U.S. States & Regions
States and regions across the country are adopting climate policies, including the development of regional greenhouse gas reduction markets, the creation of state and local climate action and adaptation plans, and increasing renewable energy generation. Read More
On October 29, the California Air Resources Board (CARB) released the design of its greenhouse gas (GHG) cap-and-trade program. Beginning in 2012 there will be an overall limit, or cap, on 85% of the state’s GHG emissions. Emitters such as power companies and gasoline refineries will be required to hold enough allowances (rights to emit) to match their emissions. They can comply by reducing their emissions or purchasing tradable allowances from other emitters or at state-run auctions. Companies that reduce their emissions below the allowances they hold have the opportunity to sell unused allowances. Striving to minimize negative economic impacts, CARB will give away a significant number of allowances to industries facing serious competition from states without such requirements. The program will expand to cover natural gas companies and producers of liquefied natural gas and transportation fuels in 2015.
October 29 marked the beginning of a public comment period for the program leading up to a public hearing in Sacramento, California on December 16, at which the Board will make a final decision on whether to adopt the program.
Last Thursday, the California Air Resources Board (CARB) published details on the proposed greenhouse gas trading program to be implemented under state law AB 32. AB 32, as our blog readers know, is under threat from Proposition 23 – which would forestall (perhaps indefinitely) meaningful action to reduce greenhouse gases in California. The analyses done by CARB in association with the development of the proposed program bolster the case for rejecting Prop 23.
These CARB analyses show that the trading program under AB 32 will “shift investment and growth within the overall economy toward those sectors driven by the production of cleaner and more-efficient technologies.” The importance of this targeted growth should not be understated – by moving toward energy technologies that are both home-grown and energy efficient, we reduce our economic exposure to the price volatility of global energy markets. Since the world is using more and more of what are ultimately finite quantities of fossil energy, protecting ourselves by transitioning the economy toward energy systems that are not subject to global supply and demand imbalances is important to protecting our future economic growth.
While transitioning to new and different systems for energy production and use will necessarily result in some temporary economic dislocation, the market mechanisms included in CARB’s regulatory program minimize these impacts. Taken directly from the CARB economic analysis appendix: “Overall, staff finds no significant adverse impacts on California business or consumers as a whole as a result of the proposed regulation.”
With climate change legislation stalled on Capitol Hill in Washington, D.C., for the foreseeable future, maintaining the critical environmental legislation of AB 32 is extremely important for advancing the nation’s climate policy. Even absent action by other states, California is the world’s 8th largest economy and a significant contributor to global greenhouse gas emissions. Action taken through policy in California is a huge step forward in addressing the global climate crisis.
Much of the rest of the world is waiting for the United States to take a leadership role on the issue of global climate change. With political gridlock in D.C., the best chance for the nation to make significant progress on this issue starts in California. AB 32 is the start of California’s transition to a 21st century economy of clean, green, homegrown energy – and represents an opportunity for the state, and the nation, to retake a leadership position in what will be some of the most important industries of the coming decades.
Russell Meyer is the Senior Fellow for Economics and Policy
This post also appeared today in National Journal's Energy & Environment Experts blog.
As others have pointed out in the discussion of California’s Proposition 23, which would suspend the landmark climate law (AB32), passage would have wide-ranging implications for both the state itself and the national debate on comprehensive climate and energy policy in the U.S. These concerns for both California- and national-level climate action are valid – by creating a policy environment of extreme uncertainty, Prop 23 threatens to freeze the currently expanding investment in clean technology in the state. It is also arguably the new “battleground” on comprehensive climate legislation in the U.S., given the current state of affairs in the U.S. Congress.
But there’s an intermediate level of climate action that also is at stake with passage of Prop 23. Success for the fledgling cap-and-trade portion of the Western Climate Initiative (WCI) hinges on California continuing to be a leader in the development and implementation of the program. WCI states account for nearly 15% of U.S. greenhouse gas emissions and WCI would be the first emissions-trading scheme in the U.S. to cap emissions from economy-wide sources. While it may take some time for all WCI states to adopt cap-and-trade, all environmental programs have to start somewhere. And California’s leadership – not to mention the large quantity of emissions the state will add to the new market – is critical to the most comprehensive (in terms of emissions coverage), ambitious climate action initiative in the U.S. Perhaps this is something the backers of Prop 23 are acutely aware of?
While we’re on the topic of threats to this singularly unique climate law, let’s not forget Prop 23’s much less well-known cousin, Prop 26. This initiative seeks to tighten how the state constitution defines taxes and regulatory fees, and require a two-thirds supermajority vote in the state Legislature to enact new taxes and many fees. Perhaps seemingly harmless, lawyers from UCLA this week argued that Prop 26 is a threat to the state's ability to assess fees on polluters for the external costs they impose on the public and will affect a number of existing laws, including the state’s landmark climate law (as well as a green chemistry initiative, two laws blocking chemical products in landfills, and rules on lead). It’s ironic that Prop 23 could be defeated, while Prop 26, backed with multimillion-dollar contributions from the California Chamber of Commerce, Chevron Corporation, and Philip Morris USA Inc., might slide through and have the same effect on AB32, albeit via different means. Passage of either proposition would be a setback to California’s ability (and thus, the WCI’s ability) to move forward on climate.
Eileen Claussen is President
I will be the first to admit that I don’t really understand the California election process. Governors are recalled and propositions seem to proliferate at every election cycle. What I do understand is that these propositions can have dramatic consequences—after all, elections do matter. Most folks who are reading our blog have likely heard of Prop 23, which would effectively stop the implementation of California’s landmark climate change law, AB32. Environmental groups, clean energy entrepreneurs and big names such as Bill Gates and James Cameron have poured large amounts of attention and $25 million into the “No on 23” campaign, even as refiners Valero and Tesoro—and the now infamous Koch Brothers—fund the Yes campaign. Luckily the opponents have been getting the upper hand recently, with polls saying just over 50% of likely voters plan to vote against the prop—including both gubernatorial candidates.
On September 23, the California Air Resources Board (CARB) announced the adoption of ambitious, though aspirational, greenhouse gas (GHG) emission reduction targets associated with the total miles traveled by California drivers. This is the latest step in the process of implementing Senate Bill 375, signed by Governor Schwarzenegger in 2008. The significant increase in stringency of the CARB target levels over recommendations made by Metropolitan Planning Organizations (MPOs) last May was surprising and although praised by some, has received significant criticism.
The law provides incentives, not mandates, for MPOs to use regional transportation strategies that encourage smart growth. Incentives for MPOs, which meet the GHG targets, can include easier access to federal funding and exemption from certain environmental review requirements. Although called ‘precedent setting’ by the media, it establishes growth policies considered similar to others that have already been implemented in California, and this law would not have a strong impact without stringent GHG reduction targets. SB 375 required CARB to set the targets, giving it the power to determine how seriously MPOs would have to invest in new development plans if they wish to take advantage of the incentives. Using 2005 as a baseline, the GHG emissions per capita reduction targets set by CARB for 2020 and 2035 were, respectively:
|Region||2020 Target||2035 Target|
|San Diego Area||7%||13%|
|Bay Area Region||7%||15%|
|San Joaquin Valley (to be revisited in 2012)||5%||10%|
|Targets for the remaining six MPOs making up 5 percent of the population match or improve upon their current plans for 2020 and 2035|
The targets CARB defined were more ambitious than what the largest MPOs recommended in May. For example, recommendations for the Bay Area were 5 percent per capita for 2020 and 5 percent for 2035 (the same to account for projected population growth, which would make higher targets more difficult to achieve in 2035). Critics complained that these targets were “hijacked” by environmentalists, as CARB did not provide an explanation for the increase.
While more stringent targets are a victory for champions of climate change policy, some Californians have claimed CARB’s numbers as irresponsible because MPOs cannot afford to implement the plans needed to meet the targets. Given the state’s budget deficit and lingering impacts from the global economic recession in 2008 and 2009, budget crises for transit agencies have resulted in decreased service and increased fares. To combat expected costs, CARB has promised to help seek out more state and federal funding, although CARB member and San Diego County Supervisor Ron Roberts is pessimistic about their chances. Business groups angrily predict that such funding will have to come from increased transportation taxes such as vehicle miles traveled fees, parking fees, and congestion pricing. Critics (Example 1, Example 2) also cite the prediction by the Metropolitan Transportation Commission (MTC) of San Francisco that gas would reach a cost of $9.07 per gallon if there were a carbon or ‘vehicle miles traveled’ (VMT) tax.
CARB could address these concerns by clarifying the rationale for its decision and exposing half-truths propagated by some of its critics. For example, whether or not targets are too ambitious, SB 375 requires CARB to review them regularly and consider revisions based on economic and demographic conditions, as well as actual results achieved. The critics’ references to the MTC’s $9.07 per gallon gas are disingenuous warnings. The MTC’s gas price forecast is actually for 2035, not the immediate future, and the MTC considers a carbon or VMT tax as just one of multiple policy options. Only when this tax is added to the MTC’s unlikely forecast of gas prices (a linear extrapolation based on gas prices in 2008, the highest price ever, hitting $7.47 per gallon by 2035) does the cost of one gallon reach $9.07 in 2035. This forecast is significantly different from that of the U.S. Energy Information Administration, which, as of 2010, expects a national average of $3.91 per gallon gas in 2035. In addition, sustainable development experts Calthorpe Associates’ ‘Vision California’ study highlights attainable smart growth savings for Californians that would provide a significant boost to the economy. It quantifies savings, potentially achievable through SB 375, at $6,400 per year per household by 2050, among other significant opportunities.
While it is natural to be wary of the ambitious goals, California has previously defied naysayers and achieved ambitious policy goals at lower costs than initially predicted, as happened with Title 24 building energy efficiency standards in 1978. Furthermore, it is worth noting that SB 375 will remain intact no matter the fate of Proposition 23, which seeks to suspend the Global Warming Solutions Act, Assembly Bill 32, in the upcoming elections. By providing incentive-based aggressive targets, MPOs now have greater reason to invest significantly in future transportation and land use plans. With such an investment, Californians can look forward to a more comfortable life with shorter commutes, reduced air pollution, and long-term economic growth.
Sam Wurzelmann is the Innovative Solutions intern
On September 23, the California Air Resources Board unanimously voted to increase the state’s Renewable Portfolio Standard (RPS) to 33 percent by 2020. The rule is a result of Governor Arnold Schwarzenegger’s Executive Order S-21-09 to increase the RPS, issued September 15, 2009.
The regulation will require both investor owned and publicly owned utilities to increase the amount of electricity obtained from renewable sources. This is different from the 20 percent RPS ending this year as publicly owned utilities were not previously included. The policy is expected to reduce greenhouse gas emissions below business-as-usual levels by the equivalent of 12 to 13 million metric tons of carbon dioxide per year by 2020.
On June 16, eleven Mid-Atlantic and Northeastern states, as well as the District of Columbia, announced a Declaration of Intent for the Transportation and Climate Initiative (TCI). The TCI is, "a new regional transportation approach that will help states build the clean energy economy of the future." The initiative aims to, "expand safe and reliable transportation options, attract federal investment, lower transportation costs, improve overall air quality and public health, and mitigate the transportation sector's impact on climate change." Included in this initiative are the ten Regional Greenhouse Gas Initiative members (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont), Pennsylvania, and the District of Columbia. Transportation currently accounts for 30 percent of greenhouse gas emissions in the Mid-Atlantic and Northeastern U.S. The states involved with the TCI will establish and fund the Transportation, Energy, and Environment Staff Working Group to direct the initiative's planning and seek public and private funding for projects. The Georgetown Climate Center facilitated the initial meeting of the TCI.
On August 30, New York Governor David Patterson signed into law the “State Smart Growth Public Infrastructure Policy Act.” The law establishes smart growth criteria for state infrastructure agencies (SIA), which include the NY State Department of Transportation, Department of Education, Housing Finance Agency, Housing Trust Fund Corporation, Environmental Facilities Corporation, Dormitory Authority, and Urban Development Corporation.
The law stipulates that SIA cannot approve, undertake, support, or finance a public infrastructure project unless it meets defined smart growth criteria. One of the criteria is that SIA would advance funding to existing infrastructure and projects only if they are consistent with local governments' plans for development. Further, criteria include community based planning, coordination among state and local governments, predictability in land use codes, and sustainability.
Despite the uncertain future of comprehensive federal climate legislation, states continue to move forward with energy policies that reduce greenhouse gas emissions and save consumers money on their electricity bills. One policy in particular is quickly gaining traction in the states: Property Assessed Clean Energy, or PACE, programs. Twenty-three states plus Washington, DC, have PACE legislation, and 13 others have proposals on the table including Kentucky, South Carolina, Nebraska, and Pennsylvania.
PACE is an innovative funding mechanism that addresses many of the financial barriers to energy efficiency and renewable energy retrofits on residential, commercial, and industrial properties. In general through PACE states delegate authority to local governments to designate an improvement district and issue bonds, which provide low-interest, long-term loans to property owners for energy saving measures. The loans are paid back through an addition on the property tax bill and often over a 20-year period. If the property is sold, the debt transfers to the new owner. PACE programs usually create a lien on properties that is “senior” to (i.e., takes precedence over) other obligations on the property.
Because PACE is run by local governments, there are different styles of implementation for the various program elements including: program administration, underwriting criteria, source of funds, eligible measures, and quality control. For example, San Francisco uses a third party for administrative functions and issues “mini-bonds” to be purchased by a pre-determined investor, while Babylon County, in New York, uses in-house staff to administrate and has repurposed an existing solid waste fund for financing.
The White House strongly supports initiatives that make it easier for homeowners to get loans for energy efficiency and renewable energy improvements, and PACE programs have benefited from $150 million in stimulus funding. In an effort to standardize best practices and ensure that PACE is good policy for all stakeholders, the White House released a Policy Framework for PACE Financing Programs in October 2009. The measures initially accelerated the adoption of PACE and served as a guide for the second generation of PACE programs.
However, both existing and developing programs have been slowed or halted entirely due to opposition from Freddie Mac and Fannie Mae. In May, both agencies sent letters to mortgage lenders reminding them that an energy-related lien may not be senior to a federally backed mortgage. The letters place a burden on the lender to determine if they originate mortgages in any state or locality that permits a first lien priority on energy loans. Proponents of PACE and its senior lien provision say it is a necessary requirement for local governments to raise funds.
Following Freddie and Fannie, on July 14 the Federal Housing and Financing Agency (FHFA) released a statement of their opposition to PACE. As a result, the California attorney general’s office has sued the FHFA, Fannie Mae, and Freddie Mac for their actions and unwillingness to guarantee properties with PACE assessments. The July 14 lawsuit asks the court to declare that PACE does not violate the standards of Fannie and Freddie and also requests an injunction to prevent the agencies from taking action against home owners with PACE loans. Congress is also working on legislation that would require Freddie and Fannie to use underwriting standards that would facilitate the use of PACE programs. With a scarcity of financing options that overcome the high upfront cost of retrofits, this is an issue worth watching closely.
Olivia Nix is the Innovative Solutions intern
Less than a week after Senate Democrats decided that including cap and trade in an energy bill was too ambitious for this year, the Western Climate Initiative (WCI) forged ahead with a blueprint for its own such program. Seven U.S. states and four Canadian provinces, which together represent 13 percent of U.S. and 50 percent of Canadian greenhouse gas emissions, have compiled a detailed plan for implementing a market-based system to reduce greenhouse gas emissions in their region to 15 percent below 2005 levels by 2020. The plan is an elaboration on the design recommendations released by the same states and provinces in 2008.