California regulator defends CO2 market design

SAN FRANCISCO, Sept 21 Fri Sep 21, 2012 4:22am EDT

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SAN FRANCISCO, Sept 21 (Reuters Point Carbon) - California's top air regulator offered a stern defense of the state's forthcoming carbon cap-and-trade system, battling back against complaints from industry that it will cost jobs and drive up consumer prices at a hearing on Thursday.

Industry and manufacturing groups that have opposed the carbon market said at a meeting held by the state's air regulator in Sacramento that the program was poorly designed, and complained that their input has been ignored.

Mary Nichols, chair of the California Air Resources Board (ARB), said she opposed one of those groups' main requests -- for the state to give oil refineries and manufacturers 100 percent of the tradable emission permits they'll need to surrender to the state in 2014 for free.

She said that could give certain companies undeserved windfall profits and send a signal of instability to businesses that have already invested in low-carbon technologies in the state.

"Easing the transition is one thing; leaving the entire industrial sector outside the arena where every other member of society, from forestry to municipal sewage treatment plants is taking aggressive measures to reduce their emissions is just plain unacceptable," Nichols said.

Under current plans, oil refineries and manufacturers would receive for free 90 percent of the allowances they need to cover their emissions at the outset of the program and offer the remaining allowances at quarterly auctions, which will begin in November.

Cathy Reheis-Boyd, president of the Western States Petroleum Association (WSPA), which represents California refineries, said the design of the current program will jeopardize the ability of her members to provide low-cost fuels in the state.

She said it was wrong for the state to take allowances from business and sell them to generate state revenue at the auctions, when that allowance value is needed to support investments in reducing emissions at those facilities.

"I cannot believe the inference that billions of dollars that we will invest to make those investments and make those reductions are being referred to as windfall profits, free, or characterized as being handout. I really find that appalling," she said in response to Nichols' opening comments.

Reheis-Boyd was accompanied by over a dozen oil industry workers and small business owners wearing red t-shirts that said, "Save our jobs."

BORDER ADJUSTMENT

United Steelworker union members employed by refining and chemical company Phillips 66 said they were concerned the program would give an advantage to out-of-state oil refineries, which do not need to comply with California's carbon caps.

They suggested implementing a "border adjustment" fee on those products as they enter the state, a suggestion Nichols said her staff was already looking into.

Environmentalists, including a member of the Union of Concerned Scientists, voiced support for that idea at the hearing.

The ARB was not expected to approve any changes to the cap-and-trade regulation at Thursday's meeting, but was expected to sign off on a series of directions for its staff to look into further.

(Reporting by Rory Carroll)

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