Viewing blog posts written by Gino DiCaro

Moody's says climate change rules are emerging risk for California refiners

Posted by Gino DiCaro, VP, Communications on March 23, 2012

Only time will tell how much AB 32 will actually cost California.

Since our landmark global warming bill passed in 2006 there has been no shortage of guessing about the costs and benefits of mandating greenhouse gas reductions on California's economy. Now all the rules are in place and experts are sharpening their pencils and assessing the outlook. The most recent regulation, cap and trade, requires manufacturing facilities, refineries, and large public agencies to hold “allowances” for their emissions starting in 2013. California is preparing for the first auction of allowances in August.

Cap-and-Trade joins one of the earliest regulations under AB 32, the Low Carbon Fuel Standard to require more biofuels and alternative transportation fuels in the mix.  The third policy to purchase 33 percent of our electricity from renewable sources was adopted last year.

Now, instead of guessing, we can see early indicators of higher future costs. Last week the independent credit ratings company  -- Moody's Investors Service --  reported that California's rules create an emerging risk to the operating costs, competitiveness and growth of the in-state refineries.  This is information important to bankers and investors as they figure out how much risk is involved in loaning or investing dollars into a business.

And after paying almost $4.50 per gallon for gas this month (highest in the country, sans Alaska and Hawaii) every California consumer should be concerned about "emerging risks" on California refineries.

Here’s what Moody’s said:

On the overall rules

 "CA's move to implement new standards for greenhouse gas emissions will be credit negative for refiners in the state."

"Refiner's operating costs will rise."

"The new rules could discourage refiners from making big strategic investments in CA and could cause certain higher-cost refineries to close"

On greenhouse gas cap-and trade rules

"Stationary emissions will cost the refining industry from $325 million to $1.2 billion annually by 2020."

 "We also assume only limited capital investments in carbon offset projects by refiners."

 "Over the near to medium term, refiners will probably bear these costs, with no ability to pass them through to the price of the fuel."

 "Over the longer term, as the cost burden rises, producers will more effectively pass these costs through to product prices."

"We estimate the total annual cost of the emission reductions associated with transportation fuels [under the cap] by 2020 at anywhere between $3.7 billion and $13.5 billion."

"Under our base case assumptions [for the transportation fuels cap], this would indicate an increase in refined product costs of about 22 cents per gallon.

On the Low Carbon Fuel Standard

 "We would expect the prices of these blendstocks [from the low carbon fuel standard] to rise, unless CARB offers a subsidy." 

"Many industry participants believe that the targeted carbon-intensity reductions cannot be achieved after 2015 from the biofuel blendstocks now available."

On the rest of the country falling in line (therefore making California more competitive)

"Given the current political environment and the state of the U.S. economy, we do not expect to see a federal cap-and-trade program adopted nationwide over the near to medium term."

Meanwhile New Mexico abandoned its cap-and-trade program last month, one of the last remaining holdouts in the United States.  New Mexico Environmental Improvement Board Chairman Deborah Peacock said,  "the intent was that all these states would be doing this cap and trading, and everyone’s dropped (out) except for California and New Mexico. That, to me, was very significant."

New Mexico saw early indicators of high costs that we have ignored, so far.

(You can purchase the Moody's report  here)


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AB 32 was not intended to be a revenue raiser

Posted by Gino DiCaro, VP, Communications on Jan. 30, 2012

This weekend, Gov. Jerry Brown proclaimed that revenue from the cap-and-trade system under AB 32 will go toward the construction of California's High Speed Rail project.

AB 32 was not intended to be a revenue raiser for the state of California. We dug up then-Assembly Speaker Fabian Nunez' 2006 letter of legislative intent before the bill was passed, which made it unequivocally clear that revenues raised under the regulations were not to go beyond the administration of the AB 32 program. Have a look:

Click image for full pdf

While more than 500 facilities struggle to pay for a costly cap-and-trade system in just the first year of the program, the State of California is already finding other ways to spend the money they weren't supposed to collect in the first place.

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California Budget Surprise

Posted by Gino DiCaro, VP, Communications on Jan. 6, 2012

In Governor Jerry Brown's proposed 2012-13 State Budget, there is a line item that anticipates $1 billion from the still-developing cap-and-trade carbon emission program in California. Though that money is not identified with any particular programs yet, the Governor intends for it to be spent on environmental programs that are outside the scope of the cap and trade program.

It's appropriate to provide a timeline here. The most manufacturing intense -- but most energy efficient -- state in the Union passed the farthest reaching carbon reduction mandate in 2006 with the intention that the rest of the country and world would follow. Since then, no state has joined and California is going it alone. The state developed its cap-and-trade system to force California manufacturers and others to reduce their emissions and/or pay millions in carbon auction costs (taxes) and emission credits. This while competitors in other states already enjoy 50 percent lower electricity costs. Before the cap-and-trade system is even started, the State is chomping at the bit to spend precious resources extracted from struggling California companies in the first year of the program for purposes unrelated to companies efforts to reduce emissions at their facilities.

Misuse of the funds raised in the program will hurt AB 32 and the cap and trade program. It will drive critical new investment, jobs and innovation away from our great state.


The employer group that has been working so diligently to help implement AB 32 in a cost effective and technologically feasible manner put out this statement on Thursday. It sums it up much more eloquently than I did:

Dorothy Rothrock representing the AB 32 Implementation Group, a coalition of employers and taxpayer groups advocating for policies to achieve greenhouse gas emission reductions in a manner that will protect jobs and the economy issued the following statement regarding authority to expend $1 billion of AB 32’s cap-and-trade revenue:

“We are greatly concerned that the Governor’s budget would allow use of $1 billion raised in the AB 32 cap and trade program in a manner that is beyond the scope of authority under AB 32 and the California constitution.  The purpose of cap and trade is to reduce greenhouse gas emissions from regulated sources – including manufacturers, electric generators, universities, and public agencies. AB 32 and cap and trade is not intended to be a revenue source for the state of California.

At a time when the public is concerned about jobs and the economy, the budget proposes a new tax on California businesses for climate change activities. The anticipated $1 billion is not windfall revenue.  The funds will be paid by California employers suffering the worst recession since the Great Depression.  To avoid litigation and protect jobs, the revenues should be maintained within the cap-and-trade program and must be used in a manner that meets the requirements of a legal fee.”


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California's cap-and-trade needs to be well-designed to protect manufacturers

Posted by Gino DiCaro, VP, Communications on Aug. 17, 2011

California has lost a third of its manufacturing sector and the California Air Resources Board (CARB) continues to try to implement the state's AB 32 carbon reduction program in a cost-effective manner.  The rest of the country has lost a large portion of its manufacturing as well, but at least temporarily given up on mandatory carbon reductions.
Cap-and trade is the policy with which CARB intends to produce about 20 percent of the state's carbon reductions but it is targeted at about 600 facilities during the first three years.  Under the program cap, a facility will either have to pay for more expensive equipment to produce less carbon, pay for an offset, or purchase credits in a market.
California industry is famously efficient due to decades of higher than average energy costs, including 50 percent higher electricity rates than the rest of the country.
This is why it is so important that California creates a well-designed cap-and-trade system.  It must be tested, proven, and refined (and not rushed) to minimize any more leakage of high wage jobs out of California, and it must ensure competitive costs for consumers.
Last week marked a CARB deadline for public comments regarding their implementation of a cap-and-trade program.  The manufacturing community issued a formal letter in its now 3-year effort to help CARB understand the impacts of developing AB 32 regulations.
Serious concerns remain regarding industry carbon benchmarks that penalize the superior energy efficiency of California industries, the lack of any qualified leakage risk analysis, the issue of CARB's sole authority for dispute resolution, and the stringent limit on the ability to purchase offsets. 
CARB recently adjusted the start date for the state's cap-and-trade program from 2012 to 2013.   This delay will help.  We ask that CARB takes this time to address the serious concerns of our largest wealth creators.  California's manufacturers and other potential California investors are holding out for a well-designed result.

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California is, and has been, carbon efficient

Posted by Gino DiCaro, VP, Communications on May 13, 2011

We updated our numbers this week for California greenhouse gas emissions per capita versus the rest of the country.  Looks like California is, and has been for a long time, much more efficient than other states.


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