2014 Likely to be The Year of Regulation

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Though California business and industry is only a few days into the New Year, it is clear 2014 is already well on its way to becoming the year of regulation.   With that in mind, here are some past, present, and future items, both good and bad, to consider as industry plans develop for 2014.

SIGNIFICANT REGULATORY EVENTS FROM 2013

Cap-and-Trade – 100% Industry Assistance Factor Extended through 2017
CARB proposed to extend the industry assistance factor to include the second compliance period.  Under the current regulation, the first compliance period (2012-2014) provided 100% allowances for all obligated entities.  Beginning in the second compliance period (2015-2017), a number of facilities would see a withholding of allowances based upon a leakage risk designation.  For food processors that meant the loss of 25% of its free allowances starting in 2015 and 50% in 2018.

However, CARB, citing various factors, has proposed to extend the 100% allowance allocation through the second compliance period.  CLFP strongly supports CARB’s proposed increases and continues to work to eliminate leakage risk factors entirely, which would allow for 100% of industry assistance through all three compliance periods.

CARB notes that this current proposal "does not change the program cap or its annual decline."  California will remain on track to meet AB 32 emission reduction goals without threatening high wage manufacturing jobs.

Unfortunately, CARB failed to vote on the proposed regulation changes at their last Board meeting.  CARB expects to vote on the proposed changes in April 2014.

Renewable Portfolio Standard (RPS)
The RPS came to the forefront this year when the Legislature passed legislation making the 33% RPS a floor and giving authority to the CPUC to raise California RPS goals. Assembly Bill (AB) 327 (Perea) was amended in the final weeks of session to allow the Public Utilities Commission (CPUC) to raise the Renewable Portfolio Standard above the current 33% level.  Originally, AB 327 was intended to focus on eliminating the provisions of AB 1x.  Under the current rate structure - AB 1x was adopted during the energy crisis - the CPUC is prevented from increasing rates for low-income ratepayers such as those in the CPUC CARE program.  CLFP joined with the other industrial and business ratepayers with an opposed-unless-amended position in response to the additional amendments.  The Governor signed AB 327 and it went into effect on January 1, 2014.  CLFP fully expects to see an effort by renewable energy interests to push for an increase in the RPS to 40% or higher sometime in 2014.

Sacramento Superior Court Judge Upholds California Cap-and-Trade Program
On November 12, 2013, a California trial court decided the California Air Resources Board (CARB) has the power to auction emission allowances and that such auctions do not constitute an illegal tax that violates Proposition 13. As a result, CARB will continue to hold allowance auctions. The petitioners have announced their intention to appeal the trial court’s decision to the California Court of Appeal.

Pacific Coast Governments Join to Combat Climate Change
Governor Brown joined with the governors of Oregon and Washington and the Premier of British Columbia to sign the Pacific Coast Plan on Climate and Energy. The agreement commits the four Pacific Coast governments to take a series of interlocking actions to reduce greenhouse gas (GHG) emissions.

Per the agreement, each of the four jurisdictions will account for the costs of carbon pollution. In the case of California and British Columbia, this amounts to continuing their existing carbon pricing programs - California’s cap-and-trade program and British Columbia’s tax on carbon. The other two jurisdictions have agreed to take similar carbon price-setting actions in the future. 

Additionally, each jurisdiction is supposed to harmonize 2050 targets for greenhouse gas reductions and develop mid-term targets.  AB 32 already commits California to a goal of reducing GHG emissions 80% below 1990 levels by 2050 and changes recently proposed to the AB 32 Scoping Plan update would establish a mid-term goal of GHG emission reductions by 2030.  Currently, British Columbia has both 2020 and 2030 targets and Washington has a 2035 target.

Quebec Held its First Carbon Allowance Auction
On December 3, Quebec held its first carbon allowance auction, in anticipation of linking with California’s market in 2014, selling a third of the carbon-emission allowances offered with the permits clearing at the lowest possible price.  According to reports from the province, bidders purchased 1.03 million of the 2.97 million 2013 auctioned permits.  Allowances sold for the floor price of $10.75 per metric ton of carbon dioxide.  California and Quebec are scheduled to link their cap-and-trade programs in early January 2014.  A joint auction is expected later in the year.

PRESENT AND UPCOMING REGULATORY EVENTS IN 2014

Leakage Study Data Requests Due January 15, 2014
Part of CLFP’s effort to reduce the cost of compliance for food processors will rely on the outcome of the Leakage Study that CARB has initiated for the food processing industry.  The Leakage Study is of vital importance to CLFP’s efforts to obtain a high leakage designation under the cap-and-trade program.  This study will do much to show that the food processing industry is trade exposed; hence, it is vital that companies participate to the fullest extent possible.  If you have questions, please contact CLFP (John Larrea / john@clfp.com).  CARB staff will be asking for a draft of the leakage study prior to fall 2014 in order to prepare proposed regulation.

Data Requests for Food Processing Industry Benchmarking Due January 17, 2014
CARB sent out Tomato Benchmarking Product Data Request packets to food processors in the cap-and-trade in November 2013.  The deadline for returning the packets is January 17, 2014.  Currently, CARB is available for one-on-one meetings with food processing companies to answer questions on the data requests.  Meetings can be scheduled through CLFP (contact John Larrea / john@clfp.com) or directly by contacting David Allgood of CARB.

DEADLINES IN THE NEAR-TERM 2014

Reporting Deadline for Refrigerant Systems Using High Global Warming Potential
The deadline is quickly approaching for facilities with refrigeration systems using high global warming potential refrigerants that have a full charge of at least 200 pounds and less than 2,000 pounds. These are designated as "medium-sized" systems under a California state regulation to minimize leaks of environmentally harmful refrigerants.  Companies must register their refrigeration system with the California Air Resources Board (CARB) by March 1, 2014, if the single largest system at an individual facility has a full charge of 200 pounds or more of the following refrigerants: chlorofluorocarbons (CFCs), hydro chlorofluorocarbons (HCFCs) or hydrofluorocarbons (HFCs). The online registration and reporting tool, known as the "Refrigerant Registration and Reporting System," or R3, is available at www.arb.ca.gov/rmp-r3.

CARB Sets Parameters for 2014 Cap-and-Trade Auctions/Deadlines for Participation
The California Air Resources Board (CARB) has released the initial details of next year’s auctions. Details include the "reserve price," the anticipated number of 2014 Vintage allowances, and the number of Vintage year 2017 allowances. CARB has also posted the dates of the four auctions.

CARB plans to auction a total of 8.8 million state-owned allowances next year - divided equally between the four auctions.  Proceeds from the sale of these allowances will be used according to a plan to be adopted some time during the coming year by CARB.

In addition, CARB’s starting "budget" for 2014 allowances also includes 72,155,608 allowances allocated to the state’s investor-owned and publicly-owned utilities. The proceeds from the sale of these allowances must be used by the utilities to benefit their customers.

Finally, CARB also plans on auctioning 37,040,000 Vintage 2017 allowances. Bidders for these allowances will be able to use them to meet 2017 obligations. All of these allowances will be owned by the state.

2014 Auction Dates and Bidder Notification Deadlines
Dates for the four 2014 auctions are scheduled as follows:

• February 19, 2014 -  CARB posted the auction notice on December 20. The deadline for consignment of allowances by the utilities was December 6. The deadline to apply as a bidder will be January 21.

• May 16, 2014 - The CARB is scheduled to post the auction notice on March 17. The deadline for consignment of allowances by the utilities will be March 3. The deadline to apply as a bidder will be April 16.

• August 18, 2014 - The CARB is scheduled to post the auction notice on June 19. The deadline for consignment of allowances by the utilities will be June 4. The deadline to apply as a bidder will be July 18.

• November 19, 2014 - CARB is scheduled to post the auction notice on September 19. The deadline for consignment of allowances by the utilities will be September 5. The deadline to apply as a bidder for will be October 20.

Article written by John Larrea, CLFP Government Affairs Director

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