Cap and Trade? California Energy Companies Say: ‘Maybe’
California Energy Companies at Odds on Potential Use of Cap and Trade
California energy companies are divided on the state’s plan to use its cap-and-trade program as its principle means of compliance with the U.S. EPA’s Clean Power Plan (“CPP”).
The federal plan will require California to reduce its power-sector emissions about 13% below 2012 emissions levels. Due to A.B. 32 and the economy-wide carbon cap, California is likely to comfortably exceed those targets, reaching 1990 levels by 2020 and 40 percent below that by 2030. Because of its success, the state now hopes to use cap-and-trade as the primary program to comply with the federal plan.
However, energy companies have filed public comments urging California to consider other policies such as the state’s renewable portfolio standard and energy efficiency standards. Groups such as the Western States Petroleum Association and the Energy Producers and Users Coalition both set forth concerns noting that using the cap-and-trade program as a compliance mechanism could ultimately reduce regulators’ flexibility in the future. Additionally, it has been identified that California will need to break out of its power-sector emissions, especially if it wants to trade allowances with other states. However, officials have stated that discussions with other states have already begun, identifying the possibility of some kind of link between them.
On the other hand, another group of energy producers are in favor of using cap-and-trade as the main compliance mechanism. The Independent Energy Producers Association believes it would be administratively cheaper to use the existing program. Additionally, utilities are also encouraging California to use this federal plan as a catalyst to link its cap-and-trade with other systems. However, the utilities are also warning against reducing regulators’ flexibility and ceding too much power to the EPA. Power traders have also raised concerns focused on timing, arguing that regulators should deal with near term changes to cap-and-trade and request more time from the EPA to complete its CPP.