State News - Update on California's AB 32

California: Air Resources Board Advances Two Key Regulatory Cornerstones of AB 32 on Schedule including 33% RES

By John McCaull ~ GEA Western States Representative

September 23, 2010. With a November 2010 ballot initiative (Proposition 23) looming to repeal California’s landmark climate change law, the California Air Resources Board defied the critics of AB 32 today, and approved two major planks in the law’s regulatory strategy on unanimous Board votes.

After the passage of AB 32 (The Global Warming Solutions Act) in 2006, the California Legislature passed SB 375 (Steinberg) in 2008. This law capitalized on the political success of AB 32 by taking on what has traditionally been the third rail of California politics: land use. For decades, the state has refused to weigh in and attempt to direct where and how urban growth should occur. Most major land use and transportation decisions have been essentially local or regional in nature, with the state having very little role in combating sprawl, traffic congestion, air pollution and a skewed “jobs-housing” balance in many communities that forced Californians to live hours from their workplace. The state’s decision to take on climate change also forced a new realization. California had to create a new set of incentives for sustainable land use decisions if it was to have any hope of reducing the largest source of greenhouse gas (GHG) emissions, namely vehicle emissions.

SB 375, also known as the Sustainable Communities and Climate Protection Act of 2008, requires regional transportation plans to include a Sustainable Communities Strategy (SCS) that links transportation and land use planning together into a more comprehensive, integrated process. On Thursday, the Air Board adopted regional greenhouse gas emission reduction targets for passenger vehicles for 2020 and 2035 for each region covered by one of the State's 18 metropolitan planning organizations (MPOs).

Each of California’s MPOs will prepare a "sustainable communities strategy" that demonstrates how the region will meet its greenhouse gas reduction targets through integrated land use, housing and transportation planning. Once adopted by the MPO, the sustainable communities strategy will be incorporated into that region's federally enforceable regional transportation plan. On Thursday, the Air Board approved regional GHG reduction targets ranging from 2-15%, with each region of the state and MPO pledging to work with the Board to achieve the necessary reductions by 2035.

As the Board staff report stated:

“The benefits of integrated planning and sustainable development go far beyond simply reducing the greenhouse gas emissions that contribute to climate change and its damaging effects. Communities that are well designed provide housing for all income groups, and are supported by a range of transportation options that will have many other advantages. Among these are: increased mobility and transportation choices; reduced congestion; greater housing choices; improved public health as a result of better air and water quality; natural resource conservation; economic benefits such as opportunities for neighborhood economic development and lower costs for community infrastructure; reduced dependence on foreign oil; and greater equity through the provision of improved access to jobs, housing, and everyday needs.”

After 5 hours of debate on the SB 375 regional targets, the Air Board then moved on to consideration of the adoption of a 33% by 2020 “Renewable Electricity Standard” (RES) for California. With the Legislature’s failure to pass SB 722 (Simitian) during the 2010 session, the Air Board was left with the task of ensuring that California’s mandate to meet renewable energy procurement targets for all of California’s major utilities stayed on track.

In December 2008, the Board adopted California’s Climate Change Scoping Plan. In the staff report accompanying the “Proposed Regulation for a California Renewable Electricity Standard” CARB staff indicates that:

“In developing the [scoping] plan, ARB staff worked closely with California Public Utilities Commission, the California Energy Commission and the California Independent System Operator (CAISO) to identify various energy-related measures that could substantially reduce GHG emissions. One of the key measures included in the Plan was the need to increase the amount of renewable energy used to meet California electricity demand to 33 percent by 2020. Renewable energy reduces GHG emissions by displacing the amount of electricity derived from fossil fuels.”

After a year of hearings, public workshops and voluminous public comment, the Air Board selected a controversial path towards meeting the 33% by 2020 RES. The Board’s regulations are deceivingly simple: California utilities can meet their RES obligations (which gradually rise between 2010 and 2020) by selling or buying “renewable energy” credits (RECs) that are tracked through the Western Renewable Energy Generation Information System (WREGIS) administered by the Western Electricity Coordinating Council (WECC).

As the Air Board staff report states:

“RECs are used to verify and track the creation and use of renewable electricity. RECs are widely used in the U.S for both voluntary green claims and compliance with state RPS programs. RECs used for compliance with the regulation must be registered in and tracked by WREGIS. WREGIS issues a uniquely-numbered certificate for each MWh of electricity generated by a facility in the system, tracks the ownership of certificates as they are traded, and retires the certificates once they are used to avoid double counting. RECs used for compliance with the RES must be retired in WREGIS and may not be used for compliance with any other federal, state, or local program.”

To complicate matters, the California Public Utilities Commission (CPUC) issued its own decision on “Tradable Renewable Energy Credits” in August 2010. On August 25, the CPUC issued a proposed decision that would end the state’s moratorium on approval of tradable renewable energy credit (TREC) transactions and increase the cap on such transactions for large investor-owned utilities to 40%. The Air Board regulation adopted today allows for up to 100% compliance with the RES for California utilities. As part of the adoption of the RES, the Air Board committed to immediately opening a new rulemaking proceeding to reconcile their REC policies with those previously adopted by the CPUC.

Significant concerns were raised at today’s RES hearing by labor, environmental and renewable energy groups. At issue is how to ensure that a compliance process reliant on the REC tool does not result in a loss of momentum for building renewable energy projects in California, or a “paper chase” process that does not result in an actual shift away from more carbon-intensive sources of electricity production. The various attempts in the Legislature and in the RES process to create “deliverability” requirement that the sale of RECs must be “bundled” with the actual delivery of renewable energy into the California electricity grid seems to have lost favor with the Air Board and its sister agencies such as the CPUC and CAISO. It is also worth noting that the principal proponents and backers of the 100% REC based compliance system are California’s major public and private utilities. All the major utilities supported the RES regulations, and praised the Air Board for their creative and collaborative approach. Several also expressed concern against “back sliding” once the Air Board starts to work with the CPUC on reconciling their two systems.

In the coming weeks, the Air Board will open a new proceeding meant to reconcile today’s RES decision with the CPUC findings on tradable renewable energy credits. GEA will continue to monitor and report on the RES regulatory proceeding.