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The Climate Trust | California Should Explore Options to Increase Offset Usage

California Should Explore Options to Increase Offset Usage

California Market, Policy, Scorcher

Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – January 8, 2018

THE BOTTOM LINE.

California’s newly adopted scoping plan relies upon cap and trade to drive more reductions than previously anticipated by earlier drafts; this is a bullish signal for carbon prices.

On December 14th, the California Air Resources Board adopted California’s 2017 Climate Change Scoping Plan, which outlines the strategy to meet California’s stringent 2030 greenhouse gas reduction requirements. The plan provides no specificity on the weedy (but essential) policy decisions the California Air Resources Board will make over the next year about California’s carbon market—specifically, how to handle the large number of currently banked allowances, where to set the price ceiling and “speed bump” containment points, and how to interpret the “half” and “direct environmental benefit to California” requirements for offsets in AB 398.

Instead, the scoping plan uses the cap and trade system as a backstop to create any reductions needed beyond its complementary policies (like the Short Lived Climate Pollutant strategy, the 50% Renewable Portfolio Standard, the Low Carbon Fuel Standard, and many others) to meet the state’s greenhouse gas reduction requirements. The previous version of the scoping plan included a complementary policy to require California refineries to directly reduce 20% of their greenhouse gas emissions; AB 398 restricts the California Air Resources Board from a imposing this new regulation. With this change, you see the cap and trade backstop in action: while the previous January version of the scoping plan estimated the cap and trade system would generate 191 million mtCO2e reductions through 2030, without the refinery measure the adopted scoping plan now estimates an increased reduction of 236 million mtCO2e from cap and trade.

What is not analyzed or discussed in the plan, however, is how the cap and trade system will create these reductions. The more reductions beyond business-as-usual and the complementary policies that the cap and trade system is called upon to create, the higher the carbon price will need to be. The new offset limitations and protectionist preference for California projects mean the cap and trade system has weakened one of its most important cost-containment mechanisms—precisely at the time that cost is anticipated to increase. As the California Air Resources Board works through its rulemaking to implement the new provisions of AB 398, it should look carefully for options to increase offset usage within these new limits.


Research and Resources

AB32 Scoping Plan
California Air Resources Board, December 14, 2017

Cap-and-Trade Extension: Issues for Legislative Oversight
Legislative Analyst’s Office, December 12, 2017

Top News Headlines

Why 2018 might be the year Oregon adopts cap and trade
Pete Danko, Portland Business Journal, January 2, 2018

Nothing But Clear Skies Blog

Ringing in the New Year with a Forecast of the Top 10 Carbon Market Trends
Kasey Kriftka, The Climate Trust, January 2, 2018

Recent Scorcher

Carbon pricing Hits a High Note Sean Penrith, Dec 19, 2017
Ontario’s Auction Emphasizes Political Risk to Cap and Trade System Peter Weisberg, Dec 11, 2017
Do Offsets Affect the Stringency of a Carbon Cap? Sheldon Zakreski, Dec 4, 2017

Image credit: Flickr/Mark Jensen

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