BCSE Comments on the Western Climate Initiative Program Questions for Designing a Greenhouse Gas Cap-and-Trade System

Transcription

1 Nvember 30, 2007 T: Regarding: Submitted Via: Western Climate Initiative Partners BCSE Cmments n the Western Climate Initiative Prgram Questins fr Designing a Greenhuse Gas Cap-and-Trade System WCI Website On behalf f the members f the Business Cuncil fr Sustainable Energy (the Cuncil), we appreciate the pprtunity t prvide cmments n the Western Climate Initiative (WCI) prgram questins fr designing a greenhuse gas cap-and-trade system as utlined in the WCI wrk plan. The Cuncil lks frward t wrking with WCI and its varius subcmmittees as yu cnsider design ptins fr the western regin. Intrductin The Business Cuncil fr Sustainable Energy is a brad-based industry calitin f energy efficiency, natural gas and renewable energy interests that advcates energy and envirnmental plicies that prmte markets fr clean, efficient and sustainable energy prducts and services. The Cuncil s calitin includes pwer develpers, equipment manufacturers, independent generatrs, green pwer marketers, retailers, and gas and electric utilities, as well as several f the primary trade assciatins in these sectrs. We have several members wh are based in the WCI regin as well as thers that are very active in the regin s markets and clean energy activities including Sempra Energy, PG&E, PPM Energy, SMUD, First Envirnment, GE Wind, Calpine, 3 Degrees, Enel Nrth America, and Slar Turbines. The Cuncil and its members have been wrking fr many years with state, federal and internatinal plicymakers n market-based measures t reduce greenhuse gas emissins. The Cuncil was the first industry calitin t supprt a binding multilateral regime t address climate change. The calitin supprts the establishment f market-based prgrams fr clean energy technlgy innvatin, ecnmic efficiency and enhanced energy security. We view the WCI cap-and-trade prgram as an imprtant vehicle t reduce greenhuse gas emissins in the western regin. BCSE Cmments n WCI Cap-and-Trade Design Questins The Business Cuncil fr Sustainable Energy supprts market-based design elements fr implementatin f a WCI greenhuse gas cap-and-trade prgram that prvide cnsistent and lng-term market signals fr clean energy deplyment and energy efficiency. Frm an industry perspective, it is essential t have regulatry certainty and cnsistency t effectively tackle the challenge presented by glbal climate change. T be mst effective, WCI s implementatin measures shuld integrate energy and envirnmental plicy t maximize energy sectr and emissin reductin investments. Further, the Cuncil believes that use f marketbased design elements fr implementatin f the WCI cap-and-trade prgram shuld place existing clean energy technlgies at the center f cmpliance strategies. This will reduce cmpliance csts, mitigate fuel price increases and achieve the cmplementary bjective f enhanced energy security. Further, design f specific elements and ecnmic relief mechanisms will have a significant impact n market signals and need t

2 BCSE Cmments n Western Climate Initiative Cap-and-Trade Prgram Design Questins Nvember 2007 p. 2 be evaluated in a hlistic rather than an islated manner. The Cuncil generally des nt supprt hard caps n the value f allwances that can dilute the market and deplyment signals. Mre specifically, the Cuncil supprts the use f market-based design elements fr the WCI greenhuse gas prgram that: 1) Expand alternative energy resurces frm clean energy technlgies including wind, slar, hydrpwer, bimass, gethermal, fuel cells, advanced battery systems, and natural gas. 2) Expand the develpment and use f energy efficiency and natural gas technlgies, including the direct use f natural gas, n-site generatin frm cmbined heat and pwer, and energy efficiency fr demand reductin. 3) Recgnize imprvements in energy efficiency. The WCI cap-and-trade prgram shuld reward energy efficiency in existing and replacement energy infrastructure t fully maximize market-driven incentives fr energy and envirnmental imprvements. 4) Incrprate cmpliance flexibility. Design measures shuld include a cap-and-trade as well as a prject-based apprach that efficiently achieve bth energy and climate bjectives. These types f appraches prvide lng-term signals t the ecnmy and als ffer cmpliance flexibility. 5) Establish near-term and lng-term targets that are cnsistent with investment cycles t signal the marketplace and drive technlgy investment and innvatin. 6) Prmte cmpatibility with vluntary renewable energy, energy efficiency, and greenhuse gas markets s nn-capped businesses and husehlds can cntinue t supprt markets that result in actins that are abve and beynd mandatry bligatins. 7) Establish linkages with state and internatinal prgrams. WCI shuld establish linkages with ther state and internatinal greenhuse gas initiatives at the utset f the prgram. These linkages shuld demnstrate cmparability, and shuld be verifiable and transparent. The prgram shuld be designed t permit trading with cmpatible cap-and-trade prgrams and prject-based initiatives elsewhere in the U.S. at the state, reginal r federal level, as well as in ther parts f the wrld. These recmmendatins are cnsistent with the Cuncil s wrk with the Califrnia Market Advisry Cmmittee (MAC) fr implementatin f CA Assembly Bill 32 (AB 32) and the Cuncil s wrk with Nrtheast and Mid- Atlantic states under the Reginal Greenhuse Gas Initiative (RGGI). The fllwing cmments address recmmendatins n specific prgram design questins cntained in the WCI wrk plan. Prgram Scpe and Timing Cver all sectrs: In designing the scpe f WCI s cap-and-trade prgram, the Cuncil recmmends that the Partners cnsider the need fr a successful market that is brad and cmprehensive enugh t be effective at finding the least cst reductins. In general, the Cuncil recmmends that the WCI cap-and-trade prgram shuld be implemented ecnmy-wide t ensure the mst cmprehensive apprach t reducing greenhuse gas emissins frm all sectrs; hwever, the timing and methd f the cverage need nt be unifrm acrss sectrs. Cnsideratin must be given t the sectr s cntributin t greenhuse gas inventry and its cntributin in helping the regin reduce such emissins.

3 BCSE Cmments n Western Climate Initiative Cap-and-Trade Prgram Design Questins Nvember 2007 p. 3 Further, sme sectrs might pse difficulties in terms f administratin and expenses assciated with gverning them. In this situatin, in lieu f cverage, WCI Partners shuld cnsider allwing fr a rbust ffset system that wuld prvide cverage where sectral cverage is either infeasible r impractical. The natural gas sectr shuld be handled in several different ways, depending n the nature f the usage. Greenhuse gas assciated with natural gas fired electric generatin will be subject t the cap-and-trade prgram and rules relating t electric generatin, as discussed elsewhere in these cmments. Greenhuse gas generated by large industrial users burning natural gas wuld als participate in the same cap-and-trade prgram. Hwever, it is nt practical t subject small natural gas users, including residential custmers, t a cap-and-trade prgram. The better way, and an apprach that has already been very successful in Califrnia, is t achieve greenhuse gas reductins thrugh prgrammatic appraches such as energy efficiency and mandated building and appliance standards. First-seller apprach: The Cuncil is explring the cncept f the first-seller apprach under cnsideratin by WCI Partners and recmmended by the MAC fr AB 32 implementatin, and is interested in receiving further analysis n this apprach. In particular, we believe stakehlders wuld benefit frm additinal discussin t further define the first-seller categry (e.g., wuld this apprach cver utilities, pwer marketers, ISOs, thers?), as well as what WCI wuld cnsider t be the bjectives f a first-seller apprach applied at the reginal level. The Cuncil recmmends that in selecting an apprach, that WCI Partners pursue a mdel that will put it in the strngest psitin t serve as a reginal/natinal mdel fr ther cap-and-trade prgrams and t link easily with an internatinal system. Cver all six greenhuse gases: The Cuncil recmmends that all six greenhuse gases carbn dixide, methane, nitrus xide, hydrflurcarbns, perflurcarbns and sulfur hexafluride shuld be cvered under the WCI greenhuse gas prgram. Hwever, the prgram shuld recgnize that all six gases are different and d nt need t be cvered in the same manner. As nted by the 2005 Energy Infrmatin Administratin reprt, CO 2 frm cmbustin accunts fr almst 81 percent f ttal U.S. greenhuse gas emissins. 1 Setting Cap Level(s), Scheduling Reductins & Distributing Allwances Cnsider market-based design elements hlistically: The Cuncil s primary recmmendatin t lwer the csts f the WCI cap-and-trade prgram (as well as ther state prgrams r a future federal prgram) is t design implementatin measures in a manner that deply clean energy technlgies. As previusly stated, the Cuncil believes that lking at individual features f the WCI cap-and-trade prgram in islatin des nt effectively demnstrate verall prgram impacts n a brader scale. Design f market-based elements such as specific caps, timetables, safety valves and ther ecnmic relief mechanisms will have a significant impact n market signals and must be develped and evaluated in a hlistic manner, as well as in terms f their relatin t, and interactins with, ther existing state, reginal and federal energy prgrams. Allcatin: The WCI cap-and-trade prgram shuld base allcatin methds n perfrmance t prvide value t energy efficiency, renewables and cleaner generatin. The Cuncil strngly supprts an utput-based methdlgy that wuld distribute allwances based n the amunt f electricity generated, nt n the amunt f fuel used r histric emissins. With this fcus n utput ver emissins, energy efficiency, carbn efficiency and cleaner generatin surces including renewable energy are directly encuraged. The Cuncil recmmends a fuel-neutral, updating, utput-based allcatin. Output-based plicies send a clear signal t the marketplace lwer-carbn emitting energy ptins receive direct, clear, cnsistent and bankable value. 1 See EIA s Emissins f Greenhuse Gases in the United States Executive Summary at:

4 BCSE Cmments n Western Climate Initiative Cap-and-Trade Prgram Design Questins Nvember 2007 p. 4 The Cuncil further recmmends set-aside allwance pls fr: 1) small and clean generatrs; 2) energy efficiency prjects; and 3) new entrants, as a means t allcate allwances directly t clean generatin and energy efficiency that wuld therwise nt be included under the primary surce allcatin. In the RGGI cntext, the Cuncil has encuraged set-aside pls fr small, clean generatin (under 25MW). Further, the Cuncil supprts the use f set-aside prgrams t allw fr cmpetitin and ensure a level playing field fr new entrants. New entrants in the marketplace shuld be eligible t receive allwances s they are nt put in a psitin f cmpetitive disadvantage. 2 Auctin: The Cuncil supprts a direct allcatin f allwances n an utput basis; hwever, shuld WCI Partners cnsider an auctin, we recmmend the use f a mixed allwance/auctin apprach with a phase-in perid fr the auctin t minimize pssible dramatic ecnmic impacts that a large-scale auctin might have n affected surces in the initial phases f the prgram. Further, shuld an auctin be pursued, the Cuncil strngly recmmends the targeted use f auctin revenue t reduce prgram csts by driving clean energy technlgy investment and deplyment. Fr example, New Yrk has decided t dedicate 100 percent f auctin revenue under its RGGI prgram t investment in energy efficiency and renewable energy, and the Cuncil strngly supprts New Yrk s actin as a mdel fr WCI and ther states that are cnsidering auctins. Further, this apprach is cnsistent with the MAC s recmmendatin that Califrnia use a prtin f the allwance value created under a cap-and-trade prgram t prmte investment in lw-greehnuse gas technlgies and fuels, including energy efficiency. 3 Prpsed auctin revenue guidelines: Shuld WCI pursue an auctin, Cuncil members believe that any auctin revenue shuld be directed tward expanding renewable energy generatin and energy efficiency. This is why criteria fr the use f auctin revenue under the WCI cap-and-trade prgram are f great imprtance. The Cuncil believes that auctin revenue shuld: 1. Reduce the carbn intensity f electric generatin 2. Reduce energy demand 3. Prvide benefit t the western regin s ecnmy 4. Prmte private investment thrugh partial funding f investments 5. Enhance cmplementary energy prgram benefits 6. Help establish new energy prgrams 7. Increase the market ptential f new technlgies Recgnitin fr Early Actin: The Cuncil strngly recmmends that the WCI cap-and-trade prgram shuld be designed t prmte early actin, recgnizing early investments in greenhuse gas reductins (cnsistent with the recmmendatins f the MAC fr AB 32 implementatin measures). Rewarding emissin reductins that ccur in advance f the enactment f the prgram has the ptential t generate ecnmic and envirnmental benefits, as well as hasten clean energy technlgy deplyment. The Cuncil encurages WCI t adpt simple and transparent early actin prgram credits t ensure rbust participatin by interested cmpanies. Further, the Cuncil urges the WCI Partners t cnsider an early actin prgram that may include ffsets frm ther regulatry ffset schemes and/r high-quality vluntary schemes. 4 2 Fr example, the federal set-aside prgram under the Clean Air Planning Act intrduced by Senatr Thmas Carper (D-Delaware) was included t avid the situatin where a generatr f new, clean and efficient energy wuld have t purchase allwances frm an existing cmpetitr. 3 Recmmendatins fr Designing a Greenhuse Gas Cap-and-Trade System fr Califrnia, Recmmendatins f the Market Advisry Cmmittee t the Califrnia Air Resurces Bard, June 30, 2007, p Early actin prgrams such as thse supprted by state public utility cmmissins and ther regulatry agencies (i.e., The Climate Trust in Oregn).

5 BCSE Cmments n Western Climate Initiative Cap-and-Trade Prgram Design Questins Nvember 2007 p. 5 Offsets: The Cuncil supprts the use f ffsets in the WCI cap-and-trade prgram t prvide cmpliance flexibility, lwer cmpliance csts and encurage technlgy innvatin and deplyment. 5 The creatin f an ffset prgram will have a secndary benefit by creating a standardized currency fr vluntary greenhuse gas credit trading. Nn-capped sectrs will have the pprtunity t participate in creating additinal reductins beynd levels set by the WCI Partners. The Cuncil ffers the fllwing recmmendatins fr cnsideratin with respect t the design f the WCI ffset prgram: Emissins ffsets must be real, additinal, permanent, independently verifiable, enfrceable, measurable, and transparent Prmte brad sectr and activity eligibility fr ffsets Permit brad use f emissins ffsets Reward early actin t reduce greenhuse gas emissins Prmte linkages with ther dmestic and internatinal ffset prgrams, and permit fungible use f eligible ffsets generated frm within such prgrams Utilize a standards-based apprach fr ffset prjects while allwing fr case-by-case review f prjects withut pre-apprved methdlgies Emply multiple tests fr demnstratin f ffset additinality Utilize standardized emissin factrs The ffset prgram will need t be carefully designed t maintain integrity and ensure that ffsets are real, additinal, permanent, independently verifiable, enfrceable, measurable and transparent. Hwever, in develping standards fr additinality, the Cuncil wishes t cautin against the use f pure financial additinality tests in determining ffset prject eligibility. Financial additinality can be part f a range f factrs, but it shuld nt be the nly way f prving additinality, nr shuld it be weighted mre than ther additinality tests. In ur experience, financial additinality tests alne deter gd prjects and weaken the credibility and market pwer f ffset prgrams. Further, financial additinality tests are subject t gaming and cannt reasnably accunt fr market behavir. Instead, we recmmend practical applicatin f a number f barriers tests, as is recmmended by the Wrld Resurce Institute s Greenhuse Gas Prtcl fr Prject Accunting. 6 The Cuncil supprts using a standards-based ffsets prgram in lieu f a case-by-case review f individual ffsets prjects, which has caused issues with efficiency and cnsistency in the case law apprach used by the Clean Develpment Mechanism. Further, the Cuncil recmmends that ffset prgram categries shuld be able t evlve ver time, cnsistent with ther cap-and-trade ffset prgrams. Lastly, the Cuncil recmmends that gegraphic r quantitative restraints shuld nt be placed n ffset prjects as part f the WCI cap-and-trade prgram. 5 Please see the attached paper fr a mre thrugh discussin f the Cuncil s psitin n ffsets: Recmmendatins fr a Federal Greenhuse Gas Offset Prgram, BCSE, September 2007, als available at: 6 See the WRI Greenhuse Gas Prtcl fr Prject Accunting at:

6 BCSE Cmments n Western Climate Initiative Cap-and-Trade Prgram Design Questins Nvember 2007 p. 6 Miscellaneus Issues Linkages: The Cuncil recmmends designing the WCI cap-and-trade prgram t link with ther cmpatible reginal, natinal and internatinal cap-and-trade prgrams t ensure lwest-cst cmpliance and increase glbal market liquidity. The Cuncil supprts strng linkages between the WCI prgram and the Eurpean Unin Emissins Trading System and the Reginal Greenhuse Gas Initiative, prvided such linkages are based n cmparable envirnmental cmmdities, and based n allwance transactins that are transparent and verifiable. Treatment f Vluntary Markets: Depending n hw the WCI cap-and-trade prgram is designed, it will have a significant impact n the vibrancy f vluntary markets fr renewable energy. The Cuncil strngly encurages WCI Partners t design a cap-and-trade system that allws cnsumers and businesses t cntinue t supprt these markets, resulting in emissins reductins that are abve and beynd mandatry bligatins. 7 Cnclusin Thank yu fr the pprtunity t prvide cmment n the Western Climate Initiative cap-and-trade design questins psed in the WCI wrk plan. If yu have any questins r cmments please feel free t cntact me at (202) r via at ljacbsn@bcse.rg. Sincerely, Lisa Jacbsn Executive Directr CC: Patrick Cummins, WCI 7 Fr a thrugh discussin f implicatins f the design f the WCI cap-and-trade prgram n vluntary markets, please see cmments prvided t WCI Partners by the Renewable Energy Marketing Assciatin.