By KATHLEEN RONAYNE, Associated Press
SACRAMENTO, Calif. (AP) — Oil refineries, utilities and other businesses that must pay to emit greenhouse gases in California have saved up so many credits allowing them to pollute that it could compromise the ability of the state to meet its ambitious climate goals, according to a report from a panel that advises state officials.
California operates one of the world’s largest carbon markets, known as a ‘cap-and-trade’, which requires companies to buy, trade or receive pollution ‘allowances’ equivalent to the amount they plan to issue. The state makes fewer allowances available over time, in an effort to incentivize companies to pollute less as allowances become scarcer and more expensive.
The California market has been closely watched by supporters and critics of efforts to control emissions using market forces, not mandates. The state is required to cut emissions 40% below 1990 levels by 2030, an ambitious goal, and the state has previously said more than a third of those reductions will come from capping and exchange.
But participating companies have saved so many allowances — 321 million — that it could hurt the program’s ability to drive deep emissions reductions, according to a report finalized last week by the Independent Emissions Market Advisory Committee, a group of five experts appointed by the legislators. and the governor. The banked allowances are roughly equivalent to all the carbon companies emit in a year and they so far exceed the emissions reduction cap and trade is supposed to reach by its expiration in 2030.
“If you can’t take that as a wake-up call, you’re not paying attention,” said Danny Cullenward, a climate policy lawyer and economist and the committee’s vice chairman.
The report comes as the California Air Resources Board prepares an assessment of the state’s progress toward its climate goals, known as the “scoping plan.” It’s the first such plan in five years, and the committee has urged the board to thoroughly consider the role cap and trade should play.
“Because of the size of the bank, it is plausible that all sources covered will not reduce emissions at all over the decade,” said committee chairman Dallas Burtraw.
An allowance is 1 metric ton of carbon dioxide equivalent emissions, roughly the same level of emissions produced by driving a car 2,500 miles (4,023 kilometers). At last year’s quarterly allowance auctions, an allowance cost between $17 and $28.
The air board does not make public who owns banked quotas and there is a limit on how many an individual issuer can own. If the program expires in 2030 as planned, companies would no longer need to pay to pollute and the remaining allowances would be useless.
Rajinder Sahota, deputy managing director for climate change and research at the Air Board, said he has tools to ensure banked allocations do not undermine program goals, such as withdrawing allocations from the market if they do not sell for 24 months. Supplementary allowances could only be withdrawn by order of the Legislative Assembly or regulatory changes to the program. The Air Board previously removed some allowances from the auction following legislative changes in 2017.
“The fact that we have unused allowances is actually a good thing from an atmospheric perspective, because it means those emissions haven’t happened,” she said.
Companies covered by cap and trade collectively emitted less between 2018 and 2020 than they did from 2015 to 2017, according to Air Board data. The onset of the pandemic saw a decline in economic activity which explains some of these reductions.
Shell Energy and the California Council for Environmental and Economic Balance, a coalition of labor and business groups, have warned against changing benefit amounts through new measures, saying such a move would disrupt “the ‘market integrity’ program.
The air board’s latest guidance plan found that cap and trade would be responsible for 38% of the state’s emissions reductions — essentially everything that those other programs can’t achieve. The 2022 update will likely show a diminished role for cap and trade, Sahota said.
Any changes to the program and the amount of allowances sold would have ramifications beyond cap and trade. The state has brought in more than $18 billion through quarterly allowance auctions, and it’s going toward other programs designed to reduce emissions. A quarter of the proceeds from the auction go directly to the state’s long-delayed and vastly overwhelmed high-speed rail project.
California launched the program in 2013 and originally set it to expire in 2020. But in 2017, lawmakers and the then government. Jerry Brown has extended it until 2030. Environmental justice advocates have long opposed it, saying it does little to improve air quality for people who live next to big polluters.
“The dangerously high number of offsets and allowances reported by the (committee) should be alarm bells for Californians and state leaders,” said Neena Mohan, climate justice lead for the California Environmental Justice Alliance, in a press release.
“Offsets” are projects to remove carbon from the atmosphere, and companies can use a limited amount instead of carbon allowances. Offset projects do not have to occur in California and include projects such as capturing methane emissions from coal mines.
State Sen. Bob Wieckowski, a Democrat, said he should have pushed harder to ban companies from keeping stipends saved after 2021, forcing them to start from scratch. He is leading a Feb. 23 Senate hearing on the scoping plan and said he will question Air Board and Newsom administration officials on cap and trade.
The Air Board’s 2017 analysis only modeled the possibility of about 150 million allowances, less than half of what was saved.
As the air board prepares its new analysis, Cullenward said a lucid assessment of the current situation is needed for California to maintain its climate change integrity.
“If California is going to live up to those ambitions and demonstrate a model for getting there, we need to be able to tell people what we’re doing and we need to be honest with ourselves,” he said. .
This story has been corrected to remove a reference to the Air Board’s ability to sell fewer allowances in future auctions. Such action would require regulatory changes or direction from the Legislative Assembly.
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