AB 32 implementation through 2020 and beyond

By CMTA Staff

Capitol Update, March 13, 2014 Share this on FacebookTweet thisEmail this to a friend

State legislative committees overseeing the development of California climate change policies hosted two hearings this week. CMTA was invited to provide the perspective of California manufacturers. The following points were emphasized to the committees:

As background, California is not getting our fair share of national manufacturing investments. While we have more than 11 percent of the national manufacturing GDP, we are only getting 1.5 percent of the national investments in new sites or expanded facilities. 

Such investments are key to maintaining and growing manufacturing production and jobs. We should be making California attractive to manufacturing investments through wise policy development because our success as a manufacturing state directly relates to how effectively we are contributing to global emission reductions.

Electricity prices are already more than 50% higher than the national average and there has been plenty of incentive to become more efficient in the last decades. If we increase efficient and clean manufacturing here, then there will be fewer carbon emissions from dirty plants in China or India and the world will be better off.

The irony will be if clean, in-state manufacturing is burdened directly by the same climate policy that attempts to lower overall global emissions.

For that reason we need to focus on the true costs and benefits of AB 32 implementation so far and heading up to 2020. Maximizing cost-effectiveness and technological feasibility while minimizing leakage are key elements of AB 32 and there is important work to be done on this in the current compliance period.

For example, in cap-and-trade, the free allowance allocation for many manufacturers in the third compliance period may decline by 25 percent or more. These companies include food processors, steel, oil refiners, a turbine manufacturer, and aerospace firms. That means companies don’t know how many allowances they need to buy for the 2018 to 2020 timeframe. This is well within their investment planning horizons. ARB won’t have their analysis done until 2016. The studies are not keeping up with policy development.

Also, how we treat transportation fuel emissions is very important. The combination of low carbon fuel standard and fuels under the cap beginning in 2015 will result in more costs for manufacturers and other businesses.

In planning for post 2020 policies, we need to be aware of how different the situation is now compared to when AB 32 passed in 2006. At that time goals were established with the hope and the assumption that regional and national goals would be adopted in the following few years.

That has not been realized to the extent we hoped. The result is that the risks of moving forward with more aggressive reduction goals in the future are large and growing. How should we increase the odds that other jurisdictions will follow our lead?

Dr. Robert Stavins of Harvard University co-authored a report with policy recommendations to consider in the post 2020 environment. He notes that California leadership depends on:

  • Reliance on the most cost-effective approach to emission reductions, such as cap-and-trade. Complementary regulations raise costs and undermine the purpose of cap-and-trade. (CMTA also believes that aggressive auction of allowance rather than free allocation needlessly increases costs.)
  • Focus on leakage risks, cost containment and technological feasibility – these are more important as the reduction goals are more aggressive post 2020. For example, the reductions required pre 2020 years are only one percent per year, while the reductions after 2020 to meet a 2050 target of 80 percent below 1990 levels is more than five percent per year.
  • The target should be flexible. Consider making targets dependent on other states or nations taking reciprocal action and make changes if costs are too high.

CMTA also suggests that a wise option could be to make the emissions goal intensity-based rather than a fixed limit so we can become more efficient (lowering the GHG per unit of production) while still growing the economy. If we maintain a strict cap then growth of efficient manufacturing could be thwarted as competition for limited allowances raises prices above affordable levels.

California’s leadership on climate policy depends, more than ever, on demonstrating to other states and nations that a bold climate policy can coexist with a growing manufacturing economy.

To see a video of testimony given at the Senate Environmental Quality Committee hearing on March 12,

Other excerpts from the March 10 Assembly Natural Resources Committee hearing can be viewed here: 

 

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