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- November 13, 2012By Laura Tam, Sustainable Development Policy Director
This week, one of the most important pieces of the 2006 Global Warming Solutions Act (Assembly Bill 32) goes live: the first-ever quarterly auction of carbon permits under California’s Cap and Trade program is set for Wednesday, November 14. California’s cap and trade program for greenhouse gases is designed to help achieve an 80 percent reduction of greenhouse gas emissions from 1990 levels by 2050. To learn more about the opportunities and challenges of cap and trade implementation, we hosted a forum at SPUR last week featuring Kate Gordon, director of the energy program at the Center for the Next Generation, Alex Jackson, energy program attorney at the Natural Resources Defense Council, and Brad Neff, cap and trade implementation manager at PG&E. Here are some of the insights they shared about what we can expect from cap and trade.
Gordon explained how California’s efforts to implement market mechanisms that would control greenhouse gases fit into a larger regulatory program, which includes not only cap and trade but a low-carbon fuel standard for vehicle fuels and a renewable energy standard for electric utilities. Taken together, she said, California’s approach to greenhouse gas controls is more economy-wide, more far-reaching, more integrated and more visionary than other regional greenhouse gas programs, such as the Regional Greenhouse Gas Initiative (RGGI) in the northeast United States, the Western Climate Initiative and trading programs in the EU, China and Australia.
Carbon trading programs are hard to implement, according to Gordon, because putting a price on carbon affects the economy, and a thoughtful transition is necessary to prevent the loss of jobs, especially if firms move out of state to save the costs of carbon compliance. Some of this week’s auction credits are actually reserved to help prevent this problem in California.
Gordon also discussed how Hurricane Sandy is kick-starting the national conversation about climate change, on both mitigation and adaptation. A price on carbon is even being discussed in Washington, D.C., as a potential part of the national deficit compromise. Some groups are talking about it as a way to raise revenue, others are talking about it being revenue-neutral (an opportunity SPUR discussed years ago in our 2008 paper on green taxes.)
Alex Jackson from NRDC began his portion of the presentation with an overview of how California’s cap and trade program is structured. Although the 13-page-long AB 32 did not describe how the state should achieve the emission reductions it called for, it did authorize market mechanisms and delegate program implementation to the California Air Resources Board (ARB). In 2008, the ARB released a scoping plan identifying the sectors of the economy that contribute to global warming and what policies should be targeted to those sectors to achieve them. Although cap and trade only covers about 20 percent of total emissions at first, Jackson said it was a critical piece of the carbon tool kit for four main reasons:
1. It is one of the only policies that sets a fixed limit on emissions at the source, and by 2018 will cover 85 percent of economy-wide emissions (the program covers only large industrial emitters and the electricity sector at first, but transportation fuels are included in the program later).
2. It is enforceable on individual emitters.
3. It puts a price on carbon, correcting the externality and creating a positive incentive for compliance (saving money).
4. It provides a backstop for the whole scoping plan if other policies and programs underperform.
Jackson commented that in terms of challenges for the program, we might expect to see some lawsuits from those who have a vested interest in seeing lack of success in California as a bellwether for climate policy. It is also a political challenge: Since AB 32 passed seven years ago, we have to undertake renewed efforts to explain to today’s lawmakers why the program is important. He expects renewed opposition from the forces of the status quo as we reach the finish line.
Brad Neff, who manages cap and trade for PG&E, described how the company is preparing for cap and trade, emphasizing that it has always supported such a program. Electricity rates are “decoupled” in California, meaning electric utilities earn a set rate of return, which the California Public Utilities Commission (CPUC) bases on the utility’s assets that deliver energy — not on how much electricity and gas it sells. For this reason, PG&E believes it is fortunate to operate in a regulated structure that enables the company to be very pro-environment. At 60 percent carbon-free, PG&E’s current electricity mix is one of the cleanest in the nation.
PG&E is covered by several AB 32 programs and regulations, including cap and trade and the Renewable Portfolio Standard. The utility views AB 32 as a positive step forward but wants market stability: PG&E expects its assets to last 20 or 30 years, so it wants clarity into the future about new potential rules and carbon costs. PG&E will get some free allowances under cap and trade, and it wants to give any revenue it earns back to ratepayers, but the CPUC has not made clear yet how this will be done.
In response to questions from SPUR’s audience, we learned that the revenue from the carbon allowance auction is only partially allocated. This is because it’s not clear how much revenue will come in. It is certain that this pool of funding will increase over the years, especially when transportation fuels are included under the cap. It is also certain that all of the revenue goes into ARB’s Air Pollution Control Fund initially and must be spent on implementing AB 32 or reducing air pollution (including greenhouse gases). As well, the California legislature has decided that 25 percent of the revenue must go to providing benefits to disadvantaged communities. For the balance, as directed by the legislature, ARB is going to work with the Department of Finance to come up with three-year investment plans.
I asked if there would be anything exciting to watch for in the media on Wednesday when the auction commences at 10 a.m. Our panelists all agreed: they hope not. Let’s all hope for some evidence of success, and a smooth process, as this critical tool to reducing global warming emissions launches.
- September 4, 2012By Michael S. McGill*
California water policy is endlessly fascinating. It addresses the single most important resource problem facing the state. It is complex. And it changes with glacial slowness.
This year, San Franciscans face two issues that reprise what occurred three decades ago: What should the city do regarding the long-term fate of the Tuolumne River? And what should the state do about moving fresh water through the Sacramento/San Joaquin Delta for shipment to the south?
Indeed, these two issues were the first water policy questions SPUR ever addressed. In 1982, the Modesto and Turlock Irrigation Districts and the San Francisco Public Utilities Commission were proposing to build three dams and two powerhouses along the 20-mile stretch of the Tuolumne River between O’Shaughnessy Dam and New Don Pedro Reservoir. Also in 1982, Governor Jerry Brown was proposing to build a Peripheral Canal around the delta to move Sacramento River water directly to the massive pumps that send it to the South Bay, Central Valley and Southern California.
SPUR opposed both proposals. We persuaded Mayor Dianne Feinstein to forego the additional revenue, water and electricity that the Tuolumne dams would generate. She even authorized me to go to Washington, D.C., to testify on the city’s behalf at a congressional hearing on designating the Tuolumne as a Wild and Scenic River. I also joined a variety of environmental groups in several meetings with Governor Brown and his staff to try to persuade him to drop the Peripheral Canal.
Governor Brown put a bond issue for the canal on the November 1982 ballot. It lost. More than 90 percent of Northern Californians voted against it. Congress voted to save the Tuolumne in 1984.
And now, here we go again.
For the Tuolumne, the issue at stake is San Francisco’s Proposition F, which asks whether the city should commence planning to demolish O’Shaughnessy Dam and allow the Hetch Hetchy Valley to return to its natural state. Doing so would, however, deprive the city of one of the purest water supplies of any urban area in the nation — as well as hydroelectric power and a revenue stream generated by the sale of a portion of that power. SPUR has written previously about how decommissioning the dam and reservoir will threaten San Francisco’s water supply and why the city will continue to need this system.
But what would this proposal mean for the Tuolumne River itself? It means destroying the very values of that 20-mile stretch downstream that persuaded Congress to save it. In those 20 miles, with hardly a road or a structure in sight, there are two dozen major rapids. It is one of the finest whitewater experiences in the world. Running those rapids is possible all summer long because of a reliable flow of water released daily from Hetch Hetchy. Demolishing O’Shaughnessy would mean that the water would be too high and violent during spring runoff, and too low for the rest of the summer for all but a handful of days. There would be no dam in place to capture the high spring flows, and no reservoir to provide timed releases all summer long.
The Tuolumne is also a premier trout fishery. Demolishing O’Shaughnessy eliminates that fishery, because the water would get too warm during the summer months without replenishment on a daily basis from Hetch Hetchy.
Having failed in 1982 to persuade the voters to approve the Peripheral Canal, Governor Brown now wants to pursue a $14 billion project funded by revenue bonds to construct a Peripheral Tunnel. He argues this is essential to save the fragile ecology of the Sacramento/San Joaquin Delta and to assure the continued delivery of a reliable supply of water to the South Bay, Central Valley and Southern California. The bonds and operating costs would supposedly be repaid by city and agricultural water users, although California farmers served by the two water systems receive heavily subsidized water supplies and cannot possibly afford to pay the full cost of developing the water.
The arguments from 30 years ago still apply today, even though conditions in the delta have gotten worse and the state has grown more populous. The proposed tunnel would have a capacity to deliver 9,000 cubic feet per second of water to the pumps for delivery south. Bypassing the delta would enhance the reliability of this water supply against an earthquake disrupting the delta and ensure that this water was of a higher quality than at present. It would also end the confusion fish face as they try to swim upstream while the pumps change the direction of stream flows.
But pumping this much water would consume one half to two thirds of the average normal monthly flow of the Sacramento River during the summer, when demand is highest. What happens during a drought? At present, the pumps cannot draw too much fresh water from the delta without sucking in salt water from the San Francisco Bay. With the tunnel, no such impediment would exist, and the entire flow of the Sacramento could be sent to the pumps. Halting the flow of fresh water into the bay for any sustained period would destroy its value as a major estuary.
Assurances are offered that the primary goal of this whole effort is to restore the delta environment, and that it may produce no new water or even result in reduced flows. This claim is based on the assumption that existing environmental laws and regulations will remain in place and be enforced, so too much water cannot ever be sent south.
Remember what happened on the Klamath River in 2002? The federal government decreed that less water was needed to preserve the salmon fishery, so more could be delivered to farmers. The result? More than 70,000 salmon died before reaching their spawning grounds. It took four years for a court to decree that the decision to reduce the flow was wrong, but the damage had been done.
So long as Sacramento River water going south has to flow through the delta, rather than around or under it, the Central Valley and Southern California cannot take all of it. But the Klamath River experience suggests that environmental laws and regulations alone cannot prevent excessive water withdrawals.
San Franciscans have a direct role to play in determining the fate of Hetch Hetchy reservoir by voting on Proposition F in this November’s election. Their role in addressing the issue of the Peripheral Tunnel is less direct. Without question, the current system for transporting water from north to south damages the environment and is vulnerable to disruption from natural disasters, ranging from drought to earthquakes. But fixing it involves finding a Gordian knot solution that links protecting the environment with ensuring a reliable supply of high-quality water via a mechanism not vulnerable to political pressure.
* Michael McGill served as SPUR associate director from 1973 to 1981 and executive director from 1982 to 1989. He moved to Washington, D.C., to serve as chief of staff and senior advisor on water policy to Senator Dianne Feinstein, and currently is a public affairs officer with the U.S. General Services Administration’s Public Buildings Service. The opinions expressed in this post are his alone and not necessarily the opinions of SPUR.