CALIF CLIMATE FIGHT STUCK

Suspension Of Cap And Trade Expected To Have Limited Effects
Laura Norin, 29 March 2011 (North American Windpower)

"California's landmark cap-and-trade program for curbing greenhouse-gas (GHG) emissions faces new uncertainty due to a recent California Superior Court decision. It is very likely that cap and trade ultimately will be implemented in a form similar to its current design, but implementation could be delayed…[which would harm the New Energy industries] economically by deferring anticipated program benefits. However, as long as the delay is short and the long-term prospects for the cap-and-trade program are not in question, the damage should be limited.

"The court's decision arose from a lawsuit filed by the Association of Irritated Residents and several other environmental organizations that object to the California Air Resources Board's (CARB) implementation of the GHG regulation mandate established by the state's A.B.32 legislation."

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"The lawsuit does not contest the basic concept of GHG regulation or CARB's authority to regulate GHG emissions. The environmental groups object to CARB's reliance on a cap-and-trade market to achieve a significant proportion of the required GHG emissions reductions, preferring direct emissions-reduction measures instead. Direct measures ensure local pollution reductions in low-income communities that house industrial facilities, whereas market mechanisms provide facilities the option to purchase carbon allowances in lieu of reducing their emissions.

"…[New Energy] providers that sell power into California will benefit from any GHG-reduction program that increases the cost to produce or sell fossil-fueled power in the state…[Benefits] may be greater under a program of direct emissions-reductions requirements than under a cap-and-trade market, because direct ‘command and control’ requirements are theoretically less efficient than market mechanisms, resulting in a higher effective price of carbon emissions…[but benefits are] likely to depend more on the details of the regulatory program than on the overall program structure."

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"The key consideration…is therefore not the structure of the GHG regulations, but the timing. A delay in implementing the cap-and-trade program would…defer the benefits that are expected to arise from putting a price on GHG emissions…[and] a delay is possible; the court ordered CARB to stop implementing its GHG-reduction programs until it…[expands] the discussion of alternatives to the cap-and-trade program in its environmental impact assessment, and [resolves] a procedural matter related to the timing of the adoption of its GHG-reduction programs.

"Any delay is likely to be short in nature, because the court decision found fault only with CARB's procedural steps…CARB is planning a legal appeal…and may request a stay of the decision…[I]t is unclear whether it will ultimately require changes to the GHG-reduction programs, which would likely involve a longer delay, or simply additional procedural steps to demonstrate that the cap-and-trade program was properly selected…[D]emand for renewable energy in California is not likely to be materially affected…[except by the delay in benefits]…"