Thursday, October 27, 2011

California Implements Cap and Trade Program

On Thursday, October 20, 2011 after a long public hearing and meeting the California Air Resources Board unanimously voted to adopt the nation's first state-administered cap-and-trade regulations for greenhouse gases. Cap-and-trade is the centerpiece of AB 32, the Global Warming Solutions Act of 2006 a California law that establishes a wide reaching program of regulatory and market mechanisms to achieve quantifiable, reductions of greenhouse gases (GHG) that are intended to be cost effective. This law establishes a statewide GHG emissions cap for 2020, based on 1990 emissions. Though Cap and Trade was not part of the actual law, it was added by the California Air Resource Board in their Regulations. California sees itself as leading the way in cap and trade legislation and an example to the nation of the potential benefits and concerns and problems with this particular approach to attempt to prevent climate change by controlling CO2 emissions. A second phase of compliance begins in 2015 and is expected to include 85% of California's emissions sources.

Thought there were many other voices the prevailing view at the meeting was California is leading the way to the future. California intends to show by example to other states and the federal government that it is possible to regulate greenhouse gas emissions while protecting its economy and fostering a new green economy and industry. According to others, California is taking a very big risk with their economy for uncertain results. There is the strong feeling amongst journalists, regulators and NGOs that the vote was closely watched by other states and, if the program is deemed successful, it will serve as a model for future markets. If you recall the "American Clean Energy and Security Act” is HR 2454, also known as the Waxman-Markley energy bill, or simply as "ACES" was passed by the US House of Representatives in 2009 and died in the senate. The bill included a cap-and-trade global warming reduction plan designed to reduce carbon dioxide emissions in the U.S and also required “polluters” to buy permits to emit a certain amount of carbon dioxide.

Within California there is the strong belief that people watch what California does and emulate it. The California regulators believe that cap-and-trade programs are going to spread to other states and regions and the design features developed for the California program will be adopted in other states and regions with the federal government finally adopting the program. The California Air Resource Board sees their work in creating 262 pages of regulation as ground breaking and likely to change the country. These regulations imply a shift away from carbon based fuels. It is envisioned that this will support the creation of new green-tech jobs and financial certainty for the renewable energy industry even as there is a strong national push to further develop shale source natural gas to move power generation away from the coal fired utilities built in the mid 1900’s and for a reduction in the size of government. At least 15 states now produce shale gas and others may join them. The largest shale area, the still-emerging Marcellus, covers much of the Northeast and already supports 140,000 jobs in Pennsylvania alone. Many of the jobs created recently in Texas are related to the expansion of shale gas exploration and development.

United Nations Climate summit will be held November 28-December 9th 2011 in Durban South Africa. The Kyoto Protocol, which commits developed countries to cut their emissions, is set to expire in 2012. After both the Copenhagen (2009) and Cancun (2010) Climate summits failed to produce a legally binding climate treaty, delegates to the Durban talks are under immense pressure to produce some kind of deal that will be acceptable to both rich and developing nations. However, it is reported that cap-and-trade concept is losing support among the pervious signers of the Kyoto treaty and China and India who are now major producers of greenhouse gas because of concern about jobs, costs and bureaucratic complexity.

The “emerging nations,” including China and India want an extension of Kyoto, which required the industrialized nations to cut greenhouse gas emissions by 5.2% below 1990 levels from 2008-12. The world's two largest greenhouse gas emitters are China and the United States. The U.S. never ratified Kyoto, arguing it should contain 2012 goals for emerging economies and would cost U.S. jobs. China was exempted as an emerging economy, and though it is now the largest greenhouse gas emitter on earth, it wants to remain exempted from reducing or even stabilizing greenhouse gas emissions under any new agreement. In September India announced that it would not accept any legally binding limits on greenhouse gas emission, and Japan announced that they are reconsidering plans to cut carbon-dioxide emissions by 25% by 2020 due to closing of a significant portion of its nuclear power generation, and the costs of the carbon-credit programs that required the spending of almost $11 billion on carbon abatement programs in other countries. Overall, expectations for the future of the Kyoto Protocol are low and some doubt whether if a second commitment period is feasible with only support from EU which accounts only around 11% of the world’s greenhouse gas emissions and is itself reconsidering its nuclear power generation after the Fukushima Daiichi nuclear reactors were damaged after the quake. If nuclear reactors are going to be phased out as low greenhouse gas emission power generation there is no way to achieve carbon reductions without reducing the size of the economy, the standard of living or the size of the population.

The California Cap and Trade program requirements will help the current crop of California solar projects. If you will recall, the Department of Energy recently issued its final round of loan guarantees before the program ended and these final four loans included three generation project in California.
California Valley Solar Ranch Project a $1.237 billion loan guarantee to allow SunPower Corp to borrow the money to build a 250-megawatt photovoltaic electricity generating array in San Luis Obispo County, California using sun tracking technology to increase electricity output. The power will be sold to Pacific Gas and Electric Co. and will generate enough (very expensive) electricity to power 64,000 homes and will allow SunPower to increase demand for their panels and maintain or increase production. Construction employment will be significant, but permanent jobs will be few. The panels do not need much operation.

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