August 20, 2012 / 8:35 AM / 7 years ago

California suspends CO2 market rule on electricity imports

LONDON, Aug 20 (Reuters Point Carbon) - California’s air regulator said on Thursday it would delay by 18 months a controversial part of its carbon market rules addressing imported electricity after coming under pressure from a Washington official who warned it threatened to disrupt western U.S. power supply.

Mary Nichols, chair of the California Air Resources Board (ARB), wrote in a letter to Philip Moeller, a commissioner at the Federal Energy Regulatory Commission (FERC), that the state needs more time to define “resource shuffling” in the rules governing its carbon cap-and-trade program, which begins next year.

“Until that process is complete, and while we are reviewing the trades that take place in the first 18 months of active allowance trading, it is appropriate to suspend enforcement of the provisions of the cap and trade regulation that require importers of electricity to annually attest that they have not engaged in resource shuffling during the previous year of a compliance period,” Nichols said in the letter.

Earlier this month, Moeller called on California Governor Jerry Brown to suspend enforcement of the “resource shuffling” provision because it could disrupt the power supply in California and neighboring western states and harm the economy.

Moeller said California’s rules addressing “resource shuffling” were too vague and the definition of the practice was unclear.

The provision targets out-of-state power producers who may modify their contracts with California utilities to deliver only lower-emission power to the state while sending more carbon-intensive electricity to states without carbon limits.

The rules require emitters to vow that they were not simply funneling more of their clean electricity generation into the state, a maneuver that could give California regulators the false impression that the companies had reduced their greenhouse gas emissions.

Nichols said ARB and other state energy agencies will closely monitor the emissions associated with electricity imports into California.

California imports about 25 percent of its electricity from over state lines, but that power - some of it derived from burning coal - represents about 50 percent of California’s power sector greenhouse gas emissions.

Since California cannot legally regulate economic activity in other states, forcing out-of-state power producers to sign attestations saying they had not engaged in resource shuffling was seen by state regulators as the best option to deter the practice.

A spokesperson for the ARB stressed that suspending the attestation requirement for 18 months was not a regulatory change, so the board did not have to vote on it.

He said the timeline for implementing the cap-and-trade program, which will hold its first auction in November, will not be affected.

An attorney representing out-of-state power producers who have objected to the resource shuffling provision in the past said the suspension is not enough to ameliorate his concerns.

“Reading her letter, she gives no comfort to the market — she could come back at the end of 18 months and say ‘Ok, now I’d like your affidavits about the prior 18 months,’” he said Friday. (Reporting by Rory Carroll)

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