California’s Global Warming Solutions Act
In the aftermath of Sandy, the mega-storm that ravaged miles of the Atlantic coastline, many are still working around the clock to restore power and rebuild basic lifelines (homes, businesses, infrastructure, etc). But not only basic reconstruction is in the works. An increasing number of politicians – most notably Governors Andrew Cuomo (NY), Chris Christie (NJ), and Mayor Michael Bloomberg (NYC) – city planners, and the public acknowledge that redevelopment must include ways to withstand other future giant storms or other unknown events that are likely to result from changing climate dynamics.
Within this context, it’s worth examining the ambitious policy the State of California has enacted in direct response to climate change. In 2006, then Governor Arnold Schwarzenegger, signed the Global Warming Solutions Act. This landmark bill lays out a comprehensive program to tackle greenhouse gas emissions, and sets an aggressive goal to reduce the State’s overall GHG emissions to 1990 levels by 2020. To get back to 1990, the State will need to reduce roughly 30 percent of its carbon emissions. California – the first state in the nation to develop such a comprehensive law – establishes policies that grow clean energy sectors (such as solar and wind), encourage energy-efficient technologies (like transportation and appliance efficiency) and creates a “cap and trade” market for carbon emissions.
California’s determination to establish a carbon market takes effect in January 2013 (and must be fully in force by 2016). However, this month marks another milestone: for in November California begins auctioning carbon credits.
The 2006 law, also known as A.B. 32, creates a greenhouse gas cap and trade market to rein in emissions. In essence, California regulators will establish a ceiling for carbon dioxide, nitrous oxide, and other emissions. The Air Resources Board (ARB), the agency charged with leading this effort, will regulate the ceiling by allocating emissions permits to specific industries. These industries, in turn, can buy and sell their permits based on ARB criteria. This policy does two things: (1) it sets a fee to raise revenue to sustain A.B. 32 and its various components; and (2) it creates the necessary infrastructure to calculate, track, and measure greenhouse gas emissions within the State.
State scientists, economists, and policy makers have spent considerable effort establishing baselines and creating protocol to track and verify emissions. California’s program targets the industries that truly emit sizeable quantities of GHG emissions – including refineries, natural gas, gasoline, and diesel suppliers and distributors, electric power plants, facilities that combust coal and coke, and cement manufacturers; these industries comprise approximately 85% of California’s overall emissions.
Although relatively minimal, the emissions costs generated through cap and trade will ultimately pass down to consumers. The ARB states on its website that a typical California household should expect “an increase of expenses of less than one dollar per year in utility bills (natural gas and electricity) and approximately one dollar per year in fuel expenses for an average car.”
Businesses will also feel the impact of the cap and trade market via their own energy costs. Of course, the financial impact of rising energy costs will depend on the ratio of a business’s energy expenditures compared to its total revenues. Businesses can use a Computerized Maintenance Management System (CMMS) to help determine ways to conserve energy or invest in energy-saving measures.
If California succeeds, the collective effect will be powerful. The Global Warming Solutions Act of 2006 provides California will an opportunity to significantly reduce its carbon emissions. The ARB estimates that on a per-capita basis that reduction will translate into reducing annual emissions to about 10 tons per person by 2020, down from approximately 14 tons per person today.
The effects of California’s strategy will be felt elsewhere as well. Many countries and jurisdictions are looking to California to see how its program unfolds. California operates as the world’s ninth-largest economy. From this standpoint alone the stakes are high and the opportunities enormous.
The open question is how California’s ambitious program will tie into other nascent markets. In the Northeast, for example, the Regional Greenhouse Gas Initiative operates as a cooperative among nine states to reduce greenhouse gas emissions. The non-profit group provides technical support to expand the carbon trade market and awards grants to businesses to invest in energy-saving technologies or reduce their carbon footprint.
Although each state in the Regional Initiative devises its own limits for managing greenhouse gas emissions, the Initiative provides a market framework to buy, sell, and trade carbon credits within the area.
California’s nickname comes from its nineteenth century gold rush. But if California achieves its objective to reduce greenhouse gas emissions and appreciably grow its clean energy economy, California is poised to add even more gold and substance to its nickname.
Inevitably, carbon trade markets will open and more governments will establish future carbon emission objectives. The implications mean that it will be in the economic interest of many businesses to track their own energy consumption and how that relates to greenhouse gas emission.
Next week we’ll examine how a CMMS makes it easy for businesses to navigate into this new carbon-constrained marketplace.