Climate 411

Second California-Quebec-Ontario carbon auction sells out, showing market’s strength

By Katelyn Roedner Sutter / Published: May 23, 2018

 

https://www.pexels.com/photo/golden-gate-bridge-san-francisco-61111/

San Francisco Golden Gate Bridge. Photo by Juan Salamanca.

The second California-Quebec-Ontario joint greenhouse gas allowance auction has sold all current allowances, just like the inaugural tripartite auction in February 2018. There was again strong demand for future allowances, all indicating that despite political and regulatory uncertainty from a key partner, Ontario, the market is on solid ground.

May auction at-a-glance:

  • All 90,587,738 current and previously-unsold allowances sold, clearing at $14.65, which is 12 cents above the $14.53 price floor. This is slightly higher than the February settlement price.
  • 6,057,000 of the 12,427,950 future vintage allowances offered sold at the floor price. This is 2,519,000 million less than sold at the February auction. The decrease is likely due to ongoing uncertainty in Ontario, but as these allowances are not available for use until 2021, it is still an indicator of confidence in the Western Climate Initiative market down the road.
  • An estimated $681,051,270 was raised for California’s Greenhouse Gas Reduction Fund to continue funding climate and equity priorities like urban greening, electric vehicle infrastructure, and affordable housing near public transit.
  • Ontario raised approximately $369,271,300 USD for funding public transit, electric vehicle incentives and energy efficiency upgrades.
  • Quebec raised approximately $151,353,660 USD to support the province’s transition to a green economy.

These results are encouraging because they show that despite ongoing political uncertainty in Ontario, the market is strong and stable. They also show the benefits of linkage to a larger market are real. All three linked jurisdictions have access to more trading partners through the Western Climate Initiative, which creates opportunities for even greater climate ambition. This kind of international cooperation shows that jurisdictions can have an outsized influence on global climate action, particularly at a time when federal leadership from the United States on climate is lacking.

Previously unsold allowances
The role of previously unsold allowances could also be impacting today’s auction results in two ways.

First, this is the third auction where held, or previously unsold allowances were offered for sale. These allowances increase the number of available allowances in the auction, which may contribute to keeping the price near the floor. This demonstrates the importance of that price floor. It is a central feature of the program that ensures stability of the market and the revenues.

Second, back in July 2017 the California Air Resources Board (CARB) adopted the so-called “24 Month Rule.” This establishes that any state-owned allowances that remain unsold for 24 months are either moved to the Allowance Price Containment Reserve (APCR) or retired. This has the effect of tightening the cap either temporarily (if prices were to unexpectedly jump) or permanently. The first significant retirement of allowances could happen after the August auction, so companies could be buying now in anticipation of decreased supply later.

Looking Forward
CARB is in the process of drafting a regulatory update for the cap-and-trade program post-2020. The program has been successful at reducing emissions, as demonstrated by current emissions being below the cap, even as California has grown to the fifth largest economy in the world. This emissions trend provides an important opportunity for California to continue driving increased ambition by setting a tighter post-2020 emissions cap, and continue showing that ambitious climate action can go hand-in-hand with strong economic growth.

Of course the biggest question in the linked carbon market right now is Ontario, which is having elections in June. Although two of the leading parties want to preserve the program, one party wants to end it, but would need to overcome a mountain of legal hurdles. The outcome of the June election could set up either increased confidence in the future of cap-and-trade in Ontario or lingering questions. But the results for both current and future vintage in this auction indicate that confidence is steady, and the California-Quebec-Ontario market remains a world leader in driving climate action.

Also posted in Carbon Markets / Comments are closed

California Models Climate and Air Pollution Action with Balanced Approach

By Quentin Foster / Published: July 12, 2017

Air pollution visible in downtown Los Angeles | Photo by Diliff, via wikipedia comms

California is once again demonstrating its bold climate leadership. As Washington, D.C. continues to abdicate its role as a climate champion, California is stepping up to extend its landmark cap-and-trade program, address local air pollution, and push California businesses forward toward a cleaner economy.

Environmental Defense Fund strongly supports AB 398 (E. Garcia) and AB 617 (C. Garcia), as well as their authors, Legislative leadership, and the Brown Administration. We commend their vision and initiative on a bill package that addresses the growing threat from climate change and improves public health outcomes by addressing local air pollution in the most impacted neighborhoods.

AB 398: Extending the cap-and-trade program

This bill seeks to extend California’s groundbreaking cap-and-trade program until 2030, with a 2/3 vote. We support this bill for 3 key reasons:

  1. This bill maintains the environmental integrity of California’s cap on emissions. By introducing a price ceiling on allowances, the Air Resources Board with the Legislature’s guidance provides greater certainty on costs. Done poorly, such a ceiling can put environmental outcomes at risk. This proposal addresses that concern by requiring that any excess emissions be made up for by high-integrity emissions reductions outside the cap. This ensures that California does not bust through its emissions cap.
  2. This proposal extends the economic benefits of cap and trade. California has added over a million jobs since cap and trade launched in 2013, and this bill includes important provisions to further develop a green workforce for the 21st century economy. At the same time, cap and trade encourages investments in alternative forms of fuel. This decreases our dependence on fossil fuels, which protects consumers from volatile gas prices.
  3. Extending cap and trade sets a national example for other states to follow. California is on track to meet our 2020 target of reducing emissions to 1990 levels, and the 2030 goal is even more ambitious. We are demonstrating that emissions reduction and a thriving economy can go hand-in-hand. And we will not leave our most vulnerable communities behind.

AB 617: Clean air for California’s most vulnerable communities

The second part of this essential package is an unprecedented air quality bill which seeks to address local air pollution in California’s most impacted neighborhoods. For EDF, these are the 3 main reasons we are committed to supporting this bill:

  1. This measure targets neighborhoods burdened by multiple sources of air pollution. California communities like Richmond, Modesto, or Torrance aren’t polluted by just cars or one refinery – they have many different sources of air pollution. This bill identifies these neighborhoods and focuses monitoring and emissions reduction plans based on burden, rather than source.
  2. Industrial facilities are required to upgrade their technology. There are many facilities that have not been upgraded in decades. This means they emit far more pollution than if current technology were used. This bill requires that industrial sources covered by cap and trade are retrofitted to a standard that reflects technological advances, but are also cost-effective.
  3. This bill increases penalties for big polluters. Many air pollution penalties haven’t been adjusted since the 1970’s. This bill increases these so big polluters no longer have an advantage over facilities that follow the law. This is critically important to hold polluters accountable, especially for the residents who live nearby.

Yes, there is still compromise in politics

California can address climate change without leaving communities behind.

The ability to compromise seems absent from most political arenas these days. The zero-sum strategies of filibusters and government shutdowns are more the norm than a negotiated settlement. However, the California State Senate and Assembly Leadership, along with Governor Brown’s Administration have re-discovered the art of the possible, and isn’t that what politics is all about? They have managed to find the compromise with stakeholders that addresses the twin challenges of climate pollution and air quality.

This package is a path forward that demonstrates to the country and to the world that California can address climate change without leaving communities behind.

There is no silver bullet to accomplish this, despite what we all wish. The environmental community needs businesses to thrive so California’s economy remains strong. Business needs the environmental community to hold them accountable. The Legislature needs all of us to help continue setting the standard on climate policy. We don’t get to take our ball and go home because things aren’t going our way.

As we demonstrate how to address climate change and air pollution, let’s also demonstrate to Washington, D.C. how to compromise. We urge the Legislature to support AB 398 and AB 617.

Also posted in Carbon Markets, Greenhouse Gas Emissions / Comments are closed

California’s cap-and-trade program doesn’t need an overhaul

By Erica Morehouse / Published: May 1, 2017

(Source: cropped photo from Flickr/ Zoe-Rochelle)

Today Senator Bob Wieckowski, supported by Senate President Pro Tem Kevin de Leon, proposed what amounts to a complete overhaul of California’s cap-and-trade program after 2020 in amendments to SB 775.

Pro Tem de Leon in particular has been a tireless champion of effective climate policies that are benefiting California’s communities and making the state a global leader on climate action. California would not be where it is today without his leadership especially on investments in disadvantaged communities and strong renewable and energy efficiency targets. This particular proposal, however, contains provisions that risk undermining the enormous progress the state has made.

Rather than scrapping the current system and starting over with an unproven approach, the state should build on success, keeping what is working well while strengthening the program by doing more to address local air pollution and environmental justice.

With President Trump seeking to take the country in reverse, California’s leadership is needed now more than ever. We can – and must – forge a post-2020 program that benefits communities in the state while leveraging progress here at home to spur greater ambition globally.

What’s at risk in this bill?

We still need to do a full assessment on the language of the bill, which was amended today on the Senate floor, but we know certain key policies are at risk:

  • Setting a hard ceiling on allowance prices, without any provision to ensure that California would meet its climate targets if that price ceiling were exceeded, opens a loophole that could undermine the program’s environmental integrity and California’s climate leadership. While the specific price ceiling envisioned in the bill is high enough that it may not be triggered, it represents an approach that is counter to the signature feature of the cap-and-trade program: the guarantee that California will meet its emission target.
  • This price ceiling also supplants a carefully designed cost-containment system that has operated effectively and works in harmony with California’s environmental goals. For example, this bill would prohibit firms from banking allowances, denying them a key source of flexibility that allows them to reduce emissions at the lowest possible cost over time. The bill would also ban the use of offsets, which help California achieve high integrity, hard-to-reach reductions outside the cap while keeping costs under the cap in-check and extending California’s climate diplomacy.
  • This bill could put California’s existing and future partnerships and linkages at risk by overhauling California’s approach to cap-and-trade and then asking partners to quickly fall in line. International linkages strengthen California’s leadership position and allow the state to leverage its program to spur greater ambition globally. Turning inward now would cede global leadership just when the world needs it most.

Today’s proposal is just one step in the complex legislative process, not a final bill proposal. Decision makers must balance many policy priorities as they navigate how to extend California’s cap-and-trade program. We believe there is plenty of room to adapt and strengthen California’s policy package while hewing to the framework that has served California well in reducing carbon pollution so far.

How California can chart a path to a strong cap-and-trade extension

California’s cap-and-trade program is working to bring carbon pollution down while the economy thrives. Even with this success, we recognize California needs to be doing more to address the very serious air pollution issues in local, environmental justice communities. EDF is committing to working on this with legislative leadership and our partners to ensure that the air is safe for all Californians to breathe wherever they live, while recognizing that climate policy – which affects issues as serious as our access to water – is critical to our continued future.

California needs policies that – in addition to improving local air quality – will continue to build on the successful reductions of GHG emissions; secure national and international partnerships vital to the state’s progress as a climate leader; and continue to support strong economic growth.

Rather than a wholesale change of a program that is meeting its goals, we should preserve what’s working and strengthen the parts that aren’t doing enough by designing and implementing policies that will directly improve air quality, especially in environmental justice communities.

This Senate bill comes as Governor Brown is urging the Legislature to pass an extension through the budget process with a two-thirds vote, and after two proposals introduced into the Assembly on how to extend the cap-and-trade program.

It is important that the Senate has now entered this debate and is recognizing the importance of passing a cap-and-trade extension with a supermajority vote. EDF looks forward to working with Senator Wieckowski, President Pro Tem de Leon, Assembly leaders, the Governor, and other stakeholders as California charts a path to a strong post-2020 climate policy.

With the Trump Administration abandoning its leadership role on climate at home and on the international stage, it is more important than ever that California continues to model successful climate policy that ensures that the state will meet its ambitious carbon pollution reduction targets, while promoting better local air quality and supporting a thriving economy.

Posted in California / Comments are closed