The Bay Area Air Quality Management District (BAAQMD) proposed one of the nation’s first carbon taxes to be assessed on stationary sources of greenhouse gas emissions. Over 2,500 district-permitted facilities would be subject to the tax, which would be computed by multiplying the total carbon dioxide equivalent (CDE) emissions from the permitted facility by the unit fee of $0.042 per metric ton of CDE. The proposed tax would raise about $1.1 million annually to help cover the cost of the District’s Climate Protection Program activities. BAAQMD estimates that most facilities with relatively low greenhouse gas emissions would have annual fees under $1. The largest emitters, however, would have annual fees in excess of $50,000 (i.e., the five Bay Area petroleum refineries and the two largest Bay Area power plants).

Several industry groups oppose the proposed carbon tax. These groups have raised concerns about the financial burden of the tax and the potential interference with a state-wide initiative to address greenhouse gas emissions. BAAQMD staff disputes these claims, explaining that the fees should have a minor financial impact on businesses. Moreover, the fees - not a “carbon tax” according to District staff - represent a modest step to recover the District’s costs and would not lead to inconsistencies or confusion with a state-wide program. A public hearing is scheduled for May 21, 2008 to consider adoption of the proposed fees.

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Further demonstrating its leadership on climate change response, California’s Secretary for Environmental Protection signed an agreement with the United Nations Development Programme (UNDP) to support China’s efforts to address climate change. Pursuant to the agreement, California will share valuable information, such as academic research, effective policy initiatives, lessons learned and technological innovations, with the Chinese provincial governments to support their efforts to develop strategies and actions to mitigate global climate change. California is currently developing its own program to cut greenhouse gas emissions by 30% by the year 2020.

Governor Schwarzenegger issued the following statement about the agreement: “California alone cannot solve climate change - this is a global problem that requires a global solution. America has to lead, and we are doing so even with or without Washington. California is not waiting for the federal government to take action but instead we are forming agreements and building relationships with countries like China to fight climate change.”

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The California Air Resources Board (CARB) recently estimated that approximately 25% of the state’s greenhouse gas emissions come from electricity generation. In response, the California legislature established a wide variety of programs to reduce electricity consumption, to implement emission performance standards (SB 1368), and to increase the use of renewable electricity sources, such as solar and wind power (SB 1078 and SB 107). The California legislature also directed CARB to adopt rules and regulations to reduce all sources of greenhouse gas emissions in the state to 1990 levels by the year 2020 (an estimated 30% reduction in greenhouse gas emissions from business-as-usual estimates). Despite these significant steps to address global climate change, one group thinks California can do more.

Earlier this month, proponents of a renewable energy initiative submitted 735,000 signatures to qualify for the November ballot. The initiative, entitled the Solar and Clean Energy Act of 2008, would require that all utilities in California achieve 40% renewable electricity by 2020, and 50% by 2025. By comparison, current law requires that retail sellers, including investor owned utilities (IOUs), increase their share of renewable electricity by 1% per year so that, by the close of 2010, 20% of retail sales are generated from renewable energy sources (pending legislation would increase this standard to 33% by 2020). Notably, as of 2006, California’s IOUs generated only about 13% of their electricity from renewable sources.

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In California, project sponsors and government agencies are facing increased pressure to analyze the impact of proposed projects on climate change. The California Environmental Quality Act (CEQA) requires a lead agency, before approving a project, to evaluate the potentially significant environmental impacts of that project and to adopt feasible measures to mitigate those impacts.

These requirements place project sponsors and California agencies in a difficult position because there is currently no regulatory guidance on how to evaluate an individual project’s contribution to climate change, much less how to determine whether a project’s potential contribution to climate change is “significant.” To address this difficulty, the Governor’s Office of Planning and Research (OPR) has been instructed to develop CEQA guidelines “for the mitigation of greenhouse gas emissions or the effects of greenhouse gas emissions.” OPR must complete its draft guidelines by July 1, 2009.

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In a much-awaited release, the EPA published Administrator Stephen Johnson’s formal rationale for denying California’s waiver application under Section 209(b) of the Clean Air Act on Friday, February 29.

“I have concluded that section 209(b) was intended to allow California to promulgate state standards applicable to emissions from new motor vehicles to address pollution problems that are local or regional. I do not believe section 209(b)(1)(B) was intended to allow California to promulgate state standards for emissions from new motor vehicles designed to address global climate change problems; nor, in the alternative, do I believe that the effects of climate change in California are compelling and extraordinary compared to the effects in the rest of the country.” (emphasis added)

The decision indicates that California could not meet its statutory burden, primarily as a result of the global - rather than local - nature of climate change. All of California’s previous waiver applications focused on local effects of air pollution (e.g., attempts to reduce smog); with greenhouse gas emissions, however, the location of the emissions source is irrelevant to the impact on the increase in the atmospheric concentration of carbon dioxide.

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At its public hearing on December 6, 2007, the California Air Resources Board (CARB) approved a regulation to reduce emissions from diesel auxiliary engines on ocean-going vessels while at berth. The regulation will require operators of vessels meeting specified criteria to turn off their auxiliary engines for most of their stay in port or, alternatively, to demonstrate specific fleet-wide emission reductions.

The approved regulation is subject to certain modifications that were suggested by staff at the Board hearing. On February 22, 2008, CARB met with the affected industry, the ports, and other interested stakeholders to discuss the modified regulation. Stakeholders will have 15 days to submit comments on the modified language.

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On February 14, 2008, the California Air Resources Board’s Economic and Technology Advancement Advisory Committee (ETAAC) released its final recommendations regarding proposed technologies and policies for reducing greenhouse gas emissions in California. Pursuant to the California Global Warming Solutions Act of 2006 (AB 32), ETAAC is required to advise CARB regarding “activities that will facilitate investment in and implementation of technological research and development opportunities.” The recommendations were developed through a year-long public participation process and input from California’s technology community. ETAAC approved the final report on February 11, 2008.

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A federal judge has authorized a settlement agreement between the South Coast Air Quality Management District (AQMD) and diesel engine makers after seven years of litigation. The agreement allows the regional air district to continue enforcing its clean fleet rules. AQMD’s clean fleet rules, adopted in 2000 and 2001, require fleet operators of 15 or more vehicles to purchase clean-fueled vehicles, such as ones operating on natural gas, when they replace or add vehicles to their fleet. The Engine Manufacturers Association and the Western States Petroleum Association had challenged the rules claiming that they were preempted by the federal Clean Air Act.

The effect of the parties’ agreement is that AQMD’s clean fleet rules will continue to apply to all fleets owned by state and local governments, as well as private companies that are under contract to, or operating under, an exclusive license or a franchise with state or local governments. The rules will not apply to fleets owned by the federal government or to fleets owned by private companies not under contract to state and local governments.

AQMD has been enforcing the rules since 2005. In 2007, AQMD reported that the rules had resulted in the purchase of more than 6,000 low-emitting vehicles.

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In October 2007, the California Air Resources Board adopted the Forest Sector Protocols. The Protocols, which originally were created by the California Climate Action Registry, detail how to measure the amount of carbon that can be stored in a forest. This measurement process is necessary in order to properly certify and verify that emissions reductions actually occur.

Once verified, the credits can be sold in either voluntary markets to individuals or businesses, or in compliance markets, as part of a comprehensive cap-and-trade system designed to reduce greenhouse gas emissions. California is in the process of establishing a cap-and-trade system within the State, as required by the Global Warming Solutions Act of 2006 (also known as AB32).

Last week saw the first sale of emission reduction credits under the Forest Sector Protocols. Natsource Asset Management purchased 60,000 tons of carbon dioxide emissions reductions for an undisclosed price. The theory behind the investment is that the credits will increase in value once the cap-and-trade system begins operating, providing a return for the project’s investors.

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It is a busy week on Capital Hill for climate change policy, with three major hearings scheduled in a two-day period and the potential of more to come:

On Wednesday, the House Select Committee on Energy Independence and Global Warming held a hearing to explore the potential role of auctioning tradable pollution allowances under a cap-and-trade system to reduce global warming pollution, rather than allocating them based on historic emissions or other criteria. The issue of how emissions allowances are allocated is of significant importance to regulated entities.

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