AB-32

THE GLOBAL WARMING SOLUTIONS ACT OF CALIFORNIA

John A. McKinseyStoel Rives LLP

770 L Street, Suite 800Sacramento, CA 95814

916.319.4746jamckinsey@stoel.com

AB-32

• In 2006, California passed Assembly Bill-32 which requires the California Air Resources Board (CARB) to reduce greenhouse gas emissions to 1990 levels by 2020.

• It is often referred to as requiring a 25% reduction.

1999 California Greenhouse Gas Emissions

Carbon Dioxide 84%

Hydrofluorocarbons 2%

NitrousOxide 6%

Methane 8%Sources• Carbon Dioxide (CO2)

Fossil fuel combustion

• Methane Fossil fuelsLandfills, agriculture

• Nitrous OxideAgriculture, cars

• HydrofluorocarbonsRefrigerants, solvents

Source: Draft Greenhouse Gas Inventory Update, California Energy Commission, 2001 In COCO22 equivalents equivalents

15Source: Draft Greenhouse Gas Inventory Update, Cali forni a Energy Commission, 2001

Transportation Is California’s Largest Source of COCO22

Residential

9%

Industrial

13%

Transportation

58%

Electricity Generation

16%

Commercial

4%

California Fossil Fuel CO2

Emission Sources, 1999

CO2 Emissions By Source

Major Questions

• “How” will CARB reduce emissions? Indirectly, directly, or a combination of both?

• “How much” will CARB reduce emissions?

• “What” will CARB reduce?

How Much

1990: 440 Million Metric Tons (MMT)

2004: 500 MMT

2020 Projected: 610

The Task: Reduce the emission rate by about 170 MMT in 16 years (includes reductions to counter further increases)

CO2

The Burning Question

• How will CARB reduce CO2 emissions? – Will trading of CO2 credits be allowed?– How will CARB find the reductions when

transportation is mostly off-limits and electricity is already fairly lean?

• Adopt a list of early action measures by July 1, 2007 that can be implemented before January 1, 2010 and adopt such measures by then.

• Establish by January 1, 2008, a statewide GHG emissions cap for 2020, based on 1990 emissions.

• Adopt mandatory reporting rules by January 1, 2008 for significant sources of greenhouse gases.

• Adopt a scoping plan by January 1, 2009 that indicates how emission reductions will be achieved from significant GHG sources via regulations, market mechanisms and other actions.

• Adopt regulations by January 1, 2011 to achieve the maximum technologically feasible and cost-effective reductions in GHGs, including provisions for using both market mechanisms and alternative compliance mechanisms.

What AB-32 requires CARB to do:

AB-32: Early Action Measures

• CARB “Adopted” three measures- Low carbon fuel standard- Auto A/C improvements- Landfill methane capture

• CARB has announced six more measures:– Trucking (aerodynamic retrofitting)– Ports (plug in docked ships so they can turn off)– Tire pressure assurances– Semiconductor industry (standards)– Consumer products (standards)– Reduce use of sulfur hexafluoride

AB-32: Early Action Measures cont….

• CARB has also announced five more measures to come:– Cement plant efficiency– Cement blending requirements– Ban on truck idling at rest stops– Recover refrigerants– Possible fertilizer standards

167.8 MMT

170 MMT- 2.8 MMT

AB-32: Next Steps

• Reporting requirements (by end of 2007)

• Scoping plan (by end of 2008)

• Regulations to implement scoping plan (by end of 2010)

• Implementing regulations take effect (2011)

Reduction Measures and Limits (AB-32)- Thoughts

• CARB has broad task and vehicle emissions, though a major source, are not really an option for reductions right now.

• This endeavor is new. Expect delays, missteps, lawsuits, and lots of uncertainty.

• Lurking quietly in the background is the federal government. With one quick action, the California scheme could be gutted, eliminated, or significantly changed.

• California electricity generation is already very lean on CO2 and getting leaner. It may be very hard to squeeze many reductions out of that sector either.

Implementing AB-32: Lowering CO2 to 1990 Levels

Reduce Emissions Increase Removals

Transportation

Electricity

Buildings and

Development

Natural Systems

Artificial Systems

But How?....

Mandates

Encouragements

or

The Big Picture

• Need 170 MMT reduction

• Have 2.8 MMT from early measures

• Will get some from SB-1368

• Will get some from RPS • Total is maybe 36 MMT at this point so 135 left to go.

• Where will the other 135 or so MMTs come from?

• Answer: The biggest fruit:– Electricity Sector– Transportation (where allowed)– Buildings and development

The Electricity Sector

• SB-1368 imposes CO2 emissions standard on long term baseload electricity procurement. (translated: no more coal)

• The CPUC is taking the initiative to continue its GHG rulemaking. In Phase II it plans to adopt, as recommended to CARB, a load-based, cap and trade scheme for the electricity sector.

• CARB is not obligated to follow the recommendation.

• The battle over the electricity sector under AB-32 will come down to:– Load or source-based?

– Trading, direct, or both?

– How much?

• It is clearly significantly too early to predict the outcome.

Nuclear/ Hydro/ Wind***

CC CGT Standard SS CGT Oil Coal

1100

1400

1,900

2,100

1000?

Electricity GenerationComparative Emission Rates

Units of 1000’s pounds per MW-HR

Applies to Long term procurements (5 years)

Applies to baseload (>60% CF)

Transportation

• Two methods: reduce emissions per VMT or reduce VMT

• Reducing emissions per VMT is blocked by federal law (so far)– Mostly: tire pressure, incentives to buy high mileage

cars, etc. – But no tailpipe emission regulation for now.

• Reducing VMT– Nothing new here, carpooling, work from home,

neighborhood/ community design– But is their political will to do this????

Buildings and Development

• Building Efficiency– The zero emission building– Insulation, natural light and heating and on site or

linked renewable energy production– $$$$$$$$$$$$$$$$

• Development Efficiency– How to force local jurisdictions to play along?

• One answer so far: environmental law• Incentives?• New state law

– Building Standards

The Battlefront: CEQA

• The California Environmental Quality Act (CEQA) is, and will become more, involved– Ex: AG Brown forces SF Bay Refiner to pay $7M for

mitigation of new CO2 emissions resulting from refinery expansion.

– Ex: Environmental intervenor insists that peaker project EIR inadequately addresses potential impacts from CO2 emissions.

• Clearly, CEQA “projects” now have to include an analysis of the potential for significant impacts to the environment through greenhouse gas emissions.

Next Events

• More CEQA comments, challenges

• CARB rulemaking and AB-32 implementation.

• CPUC Phase II GHG rulemaking

• Outcome of vehicle emissions cases

• Outcome of EPA decision on whether to regulate GHGs (driven by Supreme Court Decision)

Forums to track

• CARB: www.arb.ca.gov

• CPUC: GHG Phase II Rulemaking 06-04-009 www.cpuc.ca.gov/proceedings/R0604009.htm

• CEC: 06-OIR-1

www.energy.ca.gov/ghgstandards

• Federal EPA: GHG decision

epa.gov/climatechange/index.html

Final Thought

• How do you prove that a CO2 reduction or removal is real, permanent and accurate?– Answer: Indirectly by inference from science– Answer translated: “On paper”– Compare to air pollutants which we can

measure concentration reductions over time– For CO2 it is a global concentration of which

meager California reductions under SB-32 will be completely insignificant and unnoticeable.