Gino DiCaro

AB 32 Cap & Trade Program Development

By Gino DiCaro, VP, Communications

Capitol Update, June 18, 2010 Share this on FacebookTweet thisEmail this to a friend

This Tuesday, June 22, the California Air Resources Board (CARB) is holding a workshop in Sacramento on Cost Containment and Offsets in the California Greenhouse Gas Cap-and-Trade Program

The workshop will focus on cost containment mechanisms, including offsets and linkage, in a California cap-and-trade program. At the workshop, the Nicholas Institute will facilitate a discussion of options for containing costs within the cap-and-trade program. In addition, ARB staff will provide an update on the continued development of the offsets and linkage programs, followed by a discussion of offset supply.

CMTA appreciates elements of the proposed cap and trade regulation that will limit leakage of emissions from California industry to other locations that include avoiding a large auction of allowances, allowing for a broad use of offsets, and using allowance value to prevent leakage and provide transition assistance to impacted manufacturers.

There are concerns with the proposal that generally impact the entire manufacturing community:

  • Status of California manufacturers: Most large California manufacturers to be covered by the cap and trade program compete in global markets.  They will lose jobs, market share or profitability if business costs are increased from their already high levels.  Overall costs of doing business (including labor, taxes, land and electricity) for manufacturers are 24% higher than the national average, with electricity costs 45% higher than the national average and 58% higher than our western neighbors.  High energy costs have already forced manufacturers to become more energy efficient than many US and global competitors.  
  • Size of the market: The CARB proposal to proceed with a program that includes only Canadian Provinces and perhaps New Mexico will hurt California companies to the extent energy prices rise or allowances must be purchased to continue operations. The availability of cost-effective technologies to reduce emissions will be key to ensuring manufacturers do not simply curtail production to avoid new costs. CARB should continue to provide leakage protection and transition assistance unless and until a national program is adopted and implemented.
  • Leakage exposed industries: The initial list of leakage exposed industries proposed by staff was derived partly from work done at a national or international level. We believe the list of leakage exposed industries is too conservative because leakage risk is higher in California due to our high cost structure. In addition, the relative efficiency (and cleaner electricity supply) of California companies compared to many out-of-state providers will make the impact of leakage more environmentally damaging if emissions are greater for each unit of output leaked to less efficient regions. Finally, we urge CARB to make plans to monitor and study leakage as the program gets underway to guide program development in later compliance periods to minimize leakage.
  • Analysis for benchmarks: Benchmarking for purposes of allowance allocation for each industry will be a challenging and potentially contentious process. CARB may need sensitive financial and product-related information and we are concerned that CARB does not have a system in place to protect this information. We hope this issue will be a topic in a future workshop.
  • Allowance cost containment: We support allowance price mitigation and look forward to gaining more understanding about the operation of an allowance reserve and developing appropriate low and high prices for allowances.
  • Regulation development: The timeframe for rule development and adoption by year-end is aggressive. In furtherance of this, we request detailed workshop outlines at least three days before the workshops to help us coordinate participation and comments at the workshop.

Materials for the June 22 workshop should be posted soon at:

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