If you've been wondering whatever happened to Cap & Trade in California, it's not your fault. The topic has bounced around several state agencies, and it was tied up in the courts for awhile. But now is a good time to tune back in, because they're talking about how to divide up the money, and things are starting to get interesting (that is, if you like getting money).
The state Air Resources Board (ARB) passed an initial Cap & Trade rule on Dec. 16, 2010. After weathering the first wave of litigation, ARB adopted the regulation on Oc. 20, 2011. ARB decided to divide the companies under the emissions cap into three categories: electric utilities, industrial and transportation. The agency with authority over the allocation of allowances (worth billions of dollars) for the electricity sector is the California Public Utilities Commission.
Europe's experience with their Emission Trading System taught us that even if companies are given free allowances, they will still raise prices to consumers. But in California, utilities successfully argued that CPUC regulations won't let them raise rates to cover their costs. So rather than risk bankrupting utilities, ARB said they can have the free allowances, but they must:
ensure that the proposed allowance value [be] directed to the electric distribution utilities is used for the benefit of residential, commercial, and industrial ratepayers that might otherwise face indirect costs from the implementation of this regulation, with particular consideration of the potential for impacts from this program on low-income customers, and for the purposes of AB 32, which could include investment in energy efficiency programs beyond those already required by California law and in renewable energy projects that achieve environmental and public health co-benefits for Californians.
Here's how it will work:
1) ARB allocates allowances to the utility (Investor Owned Utility - IOU)
2) IOU auctions allowances to generators
3) Generator raises its rates to cover cost of allowances
4) IOU buys electricity from generator at the higher cost
5) But since the generator presumably absorbs some of the cost, some revenue that the IOU takes in remains and must be used to alleviate ratepayer cost burden
Billions of dollars on the table
According to the CPUC Order instituting the rulemaking, at the minimum price of $10 per metric ton, the electric utilities could receive approximately $650 million for the quarterly auctions that ARB has planned to be held during 2012. Others estimate revenues for the seven-year program at around $5.8 billion just for the electricity sector.
With billions at stake, here are some of the positions various groups are taking:
Although they differ on the exact amount of the rebate, both the environmental coalition and the ratepayer advocates are strongly united behind maintaining the integrity of the carbon price, and using the rebate as an educational tool to inform the public about what they can do to lower their utility bill. The various groups will be submitting comments through mid-February, and the CPUC will issue a decision in June 2012.
Meanwhile, the revenues from the industrial sector were mentioned in Gov. Brown's draft budget for 2012-2013. About $1 billion is proposed for budget deficit reduction, and about $500 million would go towards environmental and energy programs. Despite the recommendation from the Economic and Allocations Advisory Committee, the governor did not allocate any money from the industrial sector to a Cap & Dividend approach that returns revenues back to the public, as the co-owners of the Sky Commons dividends. For that to happen, supporters in state legislature would need to speak up during the contentious budget process between now and June.
In other words, if you want a piece of the Cap & Trade money, it's time to speak up.