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California's first auction of greenhouse-gas credits nears

Some industrial businesses are still fighting the cap-and-trade program, which requires big polluters to either reduce their emissions or buy credits to cover the difference. The auction is Nov. 14.

November 06, 2012|By Marc Lifsher, Los Angeles Times
  • California’s cap-and-trade program covers about 600 facilities this year, including refineries, seen above, as well as cement plants, steel mills, food processors and electric utilities.
California’s cap-and-trade program covers about 600 facilities… (Luis Sinco, Los Angeles…)

SACRAMENTO — After six years of preparation, California is poised to become the first state to combat global warming by capping greenhouse gas emissions and making major polluters pay to release more of these gases into the atmosphere.

It's part of a landmark law approved in 2006 that seeks to cut the state's production of carbon dioxide, methane and related gases to 1990 levels — about 17% lower than current amounts — by 2020.

Starting next week, big polluters will be required to buy pollution credits if they plan to emit greenhouse gases above their allotted levels.

On Nov. 14, the state is scheduled to launch the market-based "cap-and-trade" program of selling pollution credits at auction.

This year, the program covers about 350 industrial businesses operating a total of 600 facilities throughout the state. They include cement plants, steel mills, food processors, electric utilities and refineries. Starting in 2015, the program will also cover distributors of natural gas and other fuels.

These businesses have been issued free credits worth 90% of their recent emissions. Now they must either cut their greenhouse gas production to that level or buy credits to make up the difference. Companies that have more credits than they need can sell them at the auction, and the state will sell additional credits as well.

But with the state's first sale of pollution credits just days away, businesses that oppose the program are still trying to derail it. At a minimum, they are asking for free credits worth 100% of their recent needs, not just 90%.

Opponents are petitioning the governor, lawmakers and regulators. An industrial coalition is running newspaper and radio advertising campaigns, saying that cap-and-trade is "a multibillion-dollar, hidden energy tax" that will drive California's already high energy prices even higher.

The state's requirement to buy pollution credits "will impose high and unnecessary costs on California businesses, threatening jobs and tax revenues in the state," the industrial coalition, AB 32 Implementation Group, said in an Oct. 16 letter to the governor. "All California's consumers will feel the impacts of higher costs for fuel, utilities, food and other essential goods and services."

The biggest problem, the group contends, is that the California-only regulations are expected to cause "leakage" of jobs by driving businesses to neighboring states that put no limits on greenhouse gas emissions.

Regardless, the state has made it clear that it's moving ahead with the long-planned cap-and-trade approach.

"The auction will take place on Nov. 14," said Gareth Lacy, a spokesman for Gov. Jerry Brown.

The approach "is a reasonable, well-thought-out program with rigorous reporting, monitoring and enforcement ... while protecting California's business and jobs," Matt Rodriquez, the head of the state's Environmental Protection Agency, said at a recent conference in San Diego on industry and the environment.

The upcoming auction of credits is one of the most controversial parts of the Global Warming Solutions Act, the 2006 law known as AB 32.

Each credit allows the release of one metric ton of greenhouse gases. (For comparison, a typical passenger vehicle produces about five metric tons per year.) The California Air Resources Board, which is overseeing the quarterly auctions, has set a minimum bid of $10 per credit, and it predicts that the price could rise to as much as $50 over the next eight years.

The system probably will prove expensive for Cal Portland Co., a Glendora cement maker with plants in Colton and Mojave. The two plants are expected produce about 1 million tons of greenhouse gases this year.

"We're projecting in 2013 that we're going to see a direct increase in costs of somewhere between $2 million and $5 million per year. It's a significant percentage of our costs," said Steve Regis, Cal Portland's vice president for corporate services. The company also expects the credits system to cause big hikes in the cost of electricity, which it uses to run furnaces to bake limestone and other cement ingredients to more than 1,600 degrees.

"Our concern is, we may no longer manufacture in California," Regis warned. "We'd ... bring it in from overseas or out of state."

Another unhappy company is Pacific Coast Producers, a farmer-owned cooperative that has a tomato canning plant in Woodland, northwest of Sacramento.

Buying the credits it needs through 2020 would add as much as $2.5 million to the cost of canning tomatoes, Vice President Mona Shulman predicted.

"This is a cost for a product that's being imposed on us that's not being imposed on our competitors" out of state and overseas, she said. "Adding a penny a pound does make a difference in a global market for a product like ours."

California's cap-and-trade system is much more comprehensive and ambitious than the only other greenhouse gas auction in the country. A 10-state Regional Greenhouse Gas Initiative, begun in 2009 in the Northeast, covers only electric power plants. Trading in Europe proved to be flawed when started in 2005 but has been substantially overhauled since then.

The Golden State's carbon market and its entire effort to curb greenhouse gas emissions won't directly put a significant dent in global warming because the state contributes less than 2% of worldwide emissions, said Severin Borenstein, executive director of the UC Energy Institute.

"But California is creating a model for a cap-and-trade that can work," he said. "Potentially, it could provide an example that other countries and larger organizations of countries could adopt, while we work out some of the kinks along the way."

marc.lifsher@latimes.com

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