been leading the nation in setting policy that will reward businesses that innovate and make smart investments in the clean economy.  And the rewards have already begun to roll-in for California.

Last year, venture capitalists made more than half of their clean technology investments in California – a total of about $3.7 Billion flowing into the state.  And as EDF’s own report has shown, California’s clean economy is growing faster and has proved more resilient during economic downturns than other sectors of the economy.

But no good deed can go unpunished.  Yesterday the California Chamber of Commerce filed a lawsuit seeking to invalidate California’s cap-and-trade auction, demonstrating that they would rather litigate than innovate.

This lawsuit comes on the eve of California’s first auction of carbon allowances that precedes the beginning of program enforcement in January 2013.  Cap-and-trade is a key tool in California’s effort to reduce its greenhouse gas emissions to 1990 levels by 2020 – an effort supported by more than 60 percent of the California electorate when citizens overturned out-of-state oil companies’ ploy to delay the program in 2010 and by the current California Legislature.

But even with that resounding defeat, polluters persist in their attempts to delay or weaken implementation of California’s landmark clean energy law.  Meanwhile, they continue to reap billion dollar profits while contaminating our air.

The fact that this lawsuit came on the eve of California’s first auction is no coincidence, it’s just one more underhanded attack strategy.  The lawsuit comes far too late to delay this first auction, but is timed perfectly to insert pollutes’ spurious sound bites into the momentous news of California’s first auction and inject uncertainty into a nascent market.  We can expect that detractors will continue to use this strategy to cast a cloud over the bright spot of California’s climate action as CARB releases auction results on November 19 and as enforcement begins in January.

The good news is that the Chamber’s arguments are unlikely to succeed. According to law experts from the Emmett Center on Climate Change and the Environment at the UCLA School of Law, the cap-and-trade program will most likely go forward without significant tinkering by the courts.

Now that Californians are really starting to see the state’s cutting edge environmental policies bear fruit, we know that it’s no time to move backwards. The future has already begun.

Also posted in Climate, Global Warming Solutions Act: AB 32 / Comments are closed

California Low Carbon Fuels Appellate Court Ruling is a Win on Many Levels

Late yesterday, a three-judge panel in the 9th Circuit Court of Appeals granted an important stay motion in favor of California and its Low Carbon Fuel Standard (LCFS). The court’s decision allows the state to move forward with vital protections for human health and the environment that will strengthen California’s clean energy economy and improve our energy security.

The LCFS is one of California’s most ambitious and innovative climate change regulations to date. It is among 70 measures adopted under AB 32 (the Global Warming Solutions Act of 2006) that will be used to reduce emissions to 1990 levels by 2020. The standard calls for reducing the carbon content of fuels by 10 percent by 2020, which is expected to reduce 15 million metric tons of greenhouse gas pollution per year by 2020. Some of the cuts will come from improvements in the way traditional oil and ethanol feedstocks are produced, processed and delivered to consumers. Other cuts will come from advancements in breakthrough technologies such as electric cars and renewable fuels that dramatically cut toxic air contaminants and further diversify our fuel supply with locally generated energy sources.

How LCFS Works

The standard creates a flexible system that allows fuel suppliers to comply by either documenting reduced emissions in their fuel production pathways (using a science-based lifecycle emissions model) or by purchasing credits from suppliers that have reduced emissions below a predetermined threshold. This approach rewards innovative solutions that cut emissions as quickly, cheaply and extensively as possible, using a scientifically credible emissions reporting and trading platform.

How LCFS Provides Energy Security and Protection from Fuel Price Surges 

California drivers burn about 16 billion gallons of gasoline and 4 billion gallons of diesel fuel every year and emit, in aggregate, approximately 170 million tons of greenhouse gas emissions. Much of this fuel is sourced from California oil fields (approximately 200 million barrels per year), though more than 50 percent is imported from the Middle East, South America and Alaska. These imports make our economy vulnerable to price swings and shortages driven by production changes and politics.

There is perhaps no greater embodiment of our state’s vulnerability to imported fossil fuel than dramatic and sustained “price shocks.” These periods of elevated prices impact drivers’ pocket books and transfer huge amounts of money from California’s economy to foreign countries, many of which are hostile to our country.

Since 1995, California has experienced 15 such fuel price shocks, including the current one that has increased fuel prices by about 40 percent above the 24-month moving average. California’s LCFS, an important clean energy policy, is going to break this trend.

The LCFS Incentive to Diversify the Transportation Fuel Mix 

California’s LCFS is a scientifically-based standard that provides incentives for fuels that cause less climate change pollution throughout their entire lifecycle. At the same time, the LCFS allows for traditional fuel producers to continue operating as long as they turn in sufficient compliance credits. Fuel sources producing credits include electricity (powering electric vehicles), natural gas, advanced biofuels and some traditional biofuels that emit less carbon than gasoline and diesel. These fuels are typically produced or grown in the Western United States rather than imported from abroad. This results in a more diversified fuel mix that is less vulnerable to fuel price shocks.

Positive Signal for States Looking to Follow California’s Lead

Though the Court of Appeals has yet to hear the case on the merits, yesterday’s ruling is a positive signal that this standard has a strong legal foundation that will likely be upheld on appeal and can be adopted by other states. We trust this is music to the ears of Oregon, which just last week announced a Clean Fuels Program similar to California’s.

Without a federal policy in place to regulate the carbon pollution in fuels, it is critically important that California and other states have the ability to carry out smart, science-based policies such as this standard to cut pollution, reward innovation, and build a stronger, more efficient economy.

EDF will continue pursuing the matter on appeal until a final resolution, an outcome that looks suddenly brighter for California consumers, innovative fuel producers and the environment.





Also posted in Global Warming Solutions Act: AB 32, Low Carbon Fuel Standard / Comments are closed