Allocating AB 32 Allowances and Fees

On April 16, 2009 Next 10 and the ICCT convened a GHG allowance/fee revenue allocation workshop in Sacramento. A summary report prepared by meeting organizers presents the findings from this workshop. We believe that lessons learned will help inform decisions at the state level, and will also be helpful to policy-makers addressing similar questions at the federal level.  

Objectives of the workshop include:

  • Gather key stakeholders and decision-makers to hear from leading experts and review their research related to the different options for handling AB 32’s GHG allowance/GHG fee revenue allocations, including experience in other jurisdictions. Mix policy level, real world, and academic perspectives.
  • Review interests and highlight where we might have consensus and where there are different perspectives.
  • Recommend issues and agenda topics that would help frame upcoming California Air Resources Board meetings and potential legislative meetings.
  • Identify key AB 32 objectives such as equity, efficiency, and technolog innovation and identify policy options for achieving these goals.
  • Identify additional research needs/other recommendations on moving forward on this topic to support successful implementation of AB 32 objectives in California.

Some of the key economic lessons are:

  • Companies will charge for the “opportunity cost” of allowances to the extent that they have the ability to do so, regardless of whether they pay for allowances through an auction or receive them for free. This led to windfall profits in the European Union.
  • The value of allowances will far exceed the cost of reductions for many years, providing an important resource that can support the objectives of AB 32.
  • Auctioning allowances with a pre-determined price floor prevents price collapse and therefore creates greater stability in GHG emission allowance markets.

Some of the key lessons regarding AB 32 objectives are:

  • The workshop discussions highlighted that in most cases AB 32 objectives related to allocations are not in conflict. Differences are more likely to emerge when discussing which policy options are most effective at achieving the highest priority AB 32 objectives.
  • Equity is a key priority that can be addressed in different ways. States participating in the Regional Greenhouse Gas Initiative (RGGI) in ten eastern states have acted on the expectation that, generally speaking, funding energy efficiency provides greater benefits to consumers than direct rebates.
  • Allocation decisions intended to subsidize energy rates (such as cents per kilowatt-hour) can conflict with the goals of encouraging efficiency and conservation.
  • Investments in energy efficient buildings, transportation, and industry and RD&D into low and zero carbon technologies not only maximize environmental benefits, but the end result can coincide with the AB 32 objective of maximizing economic benefits and minimizing economic costs.
  • Perhaps the most effective way California can play a leadership role with AB 32 is to provide a model of how to grow the economy while simultaneously curbing carbon and other GHG emissions.