Two new comment letters on state energy and climate policy

Earlier this December Michael Wara and I finished a pair of comment letters on two critical California policy processes.

The first letter (see here) concerns the proposed expansion of CAISO's wholesale electricity market to include PacifiCorp and potentially other western utilities. While regionalization could better facilitate integration of renewable energy resources, it also raises a set of legal and governance challenges because California takes a decidedly different approach to energy and climate policy than its neighbors in the Intermountain West. Michael and I have participated in one particular process in which CAISO and CARB have discussed how to better account for greenhouse gas emissions in a regional market (past comment letters here and here). Because California is the only western jurisdiction to price the carbon emissions associated with power imports, out-of-state utilities have an incentive to preferentially send their low-carbon resources to California while keeping high-emitting resources for themselves. As a result, it is possible that high-carbon out-of-state resources turn on to serve new California load, but via a regional electricity market low-carbon resources are deemed delivered to California—an automatic kind of resource shuffling that produces the false appearance of low emissions on California's books. 

Earlier in CAISO's process, Michael and I had raised concerns that CARB's preferred way of accounting for these resource shuffling impacts would raise significant legal risks under the dormant commerce clause and Federal Power Act. (That this is the first process in which CARB has publicly recognized the potential for resource shuffling, despite intentionally gutting their rules on this issue a few years back is ironic—but that's another story.) After additional discussion, CAISO eventually selected a different approach, one that Michael and I believe will do a good job of accurately identifying the marginal power plant that is dispatched to serve California load and accounting for those greenhouse gas emissions. It's refreshing to see regulators tackle technically complex issues in service of reaching a workable, pro-climate outcome. While greenhouse gas accounting is only one of several issues to resolve—notably, there are additional governance challenges and the lack of post-2020 legal authority to price carbon, without which no regional market can accommodate state climate policy—we are grateful that CAISO has been so responsive to stakeholder feedback. 

The second letter (see here) addresses a Discussion Draft of CARB's 2030 Scoping Plan. The 2030 Scoping Plan is part of a process to determine how California will reach a bold new target established by SB 32, which requires statewide greenhouse gas emissions to fall 40% below 1990 levels by 2030. Hitting the 2030 target will require annual emission reductions in the next decade that are approximately ten times as steep as those needed to get to our much more modest 2020 target. So it should go without saying that careful analysis is needed to develop a robust implementation strategy, especially under the incoming Trump Administration. 

What CARB has so far put forward falls well short of that mark. On several key dimensions, CARB not only fails to satisfy the best possible analytical standards, but occasionally ignores basic scientific methods. For example, in order to develop a strategy to reach a deep reduction target some fifteen years in the future, it is necessary to have some sense of what the business-as-usual trajectory will be. Over that kind of time period, the future is very uncertain. Yet CARB has not been willing to engage in any kind uncertainty analysis. Instead, the regulator claims to know with precision what the future will look like both with and without its preferred (but largely unspecified) policy interventions. CARB also insists on using quantitative models that don't include macroeconomic feedback or carbon pricing—a curious choice for analyzing a deep climate mitigation target that the agency proposes to reach in part via carbon pricing policies.

On top of that, CARB's clear preference to maintain its flawed cap-and-trade program would, by the regulator's own calculations, lead to an emissions trajectory that misses SB 32's target. Because cap-and-trade allows regulated entities to bank extra allowances not needed in any given year, the program is designed to encourage companies to reduce emissions early and save those extra allowances for later—enabling companies to comply with the cap-and-trade program requirements while emitting significantly more emissions than is allowed under SB 32 in 2030. The figure below shows CARB's preferred implementation plan in green: in this scenario, emissions fall lower in the late 2010s but remain relatively high, ultimately missing the 2030 target by a wide margin.

 Source: Figure III-3 in CARB's  2030 Scoping Plan Discussion Draft

Source: Figure III-3 in CARB's 2030 Scoping Plan Discussion Draft

Worse still, CARB continues to take an unreasonable approach to considering the potential role of carbon taxes. It's been obvious for years that the regulator has been opposed to carbon taxes on ideological grounds, though the precise reasoning has never been clear. Ultimately, where the legislature has granted the agency discretion to choose between competing instruments, it's the agency's business to act on its well-reasoned preferences. Problem is, CARB is now citing climate denier websites to attack British Columbia's carbon tax in order to support CARB's preference for cap-and-trade.

Yes, that's right: the nation's leading climate regulator—presumably through careless neglect—is now relying on right-wing blogs to make its case. As Michael and I wrote in our most recent comment letter: 

Lastly, we were surprised to find that one of the references CARB relies on to establish its criticism of British Columbia’s carbon tax—a blog called “The American Thinker”—is a reliable source of articles that dispute the scientific consensus on climate change [see footnote 98 on page 97 of CARB's Discussion Draft]. Recent headlines include “Climate Change: Where is the Science?” and “Trump and the Climate Change Clown Show.” One imagines that the blog’s publishers never expected to be cited favorably in a key California climate policy planning document; certainly we never expected a moment like this.

Frankly, the American Thinker incident does not reflect well on the sincerity of the scoping plan process. We encourage CARB to consider an explicit retraction. We also hope that in the future, CARB will be more selective in the sources on which it relies, particularly when criticizing the policies of other jurisdictions with which it collaborates on climate policy.

I hope that CARB will aim for a much higher standard in future drafts of the 2030 scoping plan, and not just in its footnotes. The regulator needs to take a much more balanced and well-supported approach to comparing cap-and-trade and carbon taxes, expand its modeling to include models that can address carbon pricing and macroeconomic feedback, and develop a rigorous uncertainty analysis. Meanwhile, we should all pay more attention to what the legislature does in 2017 because even CARB's preferred plan will require new legislative authority.