Thursday, January 26, 2012

Cap-and-Trade is dead, even in California

With the collapse of the CCX carbon credit trading, the only viable market based program for carbon emissions reduction has been developed at a state level in California. In conjunction with Cap and Trade, California implemented a law called California’s Low Carbon Fuel Standard (LCFS). Recently however Judge Lawrence O’Neill issued an injunction to stop LCFS from proceeding as planned.

The sticking point seems to be the discriminatory nature of the program against power generated outside the state that is viewed as hampering interstate commerce. This is why such programs are difficult to implement at the state level vs. nationally.
Judge O’Neill: "California is attempting to stop leakage of GHG emissions by treating electricity generated outside of the state differently than electricity generated inside its border. This discriminates against interstate commerce.”
Legal experts now believe that this injunction will also derail California's Cap and Trade program.
Marten Law: With respect to electricity, the cap-and-trade program imposes requirements on emissions of fossil fuel-based generation in California, requiring an allowance to be submitted for each ton of regulated GHG emissions in California. In order to avoid leakage of emissions to other states, California has imposed an allowance requirement on imported electricity representing the emissions of GHGs imputed to such electricity.
California Air Resources Board who sponsored these initiatives will appeal the LCFS injunction, but for now the whole program has been put on hold.