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Cap-and-trade: Transportation fuels on the block

As rush hour approaches, traffic on the Golden Gate Bridge. (Photo: Frontpage)

Permission slips to sell an array of fuels used in California – and which account for nearly 40 percent of the state’s carbon emissions – will be put on the auction block as part of the state’s landmark law to curb climate-changing greenhouse gases. This year marks the first time the transportation allowances will go into effect.

The sellers in California of gasoline, diesel, natural gas, heating oil and other fuels will be able to buy, sell or trade credits allowing them to stay in operation while they ratchet down on the greenhouse gases emitted by their combustible fuels.

Allowances for the fuels also were auctioned in advance for 2015 in 2o012, the ARB said.

Opponents of the auctions believe the transportation fuels auction will force companies to pass on their costs to consumers, resulting in higher prices.

California law, AB 32 of 2006, requires greenhouse gases to be reduced to 1990 levels within the next five years.

The cap-and-trade auctions – “cap” because the goal is to limit emissions, and “trade” because companies can buy, barter and sell credits — targeting other aspects of the economy have taken place regularly over the past two years. On Jan. 1, transportation fuels — as planned long in advance — came under the jurisdiction of the auctions.

Expanding  that transportation fuels have been included – a significant benchmark in the state’s greenhouse gas law. By one state estimate, the fuels’ combustion, resulting in nearly 450 million metric tons annually, represents about 38 percent of the greenhouse gases emitted in California. Power plants and industrial factories each provide about a fifth of the carbon emissions, while commercial and residential buildings produce about 10 percent. The rest stems from natural causes.

“This is an important expansion of the program,” said Bill Magavern of the Clean Air Coalition. “The inclusion of transportation fuels as well as heating fuels, is definitely an expansion of the AB 32 program. It means there will be a lot more allowances up for auction this month as opposed to previous auctions.”

It’s also a controversial one: Opponents of the auctions, led by business interests, believe the transportation fuels auction will force companies to pass on their costs to consumers, resulting in higher prices.

The Air Resources Board says about 73.6 million allowances will be available for immediate use, plus an additional 10.4 million are being offered for 2018.

“It’s basically a hidden gas tax that gets passed onto the consumer,” said Jann Tabor, a spokeswoman for Sen. Andy Vidak, R-Visalia, “and gas prices are going up again.” Vidak is the author of SB 5, which would exempt transportation fuels from the cap-and-trade rules. The bill – and a similar one on the Assembly side — has not yet been assigned to a committee. A group of Democrats led by Assemblyman Henry Perea, D-Fresno, pushed a bill last year to delay for three years the fuels’ inclusion in the program. It was defeated.

The state auctions have brought in some $2.3 billion during the past two years, with more than half the money dedicated to utilities to ease rates and develop green energy, and the rest going to an array of programs aimed at cutting greenhouse gases, including solar power, public transit development and reduced vehicle emissions. The governor is using some of the money – perhaps $1 billion in the 2015-16 budget – for the state’s bullet-train program.

The Senate and Assembly both are controlled by Democrats, and the leaders of both houses have pushed aggressively for reducing greenhouse gases. Senate Leader Kevin de Leon also has introduced legislation to cut petroleum consumption by 50 percent in 15 years.

The Air Resources Board, which coordinates and supervises the auctions, says about 73.6 million allowances will be available for immediate use, plus an additional 10.4 million are being offered for 2018.

The per-allowance price hasn’t been set yet, but it is likely to hover around $12, a figure based on earlier sales. The actual price of the Feb. 18 auction will be established by the auction itself. The actual auction is largely electronic and online — there is no auctioneer shouting “Going, going, gone!” – and the results of the event won’t be available Feb. 25. With a $12 reserve, the sale of 2015 and 2018 allowances could result in some $1 billion for state programs.

Ed’s Note: Corrects to show that transportation fuel allowances were first sold in advance for 2015 in 2012, 3rd graf; and fixes to show pricing set at auction, not before, final graf.


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