June 20, 2016 by Harry Horner
CaliforniaCarbon.info, June 20, 2016: Depending on one’s perspective, ARB’s Friday release of the 2030 Target Scoping Plan ‘Concept Paper’ can be viewed either as a festival of vagaries or a masterclass in hedging. The well-worn Aristotelian quote ‘The whole is greater than the sum of its parts’ is philosophically included at the start of the document, unfortunately for anticipant market stakeholders the phrase does not ring true for the document that bears it. Indeed, the frequency of syntactical and content errors throughout the paper would suggest rather less.
More than 2/3rd’s of the publication is devoted to the guiding principles of the Board’s environmental policies; therefore, the report is governed by rather nebulous watchphrases including Integrated System, Flexibility, Promoting Resilient Economic Growth, Relying on Sound Science and Research…etc. Whilst these sentiments are, and arguably deserve to be, key in driving this scoping process, their inclusion and consequent in-depth explanation does little more than to pad out a paper containing scarce material pertinent to the future of Cap-and-Trade in California. However, before analyzing ARB’s motives for publishing such an equivocal paper, it is worth laying out what detail there is to be found.
In the paper, ARB has set out four concept paths that the 2030 Scoping Plan will be derived from. All of the concept options contain broadly the same policies with a few variants. Beneath is the list of policies that are constant across all four paths, and thus look almost certain to be included in the Scoping Plan proper:
Skeleton Scoping Plan
– SB 350 – by 2030
– Increase in Low Carbon Fuel Standard – by 2030
– Mobile Source Strategy
– Implementation of currently proposed Short Lived Climate Pollutant Strategy – by 2030
– Draft California Sustainable Freight Action Plan
– Natural and Working Lands – by 2030
Beneath are the additions and edits that define each of the concept paths:
Concept 1 – Cap-and-Trade with complementary measures
– Cap-and-Trade Program with a 4% annual decline
Concept 2 – Complementary policies with a focus on industrial sources
– Enhanced implementation of currently proposed Short Lived Climate Pollutant Strategy – by 2030
– Entity level GHG declining caps for industrial sources
Concept 3 – Complementary policies with a focus on transportation
– Mobile Source Strategy
– Require industrial entities to evaluate and identify cost-effective and technically feasible improvements, develop individual rules on source types of emissions and require improvements during scheduled maintenance, or other schedule, at the industrial facility
Concept 4 – Carbon Tax with complementary polices
– Carbon tax applied at a value predetermined by a method such as economic modeling or the use of the US EPA social cost of carbon
Rather dramatically, only one of the four above paths contains the Cap-and-Trade program, however presumably the options do not have an equal probability of occurrence. At this stage ARB must be seen to be genuinely considering a wide canvas of options, moreover, at board meetings and the like, members have consistently emphasized the expedited schedule of policy development through 2016 in particular. The ambiguity of this concept paper can definitely be viewed as the ARB playing for decision time, whilst keeping their options open ahead of the draft plan expected in November 2016, with a second hearing in March 2017.
Yet, if the ARB stands to gain from this paper’s ambiguity, the Cap-and-Trade market is likely to suffer heavily from the continued, if not heightened, uncertainty engulfing it. In CaliforniaCarbon.info’s annual survey in May, 62% of respondents answered that updates on the 2030 Scoping Plan and cap design would have the most material impact on the market. This uncertainty and the overbearing consideration of ‘Cap-and-Trade – less’ futures is highly likely to bring back the price volatility seen earlier this year, and may even push the front price through the observed floor region of $12.15 over the coming weeks.
Another aspect to be considered is the indirect effect of ARB’s wavering on their current and future WCI trading partners. The Californian market in both size and leading nature must be considered the engine room of the WCI Cap-and-Trade program; for the foreseeable future its emissions market will be larger than all of its partners and future partners combined. A Californian exit would very possibly spell the end of the WCI trading endeavour as we know it. In a dual Quebec-Ontario market, Ontario’s ultra-aggressive emission reduction schedule would lead to economically and politically non-viable carbon prices for both states (see page 11 onwards of CaliforniaCarbon.info’s Ontario Impact forecast for more context). Ontario was only able to design in it’s current ambitious reduction targets due to the concrete expectation of access to the existing Californian, and to a lesser degree Québécois, surplus. This is in brief is why more wavering from ARB could have fundamental ramifications for Ontario’s prospective entry into the WCI trading program.
Additionally, the Environmental Justice Advisory Committee seems to have had a significant bearing on this paper; much of the active resistance to Cap-and-Trade (or at the very least unwillingness to accept it) has come from this group over the last six months. Presumably, the outcomes of their community and committee meetings scheduled over the Summer will continue to influence the Scoping Plan in development. Thus scrutinizing the progress of EJAC’s Summer activities may well prove be a valuable exercise in uncovering clues to the outcome of the eventual Plan itself.
In sum, it is very easy to understand the motives for ARB’s evasive tactics, yet far harder to agree with them and the dangers such prevarication can cause.
Harry Horner – (email@example.com)