By Katy Grimes

SACRAMENTO — The monthly meeting of the California Air Resources Board on Thursday was nothing more than a mutual admiration society and big tax-and-spend club. After board members shared esteem for one another and CARB staff, several members of the audience jumped in to grovel before the board, instead of showing fear of the omniscient state agency.

The self-congratulatory tone at the final board meeting before the November California Cap-and-Trade Program Greenhouse Gas Allowance Auction should have been enough to make even the most hardened bureaucrat wince, but instead, the agenda did that.

Help us!

Earlier in the week, the AB 32 Implementation Group delivered a letter to Gov. Jerry Brown advocating policies to achieve greenhouse gas emission reductions to meet AB 32 goals in a manner that will protect jobs and the economy.  They said they were disappointed that CARB has not made very necessary repairs to the Cap and Trade program before the November cap-and-trade auction of allowances, and asked Brown to step in to exercise his authority under AB 32.

Part of the self-congratulatory tone from CARB board members is because they have made it right up to the November Cap and Trade auction without having to address the concerns of the public, employers, taxpayers, manufacturers and other industries, who have begged them to stop the auction, or face more business closures, downsizings, and “leakage” to other states.

The Legislative Analyst’s Office said the greenhouse gas auction of allowances is not necessary to achieve the mandates of AB 32, which is to reduce greenhouse gasses to 1990 levels by 2020. California is already showing greenhouse gas emissions reductions to 1992 levels. So many in business facing the very real prospective of having to buy expensive carbon credits just to keep doing business in the state are asking why the auction has to take place.

Windshield washer fluid, smog check program, and “Clean truck month” were on the agenda Thursday. These issues sound innocuous enough, but not in the hands of the Air Resources Board.

Windshield Washer Fluid regs

In 1990, CARB authorized changes to windshield washer fluid to lower Volatile Organic Compound emissions from the fluid. Initially, they recognized that the changes to the washer fluid would render it useless in freezing temperatures, and allowed the old formula to continue being sold in parts of the state with the colder temperatures.

But over the years since 1990, the Air Resources Board altered the exempted areas, and again lowered the washer-fluid VOC emission requirements four or five times. Ultimately, the washer fluid in the freezing temperature areas was worthless and a safety hazard.

At Thursday’s CARB meeting, after months and months of studies and staff time, CARB had to relax the washer fluid standards so that people living and working in mountainous regions of the state in freezing temperatures could use a washer fluid that actually works and won’t cause crashes.

Smog check program

CARB, together with the Bureau of Automotive Repair, is proposing to change the Smog Check program from the tailpipe emission test, to testing with a car’s onboard computer for emission levels.

Anyone who drives an older car knows the uncomfortable feeling of holding your breath during the tailpipe smog check test, hoping and praying that the car passes.

CARB wants to change the test on cars manufactured in 2000 and newer, to plug in to the car’s computers and read the engine data. They say it will take about three minutes, instead of the 20 minute tailpipe test, and mechanics and technicians can’t cheat to get a passing score for the auto owner.

Cars 1999 and older will still receive the same tailpipe test.

CARB and the Bureau of Automotive Repair also plan to increase the fine for cheating from $2,500 to $5,000 on station owners and technicians. They propose to do this with expensive new computer equipment that stations and mechanics will have to use. And there is an application process with CARB and the automotive repair bureau for the stations which want to be a part of the new program.

The more disturbing part of the presentation was that the CARB staff was very excited about all of the data that can be collected from a car’s onboard computer. It’s not just about the smog.

CARB Board member Daniel Sperling suggested that drivers should be taxed on the smog they produce. “Has there been any thought given to basic economic principles to just charge drivers for their emissions?” Sperling asked. “Economists have talked about this for decades.”

This launched CARB staff members into a discussion with board members about the “incentives” they’ve tried to impose for years to encourage people to get rid of older cars.

“I think that if we’ve had a hard time convincing the public of a carbon tax, not sure a tax is a good idea,” said CARB Board member James Balmes.

But he was interrupted by CARB Director Mary Nichols before he could finish his thought. “Hey, congratulations on getting ‘carbon tax’ back in the discussion,” she said.

Balmes pointed out that most of the poor drive older cars and a tax on emissions would unfairly hurt them.

The discussion led to how new technology would allow CARB to “track emissions” from cars through the onboard computer.  Nichols said that finding a way to monitor C02 would be a good project for a grad student.

CARB’s Clean truck month

Nichols then talked about how successful the new diesel regulations have been in forcing truck owners to replace their diesel engines with new ones at a cost of $50,000 to $60,000 each. Truck owner-operators who could not afford to do this have gone out of business.

However, the diesel regulations imposed by CARB were doctored, as I have written about extensively. Even with this information, CARB forged ahead with the program and killed a great many small businesses.

CARB’s enforcement arm

CARB has now “partnered” with law enforcement to ensure compliance. The California Highway Patrol has been ordered to pull truck drivers over to run tests on their engines to see if they are complying with CARB’s diesel regulations.

CARB calls this their “full commitment to compliance.” There was a great deal of talk at the meeting about enforcement and penalties.

Last month, enforcement activities were conducted at CHP inspection stations, border crossings, truck stops, roadside locations, rest stops and port facilities.

Additionally, there was a well-coordinated media campaign orchestrated by CARB. Board members and staff bragged about the 37 news stories done by television news. They even showed clips of a few news stories. These were not public service announcements.

So now we have the California Air Resources Board writing the news, and compliant media reporting it as if it is spontaneous.

The CARB board meeting ended after discussing a resolution to the Cap and Trade program to cap prices at the level of the price containment reserve.

Dorothy Rothrock, with the California Manufacturers and Technology Association, was the only audience member to speak out vehemently against CARB’s Cap and Trade program. “We are disappointed that CARB is moving forward without fixing the serious flaw of auctioning allowances to raise revenue in the cap and trade program,” she said. “CARB’s plan to kill manufacturing jobs is not necessary to achieve AB 32 goals. There is still time before the auction for the board to make a firm commitment to provide free allowances for all the compliance periods between now and 2020.”

The CMTA also explained on its website:

“The Emissions Market Assessment Committee met in September and identified a few more issues that CARB should resolve before the first auction.  The EMAC economists said that CARB should define what constitutes ‘resource shuffling’ — at this time electric power utilities and traders throughout the west do not know what is illegal ‘resource shuffling’ and what is normal power trading behavior.  Yet CARB’s regulation makes resource shuffling illegal and subject to penalties, also uncertain, starting in January 2013. This isn’t just an academic concern. EMAC said “uncertain liabilities associated with imports to California could discourage, and therefore raise the cost of, power imports into the state.” 

Many say that the price containment reserve will probably not protect companies from high prices, especially in the final years of the program. CMTA is concerned that California could have a market failure similar to the energy crisis of the 1970s, when prices skyrocketed and politicians stepped in to stop the market.

EMAC suggests the price containment reserve should “be strengthened and clarified before market operations commence.”

By Katy Grimes

SACRAMENTO — A recent poll about the implementation of AB 32 shows that California voters and taxpayers aren’t real crazy about cap and trade or regulatory reporting regulations. Cap and trade programs mandate reduced emissions, while providing a trading mechanism for emissions “credits.”

Despite the entire program being speculative, and the dismal poll results, the California Air Resources Board is moving ahead with a cap and trade program and its first carbon auction in November.

Additionally, a strange informational hearing about cap and trade took place Wednesday in the Senate Select Committee on California and Mexico Cooperation. More of a dog-and-pony show to gin-up interest in cap and trade, the hearing was supposed to be about California and Mexico becoming carbon trading partners.

But Mexico does not have a cap and trade program, does not have a climate change law in place like AB 32, and pulled out of the Western Climate Initiative.

AB 32 Poll

The poll, authored by the AB 32 Implementation Group, submitted the polling information to the CARB, but it appears that CARB has turned a deaf ear on Californians.

The poll found:

* Support for AB 32 has declined since 2008, with a slim majority of voters still in favor. 

*California voters are unwilling to pay more for energy and other essentials in order to fund GHG reduction policies.
* Nearly two-thirds of voters oppose CARB’s proposed cap and trade auction and less than a majority of informed voters support cap and trade in general as currently planned.
* Two‐thirds of voters think California is seriously on the wrong track.
* Only about a third of voters have a favorable view of the Legislature.

And once California starts down the path of carbon trading, there is no going back.

Cap and Trade and Mexico

Currently, the cap and trade program can’t support itself. Despite this, Gov. Jerry Brown, state legislators and CARB are trying to push this aggressive and untested program alone, despite a shaky economy.

Yet the hearing was held as if California and Mexico are forging ahead as part of the Western Climate Initiative.

WCI Inc.

As I reported last month, the California Air Resources Board has created a stealthy new corporation in Delaware. The Western Climate Initiative Inc., which will manage cap-and-trade programs, even has its own form of currency.

WCI Inc. states that it exists “to perform administrative and technical services to support the carbon trading market, including market monitoring of allowance auctions, and market trading of compliance instruments.”

Initially, California was to unite with other Western states to reduce carbon emissions and put an end to global warming. “However, the partners determined that they would prefer not to tackle the issue during a recession,” Assemblywoman Diane Harkey, R-Dana Point, recently explained to me. “The cost of making their states less competitive in a tough business environment outweighed the benefit.”

Harkey has been trying to get her legislative colleagues to understand that setting a goal to reduce greenhouse gas emissions to 1990 levels, with California’s increasing population, is guaranteed to cost employers and everyday people more for the electricity and products they need. That’s also one reason why so many businesses are already leaving the state.

Last November, New Mexico, Arizona, Washington, Oregon, Montana and Utah all pulled out of the Western Climate Initiative. Despite the exodus, California formally launched its own cap and trade system on January 1, 2012, with a very ambitious target of carbon emissions reductions of 80 percent by 2050.

California’s only remaining partner in the Western Climate Initiative is the Canadian province of Quebec. The province is expected to launch its own scheme in 2013, which is said to link with California.

And this is where things start to get sticky. Once California links with another carbon trader, we can no longer make changes to the plan. It has to be right the first time.

If our trading partners offer more carbon allowances to their businesses and industries than California does, it will hurt our competitive advantage, similar to the way higher in-state taxes already hurt California businesses competing against businesses in other states.

And it is important to note that the California-Quebec relationship is not trading apples-to-apples. Quebec gets 97 percent of its energy from hydroelectric sources. California is trying to reduce traditional electricity production, including hydroelectric power, and instead replace it with as much “renewable” energy as possible from wind and solar, algae and ethanol. Energy experts have been saying in recent months that California’s energy demand is too much for the alternative energy and lower usage standards.

Additionally, Quebec has only 80 regulated industries. California regulates more than 300 industries.

Hearing from the players

The requisite climate change supporters spoke at the hearing. One was Gary Gero, with Climate Action Reserve, formerly known as the Climate Action Registry. He said Climate Action Reserve is the largest offsets registry in North America, with nearly 500 offset projects in four U.S. states and Mexico, and has certified more than 24 million metric tons of greenhouse gas emission reductions.

Gero called for forest protocols, livestock protocols and ozone protocols, and is looking to be “the largest liquid North American carbon market.”

Jim Gonzales with the Renewable Energy Accountability Project, a national environmental organization, said he thinks a California-Mexico offset program is in the cards. However, many question the validity of this since Mexican industry is currently much less regulated than California businesses and industry, and Mexico does not have the strict pollution standards California is famous for.

California Air Resources Board

No hearing about climate change would be complete without testimony from CARB. Much of this hearing centered around CARB’s mandates and future implementation policies.

Richard Corey with CARB gave his usual song-and-dance about CARB’s great work. Corey gave an overview on the implementation of AB 32, California’s Global Warming Solutions Act of 2006, as well as the 2008 scoping plan, and the Renewable Portfolio Standard of 2011.

“Cap and trade acts as an economy-wide backstop,” Corey said. “We will work with other greenhouse gas emission markets and can trade allowances with each other.”

But the most important point Corey made is that CARB sets all of the carbon allowances.

With the upcoming first carbon auction in November, committee members wanted to know how this was going to impact industries within their districts, suddenly faced with being forced to implement new programs or fined for carbon emissions.

Corey said that CARB is allowing free emissions for the first period, but in the second trading period, emissions will be charged.

“A lot of industries in my district have already spent millions of dollars to clean up their act to lower emissions, and pushed it as far as the science will go,” Sen. Anthony Cannella, R-Ceres, told Corey.

Cannella was concerned that businesses have already made substantial reductions on their own, and will be punished by CARB with even stricter emission reductions. And if that is the case, the fear is that businesses will continue to flee the state.

Sen. Bob Dutton, R-Rancho Cucamonga, expressed concerned with the Mexico and California relationship, and why Mexico is no longer an “observer” of WCI Inc.

Corey couldn’t answer why Mexico left the WCI, but talked about the law just passed by the Mexican Legislature, similar to AB 32. Mexican President Felipe Calderon has not signed the bill yet.

Dutton grilled Corey about the purpose of WCI Inc., and why CARB incorporated WCI in Delaware.

Corey insisted that WCI Inc. is just an administrative function for the cap and trade program, but did not specifically address why it is incorporated in Delaware and not in California. However, he did admit that WCI Inc. will be facilitating the carbon auctions, proceeds of which will go to California.

Dutton wanted to know under what authority WCI Inc. was created. Corey said that embedded in AB 32 was authorization for CARB to create WCI Inc, and offered to provide Dutton more information after the hearing.

Cap and Trade

California’s new cap and trade program places a limit on greenhouse gas emissions from the businesses and entities responsible for approximately 80 percent of the state’s greenhouse gas emissions.  CARB will issue carbon allowances to these businesses and entities, which will be able to turn around and sell them to other businesses on the open market.

The “cap” is the state-imposed limit on businesses that emit greenhouse gasses, and the “trade” is the sale of carbon credits to other businesses. Only the businesses chosen by CARB get to sell carbon credits to polluters, and profit from doing so.

Businesses will be limited on how many credits they can purchase. If a business produces more carbon emissions than the state allotted, CARB will issue stiff fines and penalties. Or the business can just reduce their production output and lose money instead.

Mexico Cap and Trade

Dr. Luis Farias, the president of Mexico’s Sustainability Commission, testified that in Mexico, it will be the private sector which makes the investment needed into alternative energy. Farias said that there are 431 projects currently under way in Mexico.

But in what sounded like a warning to California, Farias said that we need to find a way to increase rather than retard business growth. “All offsets are not created equal,” Farias said. “Standards and protocols are one thing, implementation is another.”

Alfonso Lanseros, president of CO2 Solutions in Mexico, gave a lengthy, highly technical presentation about the opportunities for California’s technology and labor in Mexico’s renewable energy development.

Wrapping up the hearing was Dorothy Rothrock with the California Manufacturers and Technology Association. Rothrock acknowledged that California has already passed AB 32 and now we must deal with it. But she said that there is a “great tension” in the implementation process, which does not have to be there.

Rothrock warned that, as California heads for the carbon auctions, it is important to keep in mind the necessity for our businesses and industries to remain competitive. If they cannot, less capital will be available, and it is likely that other states will not join us as trading partners.

However, if California does this right, we could be the leader. “We’ve a great history of imposing requirements on ourselves. We can help others get up to our standards, rather than continue to hammer on ourselves,” Rothrock said.

And Rothrock warned that linking with Quebec is a problem. “They are distant, and not a trade partner of California,” she said. “We can’t make changes after linking with anyone.”

As the hearing ended, Sen. Lou Correa, D-Santa Ana, said he had more questions, not fewer, after hearing all of the testimony. He said much more research was needed before California moves forward with a cap and trade program.

Assemblywoman Harkey opined that, if California starts to bleed more businesses, then create more carbon certificates, we will create inflation and the carbon certificates will be devalued. “I would hope that the Senate and Assembly hold banking and finance hearings to tell us how this would work,” Harkey said. “Who will be in charge behind WCI Inc.? We need to move slowly so we don’t get hosed in the meantime.”

At an informational hearing about how to spend the proceeds of the sale of carbon permits, Mary Nichols, chairwoman of the California Air Resources Board announced  that the first carbon permit auction will be moved to November 14th.

The California Air Resources Board has been planning to sell the emission rights (carbon credits), claiming the sales will raise $4 billion in 2012-13, and help shore-up the state’s deficit. But this $4 billion is not new revenue coming into the state; the $4 billion will come from taxpayers, homeowners, business owners, and utility users, in addition to the high taxes and utility costs we already pay.

Hedging their bets, it’s clearly a political, “just-in-case,”  strategical move:

— Just-in-case anyone in the media decides to report on what cap and trade will actually cost California businesses;

— Just-in-case utility rate payers start screaming about increasing utility bills;

— Just-in-case the carbon trading scams become public;

— Just-in-case California energy companies aren’t able to force energy suppliers to get 33 percent of their electricity from renewable resources, particularly after taking California’s hydroelectric producing Klamath Dam offline;

— Just-in-case more California solar companies file bankruptcy, even after receiving hundreds of millions of dollars in subsidies from the government;

— Just-in-case voters notice they are being lied to about the long-term effects of climate change.

The people paying the bills in California are not climate change deniers, we are climate change realists.

MAR. 28, 2012