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California market did not drive carbon cuts: Report

16 Nov 2017, 5.19 pm GMT

California market did not drive carbon cuts: Report

San Francisco, 15 November (Argus) — California's cap-and-trade market is not responsible for a recent drop in greenhouse gas (GHG) emissions and may be in need of reform, according to a new report.

Carbon pricing played little to no role in a 5pc drop in GHG emissions in 2016, energy and climate policy think tank Near Zero says in a new analysis. Instead, the state's renewable energy mandate, a wet winter that increased hydropower and other factors drove the reduction.

"The basic philosophy of state climate policy has been to rely on those non-market measures as the primary drivers, so it is not a great surprise that you are not seeing a major impact from cap and trade in the short-term," report co-author and Near Zero research associate Danny Cullenward said.

The emissions data, while positive for the state goal of returning to 1990 emissions levels by 2020, reveal some worrisome trends, according to Near Zero. The state's electric utilities shouldered almost all of the 16mm metric tonne reduction in GHGs covered by California's cap-and-trade market. Emissions from the transportation and refining sectors went up by a combined 3mn t, a trajectory that, if extended, may jeopardize the state's ability to hit its next, more aggressive target of a 40pc reduction from 1990 levels by 2030.

Cap and trade did little to influence GHG levels because soft program caps have led to an oversupply of carbon allowances, depressing the market and sending an ineffective price signal, the report says. Furthermore, the oversupply has allowed companies to bank emissions for later years and potentially avoid the type of clean energy investments necessary to hit longer term GHG targets.

The report suggests that the state Air Resources Board (ARB) may need to address the oversupply issue if it wants to rely on cap and trade through 2030.

"The near-final scoping plan is now calling for cap and trade to play the biggest role in that mix of policies in the next decade," Cullenward said.

The ARB in October projected that the state's carbon market will need to reach 294mn metric tonnes of emission reductions by 2030, compared with the 191mn t estimated earlier in the year.

Cullenward in September was appointed by state Senate president pro tempore Kevin de Leon (D) to a committee that will periodically review the economic and environmental performance of California's market-based climate programs.

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