California cap & trade

California’s cap-and-trade program began its compliance obligation scheme on 1 January 2013.  The state’s program is the fourth largest in the world, after the cap-and-trade programs of the European Union, South Korea, and the Chinese province of Guangdong.

The goal is to reduce the emission of greenhouse gases to 1990 levels by 2020, and then to reduce them further by 40% by 2030. The cap-and-trade program applies to large electric power plants, large industrial plants, and fuel distributors of natural gas and petroleum—and covers approximately 450 sources responsible for 85% of the state’s greenhouse gas emissions. Smaller industries emitting less than 25,000 tCO2e a year are exempt.

Emissions of greenhouse gases have been falling since 2007. In 2016 GHG emissions were 429 MtCO2e which is already below the state’s target set for 2020—which is the 1990 level of about 431 MtCO2e.  At the same time, California’s economy is vigorously healthy: Its GDP grew 3.1% in 2017—the 6th highest among American states. In 2015, California had the highest GDP growth of 4.6%, and the state has been among the top six performing states in terms of GDP since 2012.[1]

California’s progress in reducing emissions has been good even since 2007—which was well before the cap-and-trade program was introduced.  The chart below shows the most important metrics. [2]

Trends in GDP, population, and GHG emissions

What is clearly evident from the chart is not just the declining level of emissions, but the reduction in the carbon intensity of the economy. California’s GHG emissions per unit of GDP dropped by about 35% over the period from 2000 to 2016—a remarkable achievement.

How did the state of California manage to produce these emission reductions in an economy larger than Canada’s?  The chart below shows the level of emission of the big three sources of emissions: Transportation, electric power, and industry.

Emission by sector since 2000

The largest source of emissions is transportation and although emissions in 2016 were down compared to 2007, more recently, emissions have been rising again.

But it’s the electric power sector where the reductions have been substantial: the sector cut emissions by more than 70 MtCO2e between 2008 and 2016.  It’s not hard to see why.  The decline in emissions is driven primarily by the large increase in renewable energy resources as a result of California’s Renewable Portfolio Standard (first enacted in 2002), and since 2013 by the cap-and-trade program. Higher energy efficiency standards have kept electricity consumption from increasing despite a growing population and steady economic growth as shown in the first chart. In addition, the energy intensity of imported electricity has been declining steadily over time as California imports a greater share of renewable power and divests from long term coal-fired electricity contracts.

In 2016, 46% of total electricity generation came from zero carbon sources—which include solar, wind, hydropower and nuclear. Electric power emissions dropped by 15 MtCO2e from 2015 to 2016 due to increased supplies of renewable energy including a 33% growth in solar generation in 2016 and a drop in coal-fired electricity imports with the termination of long term coal contracts.  Rooftop photovoltaic power generation was five times the level it was in 2011. Wind power ramped up through 2013 but has remained relatively constant since that time.[4] S

Totally clean

California is not sitting back and relaxing.  Not with wild fires, drought, and heat waves seemingly intensifying each year. In 2018, Senate Bill 100 was approved—legislation that mandates that California will be powered 100 % by clean energy by 2045. Clean energy includes nuclear power–so technically this is not 100 % renewable, but it is carbon free.  Although California is not the first US state to commit to 100% clean energy (Hawaii was the first in 2015), California is the world’s fifth largest economy, and so its commitment has global significance. It is the largest jurisdiction in the world to move towards 100 percent clean energy. [5]

The benchmarks on this pathway to 100 % zero-carbon energy are set by California’s Renewables Portfolio Standard (RPS) which requires investor-owned utilities, publicly owned utilities, electric service providers, and community choice aggregators to increase procurement from eligible renewable energy resources to 33% of total procurement by 2020, and to 50% of total procurement by 2030.[6] 

The state has also introduced  measures to manage energy demand as well as supply. In 2018, the California Energy Commission amended the state’s building code to require that new single-family residences and low-rise multi-family buildings have rooftop photovoltaic systems installed during construction.

It’s worth noting that although California’s residential electricity tariffs are relatively high, the average home electricity bill is no higher than many other states—because of improvements in energy efficiency in the building envelope, home appliances, and residential heating systems.[7] 

In conclusion, it is clear from these case studies in the US and Canada that pricing carbon through a tax or cap-and-trade scheme provides price signals that induce changes in industry practice and consumer behaviour–which lead to lower consumption of fossil fuels and reduced emissions of greenhouse gases. 

Chose the right tool

But pricing carbon is far from being the only tool available. There is plenty of experience with carbon pricing programs in North America and Europe that shows that complementary programs that improve energy efficiency through appliance standards and building codes, induce utility-scale switching to renewable energy (including as a priority phasing out coal), incentivize the purchase of electric vehicles, build out public transport infrastructure, and encourage a less energy intensive life-style, also have a substantial, and often much more rapid impact on greenhouse gas emissions.


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For more background check out these sources :

[1] See the report from California’s Department of Finance: At www.dof.ca.gov/Forecasting/Economics/Indicators/Gross_State_Product/
[2] See the California Air Resources Board (CARB) report : California greenhouse gas emissions from 2000 to 2016: Trends of emissions and other indicators. At:  //www.arb.ca.gov/cc/inventory/pubs/reports/2000_2016/ghg_inventory
_trends_00-16.pdf
[3] Ibid
[4] Ibid
[5] See the article: California ups its clean energy game with 100% zero-carbon electricity vote. At: //insideclimatenews.org/news/28082018/california-100-percent-clean-energy-electricity-vote-climate-change-leadership-zero-carbon-electric-vehicles . And also: California Assembly advances 100% clean energy bill. At: //www.latimes.com/politics/la-pol-ca-renewable-energy-goal-bill-20180828-story.html
[6] See the California Public Utilities Commission website at //www.cpuc.ca.gov/RPS_Homepage
[7] See: California’s mandatory PV code amendment: Is it really time for this? At: //www.raponline.org/blog/californias-mandatory-pv-code-amendment-is-it-really-time-for-this/