Mary Nichols Previews CARB's Release of Draft Scoping Plan for AB 32 Implementation

Since your appointment by Governor Schwarzenegger in 2007, your responsibilities have included the implementation of AB 32 within the package of responsibilities of the California Air Resources Board. What's the implementation status of AB 32?

The AB 32 scoping plan was released in draft form on June 26, with work on the draft continuing over the course of the summer and fall. We'll get a board version out in early October, and it will come before the Air Resources Board for adoption at our November board meeting, with time in December if we want or need more time. A final action is due by January 1 of 2009.

Much of the concern regarding implementation of AB 32 centers on the unknown costs of implementation. How is CARB addressing such concerns?

First of all, we're talking about a program that is actually already underway; that is, many of the actions that are called for by AB 32, such as the Pavley program to reduce greenhouse gas emissions from automobiles, have already been adopted. Others are in the process of being adopted, such as the low carbon fuel standards and a number of measures that California is pursuing for other purposes but that also have important climate benefits, including the renewable portfolio standard (which requires electric utilities to get 20 percent of the electricity that they serve to their customers from renewable sources by 2010) and some of the mandatory efficiency measures administered by the Public Utilities Commission. Businesses in California are familiar with those actions.

The design of market measures is still in the works. We don't have all the final details of these worked out yet, but under the terms of the plan we have until 2010 to do so, with implementation beginning in 2012. We have time to go through a deliberative process and to take stock of how the economy is doing and what we learn as we go through the public input process.

There is no reason for apprehension on the part of the business community in California, but there is reason for optimism. We have a lot of data-based measures already implemented, indicating that California's efficiency and air pollution programs have actually benefited the economy, both by creating new jobs and business opportunities, and also by adding to the state's value as a place to live and do business.

I would never suggest that there are no costs involved, but we can establish quite clearly that the benefits-not just environmental, benefits to the state's economy as a whole-will be much greater than the cost.

You wrote a Forbes op-ed piece in which you argued, "For 40 years, the California Air Resources Board has instituted precedent-setting air pollution regulations and programs that have been adopted by other agencies across the country and world. One of the unsung heroes in helping to achieve the clean air goals was the California business community." What were you specifically referring to with this quote?

California has pursued an approach based on giving careful consideration to the pollution side, giving businesses as much flexibility as possible to decide how to meet performance-based standards. California has been home to innovation, which has contributed to making the state a good place to do business over the years.

How are the PUC and CEC are working with CARB on AB 32 new regulations?

AB 32 specifically calls for the CEC and PUC to advise ARB on the aspects of the plan that relate to electricity and the natural gas sector, which comprises a fairly substantial portion of the sources of greenhouse gases that we have to deal with. They have had proceedings underway at both of these agencies for over a year. PUC-regulated utilities, environmental groups, consumer organizations, and other interested parties have weighed in on various proposals for how to reduce greenhouse gases from this sector. The two commissions both adopted formal recommendations and submitted them to us at the end of March. Both offer that we should implement a cap-and-trade system, which would be applicable to what they call a "first-seller," the entity that actually imports or creates electricity in California. They made some other specific suggestions about how that should work and did some economic modeling of the cost of that for electricity.

That recommendation was quite controversial, particularly with the municipal utilities, because they believed that it unfairly singled them out for a greater share of the costs and responsibility for the program. They also objected to the recommendation that all of the allowances under the program would be auctioned off. It was characterized as a "massive wealth transfer"-a memorable phrase by DWP General Manager David Nahai. We have had, since then, a number of conversations with the investor-owned and the publicly-owned utilities and the commissions and held one large oversight hearing that was chaired by Senator Kehoe of the Senate Energy Committee.

Through the course of all of those proceedings, it has become clear that, in order to have this program start off in a way that doesn't massively disadvantage one geographical region of the state or one group of utilities, we need to make sure that we are designing the cap-and-trade program in a way that recognizes that they are starting from different points.

Municipal utilities do generate most of their own electricity; in some cases, they actually own their own electrical generation facilities. In a number of cases, they are heavily dependent on coal, which is the most greenhouse gas-intensive of all emissions sources. These decisions were made many years ago for reasons that had nothing to do with the environment-to keep down costs and improve reliability for customers.

There are a lot of ways to address those issues. We are going to be working through the design details with them in recognition of these concerns and the constraints on the part of the investor utilities, also, because they are being pushed by the Public Utilities Commission, their shareholders, and their boards to make bigger, earlier investments in renewables and conservation than the publicly-owned utilities. Nobody is exactly the same, and everybody wants to be treated fairly, so working through those issues and coming up with a program that will be seen as fair and effective is the next big challenge.

VerdeXchange News recently published an interview with Diane Wittenberg that noted that the Registry has expanded from California to North America and detailed the Climate Registry's Carbon Reporting Standard. What is the status of discussions about cap-and-trade as a mechanism to deal with carbon trading and pricing? What protocols will be used to measure carbon?

First of all, we are tremendously proud that California pioneered the creation of a non-profit Climate Action Registry, which has very close working relationships with the state agencies responsible for implementing climate and energy legislation. We're proud that it's the model that has become the basis for a national and international effort to start achieving reductions in greenhouse gas emissions on a voluntary basis, as well as looking at ways to incorporate possible offset reductions into a cap-and-trade program. It's an example of the role that California can play in working through issues that are necessary to solve for the creation of a successful global climate change reduction program. We are seen as a state that has very rigorous standards, strong enforcement, and a commitment to a cost-effective measurement and monitoring program. All of these conditions are going to be necessary if we are going to have an effective cap-and-trade program.

The Registry continues to be a part of our thinking, and we work very closely with them on a number of aspects of implementation of AB 32, probably most actively in the area of developing measurement protocols for different types of emissions sources.

In late March, CARB reduced the mandate for zero emission vehicles in the state, a move you said was "about what is feasible." Can you elaborate?

ARB has been administering a zero emission vehicle mandate program, which is part of our broader program for low emission vehicles in the state, and which has also been supplemented by the greenhouse gas emission reduction program under the Pavley legislation.

We have three separate programs, all of which have slightly different purposes. That's creating some confusion in the minds of the public and causing some in industry to claim that they are subject to too many different, overlapping mandates. One of the things that we will be doing over the next year is reorganizing our vehicle emissions program, which should clarify what the goals are and what the standards are going to be for at least the next decade.

The ARB has been administering a very effective program to reduce the emissions of smog-forming pollutants from vehicles since the 1970s. New cars coming off the assembly lines and into the consumers' hands today emit less than 1 percent of what they did 30 years ago, are more fuel efficient, and contain recycled content. But there are many, many more vehicles on the road. We have problems not only with the vehicle miles traveled side of the equation; we also have a new dimension to our concerns about cars and fuel-greenhouse gas emissions-which causes us to really look more at the overall drive train than just what comes out of the tail end. In other words, we need vehicles in the very near future that not only are zero emissions vehicles but that also use zero emissions fuels created from renewable sources. This is a major transformation that we're talking about-to battery-powered, plug-in hybrid, or fuel cell vehicles.

There are increasing numbers of demonstration fleets and real world pioneers demonstrating these technologies, but we need to get more of them into consumers' hands. The purpose of the ZEV rule is to force the major manufacturers-the "Big Six," the largest sellers of cars in California-to invest in real R&D for zero emission vehicles. They've geared up programs, they're spending money, and we're beginning to see results. But what we haven't done is make the transition from the R&D programs into real world applicability for the battery electrics or the fuel cells. Manufacturers have had challenges in getting production-quality vehicles that will do more than just meet a niche market application.

We looked at the status of all the vehicles, and we came up with a translation system that forces manufacturers to produce and put up for sale in the 2012-14 timeframe, mandating a larger number of plug-in vehicles and hybrid vehicles as opposed to pure battery vehicles or pure fuel cell vehicles. We would still hope to do some of those. It's a complicated scheme in terms of how we measure these different requirements, but the bottom line is that we looked at the status of the different programs and concluded that the most effective thing that we could do in pushing the zero emission concept forward was to make sure that California becomes the home for the largest fleet of plug-in hybrid vehicles in the next few years.

Will November's federal elections impact CARB's state agenda?

We are watching very closely to make sure that both candidates for President live up to the statements they made early in the primary season to ensure that California gets the waiver from the EPA to enforce our clean air standards. We're very excited about the opportunity to shape federal energy policy in a way that will focus the agenda of efficiency and renewable technology. We've got a long way to go for the rest of the country to match up with what California is doing.

The Senate Rules Committee has confirmed your appointment, but you are waiting for action by the entire Legislature. Can you comment on the process?

When I was first appointed last July, I was given a pre-confirmation hearing because it was a pretty chaotic time. My predecessor had just been fired and there was a lot of back-and-forth comments by members of the Legislature, the former executive officer, and others about the reason behind that decision. We had a good hearing, and now that I've had almost a year to do the job, I'm pleased that the majority of the committee thought that I ought to keep it.