California Votes to Maintain Cap and Trade

A ballot proposition in California that would have suspended that state’s recent climate change legislation has failed, clearing the way for greenhouse gas emissions regulations there to take effect, including a cap and trade program.

The outcome of the election could have implications for greenhouse regulations, and renewable energy, around the country. In many cases, California’s environmental regulations have served as models for other states, as well as the federal government–for example, current clean air and national fuel economy regulations can be traced back to environmental regulations in California. The vote is a victory for supporters of clean tech (including some major clean tech investors) who wanted to keep the greenhouse regulations, and a defeat for the oil producers and refiners who wanted to stop the greenhouse gas regulations.

Proposition 23 would have stopped the implementation of Assembly Bill 32, a climate bill passed in 2006 that required greenhouse gas emissions in the state to be reduced to 1990 levels by 2020. The rules designed to achieve this goal are scheduled to take effect at the beginning of 2012. All told, there are 69 measures geared to meet the greenhouse gas goals, but the most important are a cap and trade program, fuel economy regulations, a renewable electricity standard, energy efficiency requirements and a low-carbon fuel standard (some of these measures are also supported by separate laws).

Earlier this year, Prop 23 seemed sure to pass. Its supporters billed it as a way to save jobs, an appealing message with California’s unemployment well over 12 percent. At the same time, climate legislation was faltering in the U.S. Senate. The tide seemed to have turned against greenhouse gas regulations as Americans focused on unemployment. But clean tech investors and other opponents of Proposition 23 outspent its supporters by about 3 to 1, and the proposition failed.

Under the cap and trade program, major greenhouse gas emitters such as power plants are allowed to emit a certain amount of greenhouse gas–the cap. To get under this cap, the power plant can either install new technology to reduce emissions, or in some other way reduce its emissions, or it can buy “allowances” from other greenhouse gas emitters that emit less than the cap. Cap and trade is one of the most flexible approaches to regulation, allowing power plants to choose whatever approach is cheapest. As a result, it’s typically a cheaper way to reduce emissions than regulations that specify what technology must be used, which is the case with many other environmental regulations.

The low carbon fuel standard requires those who provide fuel to limit the amount of carbon dioxide the fuels emit when they’re burned. The main way to do this is to blend petroleum-based fuels with low-carbon biofuels, such as ethanol made from cellulosic sources such as grass, as well as sugarcane, or in some cases corn. It’s an alternative that could be more effective than the federal biofuels mandate, says Daniel Sperling, director of the Institute for Transportation Studies at the University of California at Davis. The biofuels mandate requires fuel suppliers to use a certain amount of renewable fuels, but includes provisions that allow suppliers to avoid doing this if not enough biofuel is produced.

The renewable electricity standard requires utilities in California to get 33 percent of their electricity from certain renewable resources, such as wind, solar power, and geothermal. The impact of this measure will be limited, however, by how fast new renewable power sources can be introduced. Financing and power transmission issues have so far kept utilities from achieving a lower 20 percent target that existed apart from A.B. 32. “We can’t catch 20 or 33 percent,” says Tom Kelly, the chief deputy director of the California Energy Commission. “Demand is growing faster than renewables can be built.”