The California The California Global Warming Global Warming Solutions Act: Solutions Act:

Theory & PraxisTheory & Praxis

Presentation by Bruce H. JenningsPresentation by Bruce H. JenningsSenate Environmental Quality CommitteeSenate Environmental Quality Committee

Combating Climate Change on the Regional Combating Climate Change on the Regional Level:Level:

West Coast Policy & LitigationWest Coast Policy & LitigationKnight Law SchoolKnight Law School

University of OregonUniversity of OregonOctober 19, 2007October 19, 2007

Statutory/Policy ContextStatutory/Policy Context 35 years of progressive energy and 35 years of progressive energy and

environmental actionenvironmental action

1972-Energy Conservation, Renewables1972-Energy Conservation, Renewables

1980’s- CA Clean Air Act1980’s- CA Clean Air Act

1990’s public goods charge 1990’s public goods charge

2000’s RPS, Solar Initiative, “California 2000’s RPS, Solar Initiative, “California Emissions Standard”Emissions Standard”

Political Context Political Context Market Failure: Increasing recognition Market Failure: Increasing recognition

by private sector of the problem of by private sector of the problem of market mechanisms:market mechanisms:

“When people do not pay for the “When people do not pay for the consequences of their actions, we have consequences of their actions, we have market failure. This [climate change] is market failure. This [climate change] is the greatest market failure the world the greatest market failure the world has ever seen.”has ever seen.”Sir Nicholas SternSir Nicholas Stern Former World Bank Chief Economist Former World Bank Chief Economist

Schwarzenegger Adm. Schwarzenegger Adm. PositionPosition

Targets must be “flexible”—no “hard” Targets must be “flexible”—no “hard” caps, only “goals”caps, only “goals”

Political, Sub-cabinet “Climate Action Political, Sub-cabinet “Climate Action Team” must oversee implementation Team” must oversee implementation (not independent agency)(not independent agency)

Market-mechanisms mandatory, not Market-mechanisms mandatory, not subject to any substantive tests (e.g. subject to any substantive tests (e.g. effectiveness, enforceability etc.)effectiveness, enforceability etc.)

Minimize regulation, maximize Minimize regulation, maximize “incentives”“incentives”

Senate’s PositionSenate’s Position

Frustration over lack of coherence in bill Frustration over lack of coherence in bill content (broader member/staff tensions)content (broader member/staff tensions)

Hard line on substantive points Hard line on substantive points (enforcement, agency implementation, (enforcement, agency implementation, market-mechanisms)market-mechanisms)

Concerns over “non-Kyoto” pollutantsConcerns over “non-Kyoto” pollutants

Final Negotiations: Final Negotiations: August 2006August 2006

Key “closers”Key “closers”

GHG carbon fees (to fund program, GHG carbon fees (to fund program, promote emission reductions) addedpromote emission reductions) added

Role of voluntary “Climate Registry” Role of voluntary “Climate Registry” clarified clarified

Market-based compliance mechanisms Market-based compliance mechanisms (optional, conditions for use specified )(optional, conditions for use specified )

““early action items” final issueearly action items” final issue

AB 32-CA Global Warming AB 32-CA Global Warming Solutions Act of 2006—key Solutions Act of 2006—key

provisions provisions Designates CA Air Resources Board Designates CA Air Resources Board

as “lead agency” for climate change as “lead agency” for climate change reductions.reductions.

Establishes explicit deadlines for Establishes explicit deadlines for ARB to do following:ARB to do following:

Adopt early action measures to reduce Adopt early action measures to reduce GHG (7/1/07)GHG (7/1/07)

AB 32--Key Provisions AB 32--Key Provisions (cont.) (cont.)

Adopt mandatory GHG emission Adopt mandatory GHG emission reporting for sources (1/1/08)reporting for sources (1/1/08)

Adopt 2020 “cap” on state emissions Adopt 2020 “cap” on state emissions based on 1990 levels (1/1/08)based on 1990 levels (1/1/08)

Adopt “scoping plan” to achieve Adopt “scoping plan” to achieve maximum technologically feasible and maximum technologically feasible and cost-effective reductions in GHG cost-effective reductions in GHG emissions to meet cap. emissions to meet cap.

AB 32-Key Provisions AB 32-Key Provisions (cont.)(cont.)

As part of plan requires evaluation market-As part of plan requires evaluation market-mechanisms, economic impacts and mechanisms, economic impacts and benefits, impacts on electrical sector.benefits, impacts on electrical sector.

Requires adoption of GHG emission limits Requires adoption of GHG emission limits and reduction measures (1/1/11) and makes and reduction measures (1/1/11) and makes them enforceable no later than 1/1/12them enforceable no later than 1/1/12

Establishes criteria/considerations for Establishes criteria/considerations for regulationsregulations

AB 32-Key Provisions AB 32-Key Provisions (cont.)(cont.)

Authorizes adoption of “market-based Authorizes adoption of “market-based declining annual aggregate emission limits” declining annual aggregate emission limits” (i.e. “cap and trade” (1/1/11) and other (i.e. “cap and trade” (1/1/11) and other market mechanisms subject to conditions:market mechanisms subject to conditions:

Emission reductions must be “real, quantifiable, Emission reductions must be “real, quantifiable, verifiable, and enforceable” under state lawverifiable, and enforceable” under state law

Emission reductions must be “surplus” above Emission reductions must be “surplus” above any other requirements of law (no double-any other requirements of law (no double-counting) counting)

AB 32- Key Provisions AB 32- Key Provisions (cont.)(cont.)

Emissions must be in addition to any Emissions must be in addition to any reductions that “otherwise would reductions that “otherwise would occur” (no credit for status quo)occur” (no credit for status quo)

Consult and work with state energy Consult and work with state energy agencies on electricity and natural gas agencies on electricity and natural gas sectorssectors

Consider EJ, other localized impacts of Consider EJ, other localized impacts of market-based mechanismsmarket-based mechanisms

AB 32--Key Provisions AB 32--Key Provisions (cont.)(cont.)

Requires adoption of Requires adoption of regulations/methodologies governing how regulations/methodologies governing how market-mechanisms/voluntary actions are market-mechanisms/voluntary actions are counted and enforced by regulated entitiescounted and enforced by regulated entities

Establishes civil, criminal, and Establishes civil, criminal, and administrative penalties to be imposed by administrative penalties to be imposed by ARB for noncompliance (commensurate ARB for noncompliance (commensurate with other AQ violations)with other AQ violations)

AB 32-Key Provisions AB 32-Key Provisions (cont.)(cont.)

Requires “backstop” if California emissions standard Requires “backstop” if California emissions standard overturned.overturned.

Requires establishment of EJ Advisory Committee Requires establishment of EJ Advisory Committee and Economic and Tech Advancement Advisory and Economic and Tech Advancement Advisory Committee.Committee.

Authorizes imposition of fees “for the purposes of Authorizes imposition of fees “for the purposes of carrying out” the law.carrying out” the law.

Allows Governor to “adjust” deadlines for reductions Allows Governor to “adjust” deadlines for reductions under “extraordinary circumstances, catastrophic under “extraordinary circumstances, catastrophic events, or threat of significant economic harm..”events, or threat of significant economic harm..”

AB 32--Key Provisions AB 32--Key Provisions (cont.)(cont.)

Establishes affirmative obligation of Establishes affirmative obligation of all state agencies to take action to all state agencies to take action to reduce GHG emissionsreduce GHG emissions

Severability ClauseSeverability Clause

Challenge by Executive Challenge by Executive OrderOrder

Less than two weeks after bill was Less than two weeks after bill was signed, Governor issued his “executive signed, Governor issued his “executive order”order”

Key provisionsKey provisions

Designates CAL-EPA (not ARB) to oversee Designates CAL-EPA (not ARB) to oversee key implementation issueskey implementation issues

Establishes new “market mechanism” Establishes new “market mechanism” advisory committee not in lawadvisory committee not in law

Governor’s Executive Order Governor’s Executive Order (cont.)(cont.)

Market mechanisms and command and Market mechanisms and command and control should be on same timeline control should be on same timeline (inconsistent with law)(inconsistent with law)

Linkage to RGGI, British trading Linkage to RGGI, British trading schemes, Western Governors Association.schemes, Western Governors Association.

Speaker/Perata lodged objection to EOSpeaker/Perata lodged objection to EOof CARBof CARB

Reallocation of the Governor’s BudgetReallocation of the Governor’s Budget

Implementation: Emerging Implementation: Emerging IssuesIssues

Law says:Law says: Adopt early action measuresAdopt early action measures Adopt mandatory reportingAdopt mandatory reporting Adopt overall state “cap”Adopt overall state “cap”

What are “market-mechanisms” to be adopted, What are “market-mechanisms” to be adopted, how do these relate to existing law provisions, how do these relate to existing law provisions, and what is the sequencing of implementing such and what is the sequencing of implementing such a program vis a vis early regulatory actions?a program vis a vis early regulatory actions?

The firing and resignation of the primary officials The firing and resignation of the primary officials responsible for the implementation of AB 32 due responsible for the implementation of AB 32 due to “political interference from the Governor’s to “political interference from the Governor’s Office” regarding adoption of early action Office” regarding adoption of early action measures.measures.

Litigation & the Attorney Litigation & the Attorney GeneralGeneral

The Attorney General and the Automobile The Attorney General and the Automobile CompaniesCompanies

The Attorney General and Land Use The Attorney General and Land Use Planning;Planning;San Bernardino and Emissions San Bernardino and Emissions ReductionsReductions

The Attorney General and Ship EmissionsThe Attorney General and Ship Emissions

Unresolved IssuesUnresolved Issues Forestry – How real are the alleged savings? Conflicting Forestry – How real are the alleged savings? Conflicting

research.research. Agriculture – What are the metrics to address (e.g., water Agriculture – What are the metrics to address (e.g., water

pumping, methane)pumping, methane) Alternative Fuels – How does energy policy relate to GHG Alternative Fuels – How does energy policy relate to GHG

and carbon policy? Is there any savings or will this delay and carbon policy? Is there any savings or will this delay the transformation of the energy sector to an authentic the transformation of the energy sector to an authentic RPS?RPS?

Chemical Policy – How does GHG/Carbon Policy relate to Chemical Policy – How does GHG/Carbon Policy relate to chemical policy?chemical policy?

Transportation Policy – How do transportation bonds Transportation Policy – How do transportation bonds relate to GHG/carbon policy (e.g., cars vs. mass relate to GHG/carbon policy (e.g., cars vs. mass transportation).transportation).

Clean Technologies: Will GHG/Carbon Policy Clean Technologies: Will GHG/Carbon Policy fundamentally transform the fossil fuel economy. Does fundamentally transform the fossil fuel economy. Does AB 32 contain mechanisms that are technology forcing AB 32 contain mechanisms that are technology forcing (e.g., AB 1493, SB 1368)?(e.g., AB 1493, SB 1368)?

Federal Legislation Federal Legislation Cap & Trade with a twist: ceiling on emissions Cap & Trade with a twist: ceiling on emissions

pricing?pricing?

Escape valves?Escape valves?

Absence of an aggressive regulatory framework?Absence of an aggressive regulatory framework?

Robert Reich & green corporate actions: “Hold Robert Reich & green corporate actions: “Hold the applause…..Government must lead.”the applause…..Government must lead.”

OpportunitiesOpportunities

Cool CitiesCool Cities

Carbon TrustCarbon Trust

Carbon Fees & TaxesCarbon Fees & Taxes

Clean TechnologyClean Technology

A New Political Economy?A New Political Economy?

What Is the Consequence of What Is the Consequence of Another Market Failure, Another Market Failure,

including the Market including the Market Mechanism Provisions of Mechanism Provisions of

The Global Warming The Global Warming Solutions Act?Solutions Act?

What “triggers” might be What “triggers” might be constructed to address such constructed to address such

a potential failure?a potential failure?

SB 1368 (Perata)SB 1368 (Perata)

GHG emissions performance standard GHG emissions performance standard applicable to all retailer sellers of applicable to all retailer sellers of electricityelectricity

Standard: clean or cleaner than combined-Standard: clean or cleaner than combined-cycle natural gas generation facilitycycle natural gas generation facility

Enforced by state energy agencies (public Enforced by state energy agencies (public utilities commission/energy commission) utilities commission/energy commission)

AB 2021 (Levine)AB 2021 (Levine)

Requires municipal utilities to meet Requires municipal utilities to meet targets, spend as much as IOU’s on targets, spend as much as IOU’s on energy efficiencyenergy efficiency

Administered by state energy Administered by state energy commissioncommission

Goal: Get muni’s to commit to increased Goal: Get muni’s to commit to increased invesment in EE to match IOU’sinvesment in EE to match IOU’s

Environmental GroupsEnvironmental Groups

Key IssuesKey Issues

Overall “cap” on state emissionsOverall “cap” on state emissions Binding and enforceable targets for Binding and enforceable targets for

emissions reductionsemissions reductions Mandatory reporting of emissions Mandatory reporting of emissions Competent/effective state agency Competent/effective state agency

implementation of law with due process implementation of law with due process (ARB)(ARB)

Business Business OpponentsOpponents’ ’ Arguments:Arguments:

Key ArgumentsKey Arguments

Jobs will flee the stateJobs will flee the state Gasoline prices and costs of goods will go upGasoline prices and costs of goods will go up Taxes will increase due to “hidden carbon tax”Taxes will increase due to “hidden carbon tax” State’s economy will shut downState’s economy will shut down

Key tactical decision by opponents—no Key tactical decision by opponents—no compromise—oppose at all costscompromise—oppose at all costs

Business Business ProponentsProponents ArgumentsArguments

Similar environmental arguments as Similar environmental arguments as envirosenviros

Need to transition to new “low carbon” Need to transition to new “low carbon” economyeconomy

Good for businesses who are the future of Good for businesses who are the future of the state and worldthe state and world

CA will become the incubator for billions in CA will become the incubator for billions in new high tech investmentsnew high tech investments

Utilities—”we’re doing it already under CA Utilities—”we’re doing it already under CA law”law”

Early DevelopmentsEarly Developments Governor’s Executive Order—press Governor’s Executive Order—press

announcementsannouncements

25% reduction in GHG’s by 2020, 50% by 205025% reduction in GHG’s by 2020, 50% by 2050

Climate Action Team Report—policy options, Climate Action Team Report—policy options, including fees and taxes on sources of GHGsincluding fees and taxes on sources of GHGs

Introduction of bill package (GHG emission Introduction of bill package (GHG emission performance standard, petroleum demand performance standard, petroleum demand reduction, AB 32)reduction, AB 32)

AB 32—Global Warming AB 32—Global Warming Solutions ActSolutions Act

““Dramatis Personae”Dramatis Personae” Key Environmental Groups (NRDC, ED, Key Environmental Groups (NRDC, ED,

EJ groups, others)EJ groups, others) Anti-AB 32 business groups (CA SEE, Anti-AB 32 business groups (CA SEE,

State Chamber, WSPA, State Chamber, WSPA, Pro-AB 32 business groups Pro-AB 32 business groups

(Environmental Entrepreneurs, silicon (Environmental Entrepreneurs, silicon valley, PGEvalley, PGE

Administration, Assembly authors, Administration, Assembly authors, SenateSenate

Political ContextPolitical Context

Increasing Evidence of Global Warming Increasing Evidence of Global Warming and the Premium of Near Term Actionsand the Premium of Near Term Actions

Expanding constituencies’ concern Expanding constituencies’ concern regarding global warming.regarding global warming.

Expanding Role of States with Expanding Role of States with Environmental Policy and the Environmental Policy and the corresponding failure of federal policy.corresponding failure of federal policy.

Media – Inconvenient Truth.Media – Inconvenient Truth.

Final Negotiations: Final Negotiations: August 2006August 2006

Round-the-clock meetings among Governor’s Round-the-clock meetings among Governor’s staff, CAL-EPA staff, Senate/Assembly staffstaff, CAL-EPA staff, Senate/Assembly staff

Some issues resolved first:Some issues resolved first:

Program Implementation: ARB chosen over “Climate Program Implementation: ARB chosen over “Climate Action Team”Action Team”

Strict cap, mandatory reporting, strong civil and Strict cap, mandatory reporting, strong civil and criminal penalties addedcriminal penalties added

EJ advisory group addedEJ advisory group added

Final Negotiations: Final Negotiations: August 2006August 2006

Governor balked at making market-Governor balked at making market-mechanisms optional and at imposing mechanisms optional and at imposing early action requirementsearly action requirements

Initially said he would veto the bill, then Initially said he would veto the bill, then called Speaker back an hour later to say called Speaker back an hour later to say he’d sign it.he’d sign it.

Announcement, Announcement, fanfare…….implementation?fanfare…….implementation?

AB 32--StrengthsAB 32--Strengths

Implementation in hands of independent Implementation in hands of independent board, world-class environmental agencyboard, world-class environmental agency

Strict accountability and deadlines for ARB Strict accountability and deadlines for ARB actions, GHG emission reductionsactions, GHG emission reductions

Strong civil, criminal penalties for non-Strong civil, criminal penalties for non-compliancecompliance

Strict, clear definitions for key terms under Strict, clear definitions for key terms under lawlaw

AB 32—Strengths (cont.)AB 32—Strengths (cont.)

Authority to impose fees, use market Authority to impose fees, use market mechanisms other than cap and trade (i.e. mechanisms other than cap and trade (i.e. fee-bates, incentive-based charges etc)fee-bates, incentive-based charges etc)

Strong public notice and hearing Strong public notice and hearing requirements, and EJ consultation.requirements, and EJ consultation.

Clear obligations on all agencies to do Clear obligations on all agencies to do their share.their share.

AB 32--WeaknessesAB 32--Weaknesses Significant regulatory discretion to ARBSignificant regulatory discretion to ARB

Long time frame for implementationLong time frame for implementation

Deference to state energy agencies for utility Deference to state energy agencies for utility implementationimplementation

Carbon fees optionalCarbon fees optional

Governor extension/suspension provisionGovernor extension/suspension provision

Other issues (ongoing research, climate effects Other issues (ongoing research, climate effects mitigation)mitigation)