After an 18-month public process, the California Air Resources Board (CARB) unanimously approved a Climate Change Scoping Plan (the “Plan”) on December 11, 2008. The Plan, the first of its kind in the country, will undoubtedly be seen by other states and federal programs under the Obama administration as guidance to reduce greenhouse gas emissions. The Plan cuts across multiple sectors of the economy and will have major impacts on goods movement and the sale of products in California.  

The Plan is a central requirement of Assembly Bill 32, the Global Warming Solutions Act of 2006, which requires that California reduce its greenhouse gas emissions to 1990 levels by 2020. The Plan will function as California’s roadmap to achieving the comprehensive greenhouse gas reductions required by AB 32.  

  • The Plan itself is the tip of the iceberg with respect to California’s greenhouse gas regulation. Now begins the work of adopting the regulations to implement the Plan:  

–– The AB 32 regulatory timeline requires that early action measures to reduce greenhouse gas emissions become operative on January 1, 2010.  

–– Next, it requires that CARB adopt greenhouse gas reduction regulations by January 1, 2011.  

–– Adopted greenhouse gas reduction regulations must become operative by January 1, 2012.  

  • The Plan proposes a mix of strategies intended to facilitate California’s meeting its greenhouse

gas reduction goals. The Plan’s strategies include market mechanisms, regulations, fees and voluntary measures. Key elements of the Plan are  

–– a cap-and-trade program (linked to the Western Climate Initiative);  

–– transportation measures;  

–– energy efficiency programs;  

–– regulations; and  

–– targeted fees to fund implementation.

Plan Components

Cap and Trade Program  

California is working closely with other states and provinces in the Western Climate Initiative to design a regional cap-and-trade program that will deliver greenhouse gas emission reductions throughout the region. The Plan establishes that the program will “cap” greenhouse gas emissions from the sectors responsible for 85 percent of California’s greenhouse gas emissions. Starting in the first compliance period (2012), electricity generation and large industrial facilities that emit over 25,000 metric tons CO2e per year will be capped. In the second compliance period (2015), there will be additional regulation of smaller industrial facilities.  

CARB plans to develop regulations intended to implement the cap-and-trade program by January 1, 2011, with the program becoming operative in 2012. While CARB continues to work on the specifics of the program, currently proposed elements include  

  • caps that would decline to 2020;
  • state distribution of allowances;
  • limited use of offsets;
  • enforcement and monitoring; and
  • safeguards for regional and local co-pollutants.  

Transportation Measures

A large portion of the greenhouse gas reductions will come from the transportation sector, which accounts for 38 percent of California’s total greenhouse gas emissions. Transportation measures provided for in the Plan include  

  • light-duty vehicle greenhouse gas emissions standards;
  • adoption of a low carbon fuel standard;
  • establishment of regional greenhouse gas emission reduction targets for passenger vehicles;
  • implementation of light-duty vehicle efficiency measures;
  • adoption of medium and heavy-duty vehicle efficiency measures;
  • improvement of efficiency in goods movement activities; and
  • implementation of a high speed rail system.

California has already taken the first step toward light-duty vehicle greenhouse gas emissions standards with the adoption of the Pavley greenhouse gas vehicle standards, the Zero-Emission Vehicle program and AB 118, the Alternative and Renewable Fuel and Vehicle Technology Program. While U.S. EPA has yet to grant California an administrative waiver to implement the Pavley regulations, the Plan contemplates the use of “feebates” as a backstop if the Pavley regulation cannot be implemented, or as a supplement to Pavley, if the waiver is approved and the regulations take effect. The feebate regulation would combine a rebate program for low-emitting vehicles with a fee program for high-emitting vehicles, in a manner that would generate equivalent or greater cumulative reductions compared to what would have been achieved under the Pavley regulations. The Low Carbon Fuel Standard that is currently under development would reduce the carbon intensity of California’s transportation fuels by at least 10 percent by 2020. Other proposed regulations will require retrofits to improve the fuel efficiency of heavy-duty trucks and the hybridization of medium- and heavy-duty vehicles.  

Energy Efficiency Programs

The Plan anticipates maximizing energy efficiency with new building and appliance standards and pursuing additional efficiency efforts, including new technologies, and new policy and implementation mechanisms. Proposed efficiency measures would set new targets for statewide annual energy demand reductions and replace the need to build about 10 new large power plants.  

Energy strategies will target industrial, commercial and residential sources. Key energy efficiency strategies include  

  • “Zero Net Energy” buildings;
  • more stringent building codes and appliance efficiency standards;
  • voluntary efficiency and green building targets that go beyond mandatory codes; and
  • voluntary and mandatory whole-building retrofits for existing buildings.

In addition, the state is looking at a number of other measures intended to reduce energy demand and increase energy efficiency, including:

  • innovative financing to overcome first-cost and split incentives for energy efficiency, on-site renewables and high efficiency distributed generation;
  • more aggressive utility programs to achieve long-term savings;
  • water system and water use efficiency and conservation measures;
  • industrial and agricultural efficiency initiatives; and
  • real time energy information technologies that will help consumers conserve and optimize energy performance.

In keeping with these strategies, the Plan specifically targets emission reductions through support of the Million Solar Roofs program, solar water heating, water efficiency and expanding the use of green building practices to reduce the carbon footprint of California’s new and existing inventory of buildings.  

Fees  

The continued use of high global warming potential (GWP) gases poses a difficult challenge. A few pounds of the high-GWP gases that are found in refrigerant and blowing agents can have the equivalent effect of several tons of carbon dioxide. In order to address the use of high-GWP gases, the Plan recommends direct regulations to reduce or phase out high-GWP gases and the use of mitigation fees as a disincentive to their continued use. The Plan specifically proposes to establish an upstream mitigation fee on the use of high-GWP gases. The upstream fee is intended to ensure that the impact of high-GWP gases is reflected in the total cost of any high-GWP gas product, encouraging reduced use and end-of-life losses and the accelerated development of alternatives.  

Early Action Measures and Voluntary Reductions

Because the majority of the regulations intended to implement the Plan will not become operative until 2012, the Plan proposes a number of measures that can be adopted quickly and a system for encouraging and rewarding voluntary early reductions. A list of early action measures intended to reduce greenhouse emissions was published by CARB in 2007. The list will become operative in 2010, and includes 44 measures that are projected to result in reductions of 43 MMTCO2e/year.  

Early action measures include some of the strategies listed above and include but are not limited to the following:  

  • the reduction of high-GWP gases used in consumer products;
  • reduction of PFCs from the semiconductor industry;
  • SmartWay truck efficiency;
  • a low carbon fuel standard;
  • improved capture of landfill gases;
  • specifications for commercial refrigeration;
  • reduction of venting/leaks from oil and gas systems;
  • truck stop electrification and incentives for truckers;
  • a green ports measure;
  • a tire inflation program;
  • anti-idling enforcement; and
  • a requirement that new motor vehicle air conditioning systems utilize low-GWP gases.  

To the extent feasible, the Plan and implementing regulations will encourage and reward voluntary early action by providing credits for reductions that are real, permanent, additional, quantifiable, verifiable and enforceable. CARB will adopt methodologies for quantifying voluntary early reductions. However, the system for quantifying and providing credit has yet to be finalized and there is no guarantee that voluntary early reductions will be credited.  

Other Proposed Components

In addition to the above, the Plan proposes the following recycling and waste measures:  

  • increased diversion;
  • recycling and composting;
  • forest sequestration;
  • the use of forest biomass for sustainable energy generation; and
  • investment in manure digester systems that will capture methane and provide emission reductions in the agricultural sector.  

What the Plan Means

  • The Plan is the most comprehensive roadmap to reducing greenhouse gas emissions ever adopted in the United States. It contains the framework for future implementing regulations, and is one of many steps in California’s journey to establishing the world’s first comprehensive greenhouse gas reduction scheme.
  • CARB believes that the Plan has the potential to place California at a unique economic advantage by making the state attractive to innovative green corporations venture capital investment, and precipitating green job creation. However, many people in the business community believe that it will impose significant additional costs on California businesses, which already have higher operating costs compared to similar operations elsewhere due to the current regulatory climate.
  • Under either view, it is clear that the Plan will significantly impact the way business is conducted in California.