Comment Log Display

Date: December 6, 2010
To: California Air Resources Board
From: Climate Protection Campaign

Re: Proposed Cap and Trade Regulations


The Climate Protection Campaign (CPC) has participated in the
discussion of cap and trade in California for several years now
through the Market Advisory Committee, the Scoping Plan, and more
recently with the Economic and Allocations Advisory Committee
(EAAC).  

CPC has consistently submitted comments calling for the following
design elements in a capped system:  

-	An upstream system 
-	100% auction of permits 
-	Compensating consumers with a dividend
-	Carbon fees to fund important programs 
-	A price floor on allowances

We commend CARB staff for including a price floor of $10/ton into
the proposed regulation. We support the transportation fuels
sector’s upstream point of regulation and auctions close to 100% of
permits.  We note that consumer compensation is recognized in the
language for use of allowance value, and that utilities are
required to protect ratepayers. 

The proposed Cap & Trade regulation creates different rules for the
industrial, transportation and utility sectors. We are disappointed
by the amount of free allowances given to the industrial sector
emitters, and by the delayed move towards auctioning. We are
concerned that the utility sector will not return the allowance
value to ratepayers in the most direct way.

We urge CARB to ensure that the five recommendations in bold above
are fully implemented in the final regulation.   
 
The discourse is much more advanced now than it was in 2006. After
several years of studying this subject, staff is now well-versed in
the concepts of free allocation and auctioning, and use of
allowance value. CARB has had time to learn the lessons from the EU
ETS, and to hear from dozens of experts. We believe that the
recommendations described below will make for an effective and
smooth implementation of AB 32 that is equitable for all
Californians.

Reduce free allocations to industrial sector emitters

We agree with other groups such as the Union of Concerned
Scientists that 100 percent free allocation to 1st tier industrial
emitters is excessive. We urge CARB to reduce the free allocations
to the minimum amount suggested by the EAAC. The Regulation should
also include monitoring procedures and an adaptive management
process to assess the impact of free allocation on industries and
leakage over time.  Another option would be to tax the resulting
windfall profits so that a portion of that allowance value is
recaptured and can be used for public purposes. Industry-specific
benchmarks encourage manufacturers using current technologies to
add some moderate efficiencies to their processes, but may
disadvantage out-of-the-box innovators that produce carbon negative
cement products (for example, Calera, Inc.) and shield current
technologies which would otherwise become less economical due to
the carbon price.

Utility sector should send rebate checks to residential customers

For the utility sector, CARB has proposed a combination of free
allowance giveaways and (secondary) auctions. The allowances are
given for free to utilities that deliver electricity.
Investor-owned utilities would sell the allowances to the
generators when they buy electricity from them. Publicly-owned
utilities that produce their own generation would need the
allowances themselves. After the allowances are “monetized,” the
utilities are to use the billions of dollars in allowance value “to
reduce the costs of AB 32 policies on their ratepayers,” for
“ratepayer benefit” (section 95892) and “for protection of
electricity customers and for other AB 32 purposes.” In the final
regulation, CARB must provide a more specific definition of
“ratepayer benefit” to utilities.  

CARB wants the utilities to pass along the subsidy to consumers in
a way that encourages conservation.  The EAAC report did a great
job explaining the flaws in the PUC/CEC recommendation to allocate
to utilities. The EAAC recognized that providing a rebate through
utilities (showing up only as a line item on electricity bills)
shields consumers from the price signal and discourages changed
behavior. Separating the return of money from the utility bill is
critical for sending any price signal at all to residential
customers. There is no environmental benefit from keeping people’s
utility bills low.

We support the proposed regulation’s inclusion of consumer refunds
as a use of allowance value. We believe the most direct approach to
this is a “lump-sum transfer” which could be implemented through a
dividend check.  The customer would still receive the carbon price
signal on their utility bill, but would receive a rebate check to
help buffer them from the regressive impact of increased
electricity prices.  

 
Dividends: Not just another use of allowance value, but rather a
structural foundation for the entire program

The EAAC was clear that dividends should be a majority use of
allowance value, not just another use of allowance value comparable
to any other. Dividend checks to every California household do help
with the costs that will be passed down to consumers (i.e. Cap &
Dividend).1 But they also recognize the shared ownership of the
commons, and that the first priority is to return the value of this
commons back to the people.

AB 32 requires that the regulations that your board approves
“ensure low‐income communities are not disproportionately
impacted.” Without a dividend or rebate low and middle income
citizens will be disproportionately impacted by increased energy
prices creating an economic and political obstacle for the smooth
implementation of the law. 

If dividends are included in the first compliance period, they may
be used as a feature to sell the program to the public up front.  

The proposed regulation requires the collected revenues from the
auction of transportation sector allowances be used for public
purposes. There are many possible uses of auction revenue:
government programs and investments, a Community Benefits Fund, and
more. We urge CARB to strongly recommend to the governor and
legislature to use the funds as the State’s Economic and
Allocations Committee recommended: 75% dividends and 25% other uses
including a Community Benefits Fund. Such an approach would mirror
the federal legislation introduced by Senators Cantwell and
Collins, the CLEAR Act. 2

Offsets and other issues

The current maximum offsets level, 8 percent, is too high. By some
calculations, this amount would allow emitters to continue with
business as usual emissions levels until 2017. It may be better to
run a separate program for uncapped sectors which is not linked to
the permits market. More information on the “supplementary
reductions concept” may be found in the Cantwell-Collins CLEAR Act,
available at U.S. Senator Maria Cantwell’s website.  

Thank you for your hard work, and for making California a global
bright spot for climate action. 

Sincerely,

 

Ann Hancock
Executive Director

1. www.capanddividend.org
2.  http://cantwell.senate.gov/issues/CLEARAct.cfm