EPA proposal spurs talk of Western emissions program

Source: Anne C. Mulkern, E&E reporter • Posted: Wednesday, June 4, 2014

California has long said that it didn’t want to go it alone running a cap-and-trade program to force down the carbon emissions blamed for climate change. Now there’s renewed talk that it could have imitators or even partners.

U.S. EPA’s proposal ordering cuts in greenhouse gas emissions at existing power plants creates motivation for states to look at programs like California’s cap and trade, analysts and some West Coast state officials said. The Golden State’s economywide system auctions allowances that businesses must submit with tallies of their greenhouse gas pollution.

“Every state is going to have to take a look at its own power grid and its own emissions and make a decision as to how it wants to go about complying with these rules,” said Mary Nichols, chairwoman of the California Air Resources Board (ARB), which runs California’s cap-and-trade program. “We are convinced that when they do that, they will look at California’s approach and that it has a lot to offer.”

California has advantages to give other states that are part of the Western grid, Nichols said, including that the Golden State’s electricity already is cleaner because of requirements in the state’s climate law, A.B. 32.

“If other states choose to link up with us, they’ll have the benefit of our lower numbers to begin with,” Nichols said after EPA released its proposal yesterday.

“We would welcome other states — that want to accept the same kinds of mandates that we put on ourselves — into a formal arrangement,” Nichols added. “We would welcome the opportunity to expand our cap-and-trade program by including others that have similar interests and similar desires to clean up.”

EPA’s proposal arrived as states near California already were looking at what additional actions to take on climate. Oregon, Washington, California and British Columbia last fall formed an agreement to take multiple steps targeting carbon emissions. The Pacific Coast Collaborative, or PCC, since then hasn’t moved forward with any joint actions on climate. But Washington and Oregon have been considering moves within their states.

Washington and Oregon officials yesterday said it was much too soon to say whether they would link to the Golden State’s cap-and-trade program. The states said they were digesting the 645-page EPA draft rule and then would be working to determine their compliance obligations. Oregon said it then would examine whether it needs to take steps beyond programs it already has in place, such as renewable power and efficiency mandates.

Washington Gov. Jay Inslee (D), however, in late April issued an executive order calling for additional climate moves in seven areas. One of those was convening a task force asked to provide recommendations “on the design and implementation of a market-based carbon pollution program.”

One of the seven questions Inslee asked the group to examine was how to link with other states in a way that makes sense for businesses and leverages the larger market “to get the job done in each state,” said Keith Phillips, special assistant on climate and energy to Inslee.

Luring Mont., Idaho?

The timing of EPA’s action could boost the momentum toward a multi-state effort, Inslee said. States have to submit their compliance plans to EPA by June 2016.

Inslee, meanwhile, hopes to have findings from the studies he has ordered and to seek legislation on climate-related issues next year, Phillips said. The conclusions of that legislative session will “link into where the EPA rule ends up” for Washington.

“I’m hoping we can get some progress on a multi-state approach by then,” Phillips said. However, Washington might want to take advantage of extra time EPA is allowing for multi-state programs in order to have an even broader reach, he said. (EPA will give until June 2017 for the filing of multi-state plans.)

The draft rule only requires states to look at power plants within their borders and not count the carbon connected to the power they import. But states like Washington are interested in shrinking their carbon footprint, Phillips said. The Evergreen State currently buys some coal-generated power from Montana and Idaho, he said.

With the EPA proposal, those states will need to look at their emissions, Phillips said. That might make it easier, he added, for utility owners and Montana officials to say they’re interested in working with Oregon and Washington on a multi-state approach.

“The rule itself certainly sends a signal to the country,” Phillips said. “It will open the door or encourage some of these regional conversations.”

Oregon said that it likely will be a few weeks, at a minimum, before it knows how it will move forward on the EPA proposal. The state already has some carbon reduction measures in place.

Oregon Gov. John Kitzhaber (D) in 2012 issued a 10-year action plan that calls for meeting all of the state’s growth in energy demand through energy efficiency and conservation. He signed a suite of energy-related bills last year, including one — S.B. 692 — that harmonizes appliance energy efficiency standards with California and British Columbia rules (ClimateWire, Oct. 29, 2013).

If additional greenhouse gas reductions are needed to meet the compliance obligation, Oregon will confer with utilities, environmental groups and consumer advocates on the best options, said Margi Hoffmann, energy policy adviser to Kitzhaber.

“We’ll work through that process to figure out what the best fit would be for Oregon,” Hoffmann said.

“If the most cost-effective way for our ratepayers is to meet [the EPA standard] through a multi-state plan, and other states are interested in participating in that, then we might go in that direction,” Hoffmann added.

But if the most cost-effective route is through energy efficiency, a multi-state plan might not be needed, she said.

Oregon is more likely to look at a carbon tax, as it is considering larger tax reform, Phillips said. But even if the Beaver State didn’t join cap and trade and Washington did, he said, there could still be cooperation on ancillary products like offsets. British Columbia already has a carbon tax and could be part of that, he said.

“We will be looking to link our programs to the extent we can,” Phillips said.

Other Calif. programs ‘exportable’

Even if the states don’t formally link trading programs, EPA’s proposal helps California’s cap-and-trade program, said Cara Horowitz, executive director at the Emmett Center on Climate Change and the Environment at the University of California, Los Angeles, School of Law.

Requiring other states to shrink power plant emissions will help prevent California from losing businesses that move out of state to avoid carbon regulations, referred to as leakage.

“Concerns about leakage have been one of the motivations all along for California hoping it wouldn’t have to go it all alone,” Horowitz said. Leakage is a real risk to California, she said, “if it continues to be well out in front on the climate change question.”

If the EPA rule becomes final, she said, “California becomes less likely to lose business to Texas.”

Nichols and California Energy Commission Chairman Robert Weisenmiller both said the state has programs other than cap and trade that other states might want to emulate to shrink carbon pollution.

Requiring the use of renewable power and energy efficiency is “exportable,” Nichols said.

Enacting building and appliance standards is cost-effective and reduces the amount of power used, Weisenmiller said. The state similarly has rules on how much electricity TVs and battery chargers can consume. Next year, it will be looking at computers and monitors.

“If other states adopt the state standards we’re adopting, that will result in even cheaper appliances that are energy-efficient,” he said, adding that the prices fall because of economies of scale.

California’s experiences are important because they’ve shown “that you can invest in clean energy, shift away from high-emitting sources of generation, ensure emission reductions” and have other benefits like creating jobs and reducing illnesses, said Megan Ceronsky, director of regulatory policy at the Environmental Defense Fund.

“That basic framework is exactly what EPA has put forward here for the rest of the states,” Ceronsky said.

The release of the EPA proposal was accompanied by a slight uptick in trading of California carbon credits. Secondary trading activity heated up on the IntercontinentalExchange, with 2014 credits for delivery in December going from $11.85 per ton on May 28 to $11.90 per ton on Friday.

Credits for delivery in June went from $11.60 per ton on May 27 to $11.75 on Friday. Prices for both contracts stayed steady through Monday. Before yesterday, there had not been any activity on the exchange dealing with California carbon credits since at least May 23.