The Air Apparent

With the Doha Climate Change Conference a bust and with the “R” word – regulation – resonating badly in the halls of Congress, the fact that greenhouse emissions are already playing havoc with our environment has done little to motivate the United States to set air pollution standards that make a difference. As China belches coal-fuel and automotive effluents into the atmosphere at unprecedented rates, most environmental scientists are just giving up. We seem to be accepting that the tipping point and radical climate issues will be our lot for the foreseeable and beyond. Superstorm Sandy, Hurricane Katrina and the great Mid-Western drought are becoming the new normal.

But our here in the west, there is one state of radicals that is still trying to push back… and may lose a few more precious jobs along the way. California of course. Fer sure, like totally… and even signed into law by a Republican governor. Here is how the Cal Air Resources Board describes the relevant statute: “In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which set the 2020 greenhouse gas emissions reduction goal into law. It directed the California Air Resources Board (ARB or Board) to begin developing discrete early actions to reduce greenhouse gases while also preparing a scoping plan to identify how best to reach the 2020 limit.”

But of particular interest is a provision that kicked in on January 1, 2013: “In 2011, the Board adopted the cap-and-trade regulation. The cap-and-trade program covers major sources of GHG [greenhouse gases] emissions in the State such as refineries, power plants, industrial facilities, and transportation fuels. The cap-and-trade program includes an enforceable emissions cap that will decline over time. The State will distribute allowances, which are tradable permits, equal to the emissions allowed under the cap. Sources under the cap will need to surrender allowances and offsets equal to their emissions at the end of each compliance period.” Basically, if you are not willing to cut your carbon emissions to a legal limit, you have to buy your way to continue to pollute, money that will be used for environmental programs.

“About 600 facilities with hefty emissions are covered by the Global Warming Solutions Act of 2006. Oil refiners, electric utilities and cement makers, whose greenhouse-gas output totals in the millions of metric tons annually, are the biggest. But overall, dozens of industries are affected… In recent months, as the start date of the new cap-and-trade program neared, California regulators have fine-tuned the rules, industry by industry, to avoid imposing severe economic hardship while trying to keep the rules stringent. It is a delicate balance. Regulators do not want California companies to lose their competitive edge, because that could make other state governments reluctant to adopt this approach.” New York Times, December 24^th.  Indeed the focus of so many companies is cost. How to pay for it, either through the cap and trade payments or upgrades… or simply by moving their plant to another state. The fact that the rules get stricter over time may push more than a few employers to more friendly states.

That’s the bad news, and very few incumbent companies are actually looking at the deep silver linings in what appears to be a regulatory financial cloud. One way or another, even if it just to enable people to breathe without dying or to preserve dwindling fossil fuel reserves, emission control efficiencies are clearly going to spur a whole lot of new jobs – employment that will of necessity be based significantly at large facilities and manufacturing plants. Invention, research, testing, manufacturing and installing. Stop thinking about short-term cutbacks. “[M]any economists said they think such a cost-centric analysis ignores the jobs and economic activity that the law could generate. Emission and efficiency standards for cars, buildings and appliances in California over the last four decades have succeeded in cleaning the air, making residents’ per-capita energy use rate among the lowest in the country and spurring innovations and new industries, like the one that arose around catalytic converters.” NY Times. The big issue for companies is simply to stabilize the cost of carbon-based commodities. Using alternative energy is definitely on the table, but so is using carbon more efficiently.

California continues to lead the United States… the world… in environmental controls. It is doing us a huge favor by creating nascent demand for new technologies that will eventually become global standards, and in the process, I will predict, this state will also reap the economic benefits of building this market. But the ARB isn’t just setting rates with grinning glee: “The Air Resources Board is also wary of this competitive situation, which is why it has been flexible about adjusting its regulation…  Steven Cliff, the California regulator most familiar with food processing, said that companies need the free allocations in the early years. ‘In a global marketplace you can’t pass along all of your costs,’ he said.

“More allocations go to industries that are at risk of leaving the state and emitting their pollution elsewhere or of ceding market share to foreign companies that are likely to be big emitters. The term of art for the problem is ‘leakage.’ The more leakage, the less effective the California law will be at reducing greenhouse gas emissions over all.” Environmental quality impacts our quality of life… even our life expectancy. What is your country/state doing about the environment? What are you doing to let them know how you feel about it?

I’m Peter Dekom, and in the long run, maximizing the environment we live in will create vastly more benefits than any shorter-term economic losses such policies may impose.