CARB Making History-Ready to Approve Cap-and-Trade Regulations

What do you believe are the climate change and energy policy ramifications in the wake of the November elections in which voters affirmed California's signature climate change legislation, AB 32; elected Jerry Brown as Governor; and gave control of the House to the Republicans?

California is still California. Californians supported action to maintain and improve their environment. Even in a very tough economy, they recognize that there are real benefits to our state from being seen as a leader in clean technology and that our environment is one of our most important assets.

As noted, Governor-elect Jerry Brown will be inaugurated in January. Both he and your boss, Governor Arnold Schwarzenegger, prioritize climate change and accelerating the state's transformation from fossil to a carbon-less economy. What can be realistically expected going forward? Is California still the clean and green technology portal for North America?

They can expect that we will continue down the path of transformation. It is a multi-year process, not something that will happen overnight. We have a mix of policies in place that create a good pathway toward the version that's now been set forth for zero-emission or zero-energy new homes, appliances, and a cleaner, more efficient grid. Many of the pieces are already in place. There's a lot of development going on; there certainly will be more permits issued. We've already permitted many thousands of megawatts of new solar energy within the last year to take advantage of federal stimulus money. It's going to be a very exciting and transformative time for California over the next five to ten years.

It's great that we have this backdrop to work with because we have severe problems with the way our budget is put together. We're going to be going through harsh and difficult times until the governor, the Legislature, and the public as a whole agree on the right mix of spending, taxes, and fees to provide the level of services that Californians want. That's going to be the focus for the new governor; certainly that will consume most of his time when he first takes office.

It's important that we point to California's energy and environmental policies as a stable landscape so we can focus on the areas where the greatest attention will need to be paid.

California stands out in contrast to states that have elected representatives in Washington who believe that climate change is a hoax or, at least, assert that humanity has no responsibility for the change in climate. We are now more different, perhaps, than we were from some of these places. There's a real difference, even in states where governorship changed hands, between the kinds of people who get elected governor and the kinds of people who get elected to seats in the House or even the Senate. I'm not going to say anything about our California delegation because it stayed close to what it was, and it's great. Some of the people who are going to be ascending into the state houses in states that we've worked with in the past-even where there's been a switch from Democrat to Republican-are not flat-earthers. Many of them come from backgrounds in local government where they've been involved in efforts like the U.S. Mayor's Climate Coalition. The signs of support for advanced technologies and sensible energy policy is bubbling up from the grassroots, and it's not just in California.

Many Californians who oppose AB 32 and supported Prop 23 continually express that if the cost of energy and goods go up in California but do not go up at the same rate elsewhere, a number of state-based firms may take their companies, jobs, and dollars out of state. Given that little on climate change for the next two years will be passed at the federal level, is that thesis valid?

The opposite of that statement is true, and the voters of California rejected that argument by a wide margin. I can't speak for every business leader in California, but I read these statements of gloom, and I know that the day after the election, Jack Stewart from CMTA was back at it again with the hand-wringing. The reality is that everywhere I look there are conferences and trade shows and stories of companies that are choosing to locate or expand in California because of the market for clean technology. We are a world hub of research and development in the area of green technology, particularly for innovative energy efficiency and renewable technologies. We continue, as a state, to struggle with some issues that make it difficult for people to build and expand facilities here, and those are things that the state needs to work on, but the thing that's helping us succeed is the fact that we have strong environmental and energy policies. Our regulations are designed in ways to reward people for doing good, and that's how you make a successful market.

We do this interview just prior to CARB's upcoming meeting, which will consider new cap-and-trade regulations. What issues will be considered when deliberating on cap-and-trade?

Right now we're in the midst of working through the details of a cap-and-trade regulation that the board will consider at our December meeting, and it's important for people to realize a couple of key things about that regulation. First of all, because it is a cap on emissions, and the cap declines over time, it provides a way of assuring that our state will achieve the goals that we set for ourselves-of returning our emissions of greenhouse gases to 1990 levels by 2020. It's also quite clear that in reducing greenhouse gases, we will help to further reduce the kinds of air pollutants that directly cause harm to human health on the ground and also work to clean the environment.

Cap-and-trade is a policy tool that has been widely recommended by economists and business leaders-it isn't something that was invented by environmentalists in a back room somewhere-as a way to send a price signal to businesses that investing in cleaner technologies is the right way to go. Because the cap gradually declines, it gives businesses time, as well as the economic signal, to invest in the transition.

The fact that cap-and-trade is going to be adopted by the state of California doesn't mean that we're going to implement this all by ourselves. We are working simultaneously with a group of other states and Canadian provinces to design this program. By the time the program starts in 2012, it will cover electricity and large industry, and we expect that there will be a number of other states and provinces that will be ready to start programs at the same time. It's not something that's being developed as a project of some new regional government, but individually, state-by-state, province-by-province, other jurisdictions are looking at this approach. If they come up with a similar program that we feel we can accept as being equally stringent and effective, we will have other areas for trading so that the program will be larger, there will be more options, and, presumably, the prices will stay low.

What has been the reaction of the state's utilities to cap and trade?

The utilities in California have been key players in the design of this program. There are issues about how you start, how people get their allowances at the beginning of the program, and to what extent they are allowed to chart their own path toward a cleaner energy mix. Those have required a lot of thought and care in planning.

Utilities don't operate in a free market environment. They're confined in their service territories; their prices are regulated by their own boards, if they are publicly owned, or by the PUC, if they're investor-owned. There are major differences in their starting positions, based on whether they historically used hydropower versus coal power. This has been a tricky feature in designing the program, and we're still working through the details on it. There's never been anything other than a strong presence and collaboration on the part of the utilities to make this work.

The Environmental Protection Agency this month issued guidelines giving states considerable discretion in regulating carbon dioxide emissions from large industrial facilities. Is that the kind of policy signal from Washington that CARB seeks?

We participate in the rule-making, and we are pleased with the result. It's very difficult for the EPA, given the structure of the Clean Air Act, to allow states to completely develop their own approaches to any pollutants the EPA regulates under the Clean Air Act. But they have worked very hard to send a signal of support for state-level initiatives, and we appreciate that.

Let's turn to the mandatory reporting provisions that the CARB board will also consider at its next meeting. Can you speak to the importance of that work and what exactly will be on your agenda for a vote?

We first adopted our mandatory reporting rule in 2007, before the U.S. EPA had put their rules in place. Now that they've done that, we want to update our rules to make sure that there is consistency. We are determined to make this process as simple and transparent as possible for businesses in California that are subject to the reporting rule so that California facilities can click one key and report to both CARB and U.S. EPA. It's going to take a little time to work that out because of differences of software and differences in need for data, but we think we can work this out within the next year or two. Those agencies are committed to making that happen.

Last year, the governor vetoed legislation to establish a 33 percent renewable portfolio standard because it would have "created barriers to clean renewable energy to meet that standard." He asked CARB to postpone and consider action on it in September. What action did CARB ultimately take?

We did postpone action on a rule to give the legislature time to act, and unfortunately the clock ran out before they were able to pass a bill. The governor this year made it very clear that he hoped to sign the bill, but there was no bill for him to sign. The action that we took was to adopt a very straight-forward regulation that builds on the Public Utilities Commission's existing mandate for 20 percent renewable portfolio standard and create a renewable energy standard of 33 percent for all firms that sell electricity in California. It covers the universe of firms that sell electricity to the public, and it raises the requirement for renewables to 33 percent by 2020.

2011 appears to be the year for "alternative fuel" cars in California. Elaborate on the actions and initiatives that CARB is advancing to create a healthy market for alternatively powered motor vehicles.

I'd like to give a plug, so to speak, to an effort that I'm involved with called the Plug-In Electric Vehicle Collaborative Council. The PEV, as it's known, is a coalition of car manufacturers, electric utilities, manufacturers of charging systems, local governments, state agencies, NGOs, fleet operators, and labor that has come together to sponsor work at UC Davis's Plug-in Vehicle Center. We're going to release a report on December 13-the outlines of the strategic plan for the next couple of years-to make California a leader in creating the market for plug-in vehicles. We're determined to create the conditions for the success of this market.

The car companies have done their part; they've brought some really exciting, attractive plug-in vehicles to market. Our state needs to step up to the plate to make it easy for customers to adapt to these new vehicles, embrace these new vehicles, and for our cities and our electrical systems to prepare to make the process of transforming to electric transportation as seamless and pleasant as possible.

The report has recommendations about where to focus on rolling out new charging stations and how different entities should work together to make this happen. These aren't earth-shattering revelations, but the importance of this report is that you've got a broad coalition of interests agreeing on what the priorities should be from a policy perspective to make this effort work for California.

When VERDEXCHANGE last interviewed you in 2009, you stated, regarding the AB 32 Scoping Plan, "The plan is just a plan. It's not all the regulations and programs that will achieve the results." What significant regulations and programs have been passed since that begin to realize the goals and aspirations of those supportive of AB 32? And, what policy accomplishments are you most proud of?

We've been busy since that interview. We've adopted more than a dozen regulations that will reduce greenhouse gas emissions, the most notable being the renewable electricity standard, which we just talked about, and the Low Carbon Fuel standard, as well as the proposed cap-and-trade regulation, which is now out for public comment. We're working on the next round of advanced clean car regulations, which will be coming to the board early next year. That would take us up to 2017 model year vehicles, in time to have an impact on reaching the 2020 goal and to move on to the 2050 target.

We've begun working on the implementation of SB 375: we set the regional targets in conjunction with the MPOs around the state, and we're now working to provide more direct financial support and technical support for regions implementing SB 375.

Concerning the car standards, we're working in a very direct partnership with U.S. EPA to make sure that the federal government adopts greenhouse gas standards that match up with what California needs. We've succeeded in doing that for vehicles through 2017, and now we're working with them on some studies. We'll publish the first set of information based on the work that we did over the summer. We're hoping that next year we'll announce a national program for vehicle greenhouse gases.

In closing, thank you for again agreeing to participate in VERDEXCHANGE's Green Marketmaker's Conference, January 23-25 in L.A. Attendees, whether decision makers in global, national, and/or state business, government, finance, or environmental stewardship will hope to learn that there's a stable California energy and climate policy agenda that will not deviate dramatically from the precedents set over the last several years.

I hope we have good news.