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Businesses and federal agencies make final objections to Calif. cap and trade

ClimateWire, Published: Friday, September 30, 2011

California's cap-and-trade program: going it alone?

While California’s first-in-the-nation cap-and-trade program being voted on next month won’t take public comments into account, stakeholders are still trying to change large parts of it, including the distribution of allowances, market protection provisions and the inclusion of federal agencies.

A number of federal agencies are continuing to protest being subject to California’s jurisdiction, including the Defense Department and the Western Area Power Administration (WAPA), which delivers hydroelectric power in Western states.

DOD is asking for a permanent exemption from the program for all its California facilities. The California Air Resources Board’s proposed temporary exemption until 2014 is not good enough, Assistant Secretary of the Navy Jackalyne Pfannenstiel wrote earlier this month. She cited DOD’s goal of reducing its greenhouse gas (GHG) emissions 34 percent below 2008 levels by 2020. “[E]ven absent the military’s participation in the California specific cap and trade program, California will still achieve significant reductions from DoD sources,” she wrote.

WAPA, for its part, is refusing to cede authority to California at all. “Western wishes to make clear that Western’s participation in CARB’s GHG reporting program and cap and trade programs are on a voluntary basis and Western is not conceding that CARB has jurisdiction over Western in these matters,” attorney Koji Kawamura wrote. “After CARB issues its final rule, Western will evaluate if, how, and to what extent, Western can voluntarily participate in CARB’s GHG programs.”

The University of California system, which would be under a compliance obligation due to its combined heat and power plants, is also proposing that it be exempted from buying allowances altogether, in exchange for investing 125 percent of what it would have paid into other emissions-reduction projects.

ConocoPhillips complains of a ‘haircut’
Oil companies urged the Air Resources Board (ARB) to adjust the method of calculating how many allowances their sector will get in the first trading period, which runs from 2012 to 2014. The program will start by issuing the petroleum refining sector 10 percent fewer allowances than their expected sectorwide emissions, which industry is referring to as a “haircut.”

Some, like ConocoPhillips, also maintained opposition to state-level cap and trade in general. “We believe that a mandatory national framework with international linkages will be the most effective approach to achieve meaningful impact on global greenhouse gas emissions,” wrote Los Angeles refinery manager Chris Chandler. “As such, we oppose development of a patchwork of state-level policies. Elements of the ARB’s planned program picks winners and losers within the State and creates competitive disadvantages for in-state operations that will encourage the import of fuel from out-of-state and international refineries.”

Tesoro Corp. asked for transportation fuels not to be included under the cap, as they are scheduled to be starting in 2015. California already has the fourth-highest gasoline taxes in the country and charging for their greenhouse gas emissions would add at least 10 cents per gallon, the company argued.

Carbon trading firms and exchanges asked ARB to give up its ability to cancel trades of allowances, arguing that it could enable traders to actually game the system by allowing them to trigger a cancellation if prices do not go their way. “This type of gaming would thwart the development of exchange-traded futures and over-the-counter forward markets, destroying the mechanism by which forward price signals are created,” wrote John Melby, managing director of North American markets for the Green Exchange.

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