California’s oil refineries, utilities, as well as other companies that must emit greenhouse gases, have saved so many credits to allow them to pollute, that it could threaten the state’s ability to achieve its ambitious climate goals, according a report by a panel of experts.
California has one of the largest carbon markets in the world, known as cap and trade”. This requires companies to purchase, trade, or receive pollution allowances’ equivalent to what they intend to emit. As allowances become more scarce and more expensive, the state will make fewer allowances available to encourage companies to pollute less. Both advocates and opponents of California’s efforts to reduce emissions through market forces, rather than mandates, have closely monitored California’s market. The state is required to reduce its emissions by 40% below 1990 levels by 2030. It is an ambitious target. In addition, the state has previously stated more than a quarter of those reductions will be from cap and trading. According to a report last week by the Independent Emissions Market Advisory Committee, a committee of five experts, the program could not force significant emissions reductions. The banks of allowances are approximately equivalent to all the carbon companies emit in a given year. They have so far exceeded the emission cuts cap-and-trade is supposed to achieve by 2030. Danny Cullenward is the vice chair of the committee and is an economist and lawyer who focuses on climate policy.
The report was prepared by the California Air Resources Board as it prepares a scoping assessment of the state’s progress towards its climate goals. This is the first such plan for five years. The committee urged the board not to forget about the importance of trade and cap and balance. Dallas Burtraw, chairman of the committee, stated that it is possible that emissions from all covered sources won’t be reduced over the decade due to the bank’s size.
One allowance is one metric ton of equivalent carbon dioxide emissions. It is roughly the same amount as driving a car 2,500 kilometres. One allowance cost between $17 to $28 during last year’s quarterly allowance auctions.
The air board does NOT make public the names of those who have banked their allowances. There is also a limit to the number of individual emitters that can possess them. If the program is terminated in 2030 as planned companies would no more need to pollute and any remaining allowances would be null. Rajinder Sahota (deputy executive officer for climate change research and research at a national air board) stated that it has the tools to ensure banked allocations don’t compromise the programme’s goals. For example, they can sell fewer allowances in future auctions, or take them off the market if the price is too low for 24 months.
Sahota claimed that the airboard had already taken some allowances out the auction market as a response to the large amount of credit. This is similar to the approaches taken in other carbon markets in Europe or the northeastern United States.
She said that the fact that we have some unutilized allowances is actually a positive thing for the atmosphere because it means that those emissions didn’t happen.
Air board data shows that companies covered by cap-and-trade collectively emitted less in 2018 and 2020 than they did between 2015 and 2017, which is consistent with air board data. Some of those reductions were due to a decline in economic activity at the beginning of the pandemic.
Shell Energy and the California Council for Environmental and Economic Balance (a coalition of labor and business organizations) warned against changing the allowances through any new measures. They claimed that such a move would compromise the market integrity” for the programme.
The last scoping plan of the air board found that cap and trade would be responsible 38% for the state’s emissions cuts. It is basically everything that can’t possibly be achieved with other programs. Sahota stated that cap and trade will likely be less important in the 2022 update. Any changes to the programme or the number of allowances sold could have ramifications other than cap and trade. Through quarterly auctions of allowances the state has raised more than $18 million. The proceeds go towards other programs to reduce emissions. A quarter of auction proceeds go directly towards the state’s long-delayed but exceedingly expensive high-speed railway project. California created the program in 2013. It originally planned to expire in 2020. In 2017, however, lawmakers and the then-Gov. Jerry Brown extended it to 2030. Environmental justice advocates have long argued against the extension, saying that it does little to improve air quality in areas where large polluters are located. California’s climate justice manager, Neena Mhan, stated that the (committee), reported a dangerously high amount of offsets, allowances, and allowances. Companies can use offsets to remove carbon from the atmosphere. The offset projects can be done anywhere, including projects that capture methane at coal mines.
Bob Wieckowski, a Democrat from the State, said he should have pushed harder for companies to stop keeping their saved allowances after 2021 and force them to start over. He will be leading a Senate hearing on Feb. 23 about the scoping plan. Wieckowski said he will question Newsom administration officials and air board members about cap and trade.
The 2017 air board analysis only modelled the possibility that about 150 million allowances could be saved, less than half of what was actually saved. Cullenward, the air board’s new analyst, stated that California needs to make a clear assessment of where it stands in order to preserve its climate change integrity.
California must live up to its ambitions and show a model for getting it done. We have to be able tell people what we are doing and be honest with ourselves.