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Regulatory Round-up: CPP compliance workshop and ARB Board meeting

December 21, 2015 by Harry Horner

CaliforniaCarbon.info, December 21, 2015: The Air Resources Board held two meetings of note this week: a Monday workshop on California’s state provisions to fit in with the federal Clean Power Plan (CPP), and on Thursday ARB held their monthly board meeting.

CPP Workshop, 14/12/2015

This workshop is part of a series of meetings which will track, and possibly influence through feedback, the development of California’s draft CPP proposal due to be handed in September 2016.

Regulatory expectation, before and after the workshop, remains that aside from minor structural adjustments for logistical reasons, California’s existing Cap and Trade market will serve fully as a ‘State Measure’ plan under CPP regulations. In this scenario, the CPP would mandate the creation of a federally enforceable backstop, only triggered by a 10% deviation from the state’s emission glide path. The one discussed variant to this course would be as above, but the federally enforceable backstop would exclusively apply to affected EGU emissions.

Either way, regulators and stakeholders continue to use exclusively positive rhetoric on CPP compliance, no doubt in part because the original CPP regulation was reportedly drafted in consultation with Californian regulators, and direct provisions for the Californian scheme were indeed designed in ex-ante.

The most conspicuous discussion of alterations was for reporting and compliance periods. The below graphic from the workshop represents the discrepancies between reporting periods, it seems that emissions reporting would need to happen earlier in the year in a CPP compliant era:

Snip20151221_16

(Source: slides from ARB CPP compliance workshop 14/12/2015)

Beneath is another graphic from the meeting. It exhibits how post-2020 compliance periods would also need adjustment to synchronize with the CPP schedule. It is important to stress how these adjustments were only mentioned in terms of logistical exercise; the scope of California’s environmental ambition was absent from the discussion, and thus would seem to be independent from CPP planning.

Snip20151221_15

(Source: slides from ARB CPP compliance workshop 14/12/2015)

The third inconsistency between systems is that currently covered entities can engage in inter-temporal ‘borrowing’ of emission credit in several special cases, namely in allowing flexibility for only recently covered entities and dealings with the Allowance Price Containment Reserve. However, the CPP explicitly prohibits this, entities operating within the Cap and Trade system under CPP would not be able to surrender allowances from vintage years ahead of the year’s emissions they are mitigating for.

The workshop also highlighted the anticipated future linkages with Ontario and, in more recent news, Manitoba. Stakeholders were assured that CPP implications would be considered when facilitating market entry of other WCI regions. The ARB also delivered a scenario model for compliance with CPP under a variety of economic and market conditions. First and foremost, their model suggested that even under a ‘Murphy’s law’ stress test for emissions, the state would remain compliant with CPP regulation. The state was still predicted to emit less than the CPP’s calculated threshold of 48.4 million short tons of carbon dioxide emissions by 2030.

This stress test scenario assumes high economic and population growth, the Diablo Canyon nuclear plant decommissioning at earliest opportunity, and a GHG allowance price of $25 per ton in 2026. Interestingly in the counter-case – a low demand, low growth model – the ARB modelled emission prices as high as $75 by 2026. This seemingly counter-intuitive finding may have resulted from implicit assumptions over uptake of Plug-in Electrical Vehicles (PEV’s) and ARB’s Zero Emission Vehicles; ARB have already been contacted for further details on the model.

The extensive and highly visible nature of ARB’s CPP compliance processes portrays how earnestly the regulator is approaching the federal program, even if all stakeholder’s believe that compliance is ultimately a legislative formality.

ARB Board Meeting, 17/12/2015

The December ARB Board meeting agenda was divided between discussion over the investment of auction proceeds, and an update on site selection for ARB’s planned South Californian Emissions Testing Facility.

The presentation on the Second Auction Proceeds Investment Plan was of course timely in its conjunction with Wednesday’s release of the 5th Joint Auction Public Proceeds Report. The report detailed how total proceeds from emissions auctions are in excess of $3.5 billion USD.

The report’s paired presentation surmised the revised December draft of the Second Auction Proceeds Investment Plan. The plan is to be tabled in the legislature in January 2016; it prioritizes investments that facilitate future GHG reductions and maintains the strong emphasis on environmental justice. The plan applies to auctions of state allowances from 2016 onwards, and only recommends avenues of investment not specific dollar amounts. Notably, 60% of proceeds are already designated for affordable housing, ‘sustainable communities’ and California’s environmentally controversial High Speed Rail program; the remainder of proceeds are left to discretionary spending.

Harry Horner – (harry@californiacarbon.info)

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