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Regulatory Round-up: Washington Clean Air Rule, ARB update on Ontario Linkage, Sector-based offset progress for REDD+

May 1, 2016 by Harry Horner

CaliforniaCarbon.info, May 1, 2016:

 

Washington Clean Air Rule webinar, 27/04/16

In what was a very high level and introductory webinar, Washington’s department of Ecology gave participants nothing more than a sketched design of their anticipated Clean Air Rule (CAR).

The future carbon regulators were quick and sure to state that this does NOT represent a new state adopting cap-and-trade; instead they outlined a smörgåsbord of compliance mechanisms for entities to choose a path to, or balance of, emission reductions.

Scope

–       Approximately two-thirds of Washington emissions are covered, the notable exceptions include the TransAlta Coal Power Plant, agricultural practices, and imported electricity.

–       The initial minimum facility level of emissions is 100,000 MMtCO2 – this covers just 24 facilities. Over the next two decades the minimum level falls every 3-year compliance period, reaching 70,000 MMtCO2 in2035 – anticipated to then include 60-70 participants.

Compliance Paths – the webinar gave 4 paths to compliance:

  1. Energy efficiency and process improvements – the Department of Ecology stated the most obvious and simple method to compliance – merely taking steps within the facility to improve energy efficiency and production processes so as to use less energy.
  2. Surrendering carbon allowances from existing, external markets; the two examples given were WCI and RGGI. Beyond saying that there would most likely be limits on the quantity, time period and vintage of usage for compliance, the staff did not expand on their thoughts on this to sufficiently assuage the concerns of stakeholders.
  3. Emission Reduction Units (ERU), these would be created by verified emissions reductions occurring from facilities over and above their respective baseline target. These would then be exchanged with other facilities in other sectors and surrendered for compliance, thus rewarding the best practice facilities.
  4. Emission reduction projects, equivalent to offset credits and would seem to include similar protocols – the one specific example given was methane capture through dairy digesters.

Timeline 

–       May ’16 – Re-release proposed rule and draft economic analysis. Comment period then begins.

–       Late June ’16 – Webinars and in-person public hearings to be held

–       Late Summer ’16 – Finalise and adopt rule

–       Jan ’17 – Start of 1st compliance period

Major Revisions

–       Energy Intensive Trade Exposed Industries (EITE) – These are the most ‘fragile’ industries that would be most prone to emissions leakage. The staff’s solution to this would be to create specific case-by-case baseline targets for these industries on the basis of cross referencing emissions from other similar facilities nationally. These specific, facility-level efficiency targets would give these EITE facilities the flexibility to increase production given the bounds of their energy efficiency metric.

–       ERU Reserve – Over concerns of flexibility to expand production, or new market entrants, staff are seemingly now turning to a principle of reserve. The reserve would be filled with a small percentage of ERU’s – 2% of each entity’s reduction requirements (‘about 0.1% of the total in the first few years…’ was the answer in the Q&A).

–       Clean Power Plan – The staff also attempted to more closely define the anticipated working relationship of CAR and CPP. The regulator’s rather vaguely-expressed intent seems to be to use the extended tools of CPP to reduce emissions in the power sector, so as to better compline with the CAR. It was reemphasized in the Q&A that imported electricity would not be regulated under the CAR as that represented program overreach into the domain of the CPP.

 

ARB update on Ontario Linkage, 28/04/16

Thursday morning in Sacramento witnessed ARB’s update workshop on the status of the proposed linkage of the planned Ontario cap-and trade market with the larger WCI whole. The workshop served to further confirm market expectations of the program and linkage i.e. Ontario falling in line with stock WCI design features, rather than throwing up any surprises.

Nonetheless, the major conclusions of the workshop are indeed worth noting:

–       ARB’s timeline with respect to linkage regulation – draft regulation is due to be released in July of this year; first and second Board Hearings will occur in September 2016 and Spring 2017, respectively; after final comments the complete regulation will be submitted to the Office of administrative law in the Summer of 2017. Finally, in October of next year the regulation is anticipated to take effect so as to enable de facto linkage as of January 2018.

–       Offsets policies – The WCI standard 8% offset usage limit was reconfirmed in the presentation, as were three pan-Canadian project types: destruction of ozone depleting substances, landfill gas, and mine methane capture.

–       Compliance periods – An initial 4-year compliance period for Ontario was aired, this would be designed in to synchronize the market with the greater WCI compliance period structure. It was discussed in the Q&A, that if California was forced into adopting the shorter biennial cycle of CPP, then the other WCI partners would be almost certain to follow.

 

ARB update on Sector-Based Offsets, 28/04/16

The afternoon of the same workshop shifted its focus to the forests of Acre, Brazil; the location of the likely first candidate for extra-North American offset issuances within the WCI program. The presentation initially ran through the rather unique set of circumstances that have enabled this area in Brazil to now be so far ahead of the curve on Reducing Emissions from Deforestation and Degradation (REDD+) in comparison to other areas of tropical rainforest.

The ultimate potential of Acre as a source of offsets is very significant; after taking into accounting discounting and factoring in the current deforestation level of 500km2 per annum, the maximum offset potential for Acre stands at circa 20 Million MtCO2 – this is the albeit highly unrealistic maximum case scenario. However, there were suggestions at the meeting that ARB would perhaps look to cap the total offset issuance, or compliance acceptance from the Acre area.

The shared history of California and Acre was also discussed, including the 2010 ‘Memorandum of Understanding’ and the subsequent establishment of the REDD Offset Working Group (ROW). The political process of allowing jurisdictions to partner was discussed in detail, including four findings that the Governor must make before linkage can be confirmed. These legal and environmental requirements are widely believed to be fulfilled by Acre, and thus the presentation ended on the expected timeline for the inclusion of Sector-based credits.

Timeline 

–       July ’16 – Notice of Proposed Rulemaking

–       September ’16 – First Board Hearing to consider staff proposal

–       Spring ’17 – Final Board Vote

–       October ’17 –  Regulation amendments effective

–       Jan ’18 – Sector-based offsets eligible for use in WCI program

 

Please bear in mind that the above article is designed to act as a brief ‘crib-sheet’ for the regulatory events of this week; for further details and discussion, do not hesitate to contact the author using the below email.

Harry Horner – (harry@californiacarbon.info)

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