California Air Resources Board

Message

Ms Liane M. Randolph, Chair
California Air Resources Board
P.O. Box 2815
Sacramento, CA 95812

Re: Urgent potential amendments to cap-and-trade regulations

Dear Chair Randolph:

Thank you for the opportunity to comment on CARB’s recent cap-and-trade workshop. Cap-and-trade is a powerful tool with immense but unrealized potential. Fortunately it can be much more effective as I describe below.

I bring considerable professional experience to the issue (Attachment 1).

There’s no nice way to say it: California is neglecting the dangers of climate crisis.

Environmental justice requires perspective

With regard to RFF’s suggestion to make carbon prices higher for emitters in hard hit or impacted neighborhoods, I would note:

That policy would be difficult to evaluate and implement,
The effect on total GHGs will be small so this seems like a diversion, and
For those concerned about EJ, there is no greater climate injustice than continuing to emit GHGs at current levels.

Rather than focus on that obscure issue, I urge CARB to look again at the big picture, where climate damages are too high and rising, and neither the world nor California is doing enough. Small changes to policies whose big picture is now dire is insufficient.
 
This is admittedly a questionable analogy: Rather than arranging deck chairs on the Titanic, it would have been better to avoid the iceberg. So rather than addressing the small stuff, it’s time for CARB to seriously address the big picture.

According to the UN secretary general, António Guterres, “The era of global boiling has arrived.” Recent events demonstrate how climate damages have grown (which will release more icebergs), and how actual temperature increases have outrun CARB’s remedies.

Moreover, it is imprudent to focus on targets established a decade or more in the past. With that in mind, my comments address broader issues than those CARB requested for this workshop.

IEMAC’s recommendations are crucial

I hope CARB will promptly adopt at least the recommendations made by CalEPA’s Independent Emissions Market Advisory Committee. I won’t repeat them here. And in terms of legislation, AB-9 (Maratsuchi) recognizes that improvements are necessary, but falls far short of what’s needed.

Cap-and-trade prices here are lower than prices in other jurisdictions

Carbon prices are the key indicator of how far we have to go. Even though they have risen to around $30, they are still lower than in jurisdictions where GHG emissions are relatively lower. According to the World Bank, these include Austria, most of Canada, Finland, Germany, Iceland, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Sweden, Switzerland, Tokyo, the UK, and Uruguay. Washington State’s prices are also higher than California’s.

Current cap-and-trade prices are too low to arrest climate change

Analysis with MIT’s En-Roads model, which mirrors IPCC’s analysis but is simpler, reveals that we can’t stay below 2 degrees without a price of about $250 per tonne, among other policies. The En-Roads on-line model addresses world-wide conditions and not CARB’s specific mandate, but it does provide guidance on how specific policies affect temperature rise.

The world is now at 1.2 degrees temperature rise. In agreement with António Guterres, I believe conditions are already beyond acceptable. Looking to the future, it’s impossible now to hold temperatures below 1.5 degrees. Specifically, The En-Roads model shows that the following policies would all be required to hold us below 2.0 degrees by 2100:

Carbon price at $250 per tonne by 2033,
Energy efficiency of new transport improving at 5% per year,
A 50% subsidy for electric vehicles and charging infrastructure,
A 4.7% increase per year in energy efficiency of new transport,
A subsidy for new electric equipment for buildings and industry, and
A reduction of 52% in methane usage by 2052.

I’d be pleased to provide an En-Roads demonstration, but CARB analysts can certainly use it without me. The model can be exercised at this URL:

https://en-roads.climateinteractive.org/scenario.html?v=23.6.1

Results aren’t based on California’s conditions, but the fact that policies En-Roads illuminates are so much stronger than the path we are now on suggests that CARB should adopt stronger ones. California is thought of as a leader in most things environmental, so unless California adopts strong standards it’s unlikely other U. S. jurisdictions will.

So much for the future. What about the present?

Substantial damage costs should be internalized, covered by carbon fees

More than ever, climate damages are climbing, and current compensation mechanisms such as insurance and government support could soon be overwhelmed. Some insurance companies are already choosing not to cover California properties.

Uncompensated climate damages in California now range into billions. CARB could and should address how cap-and-trade funds can compensate damages, and should set cap-and-trade’s floor prices to reflect them. This might require legislation, and CARB should propose it. Sadly, lawmakers have not been quick to take up this issue.

Any competent economist will agree that our current situation is a classic example of market failure, in which market participants (i. e., gasoline and natural gas users) don’t pay for the damage they do to everyone else. Reducing that failure requires that carbon prices pay at least for those damages, the social cost of carbon.

A careful evaluation in Environmental Research Letters (https://iopscience.iop.org/article/10.1088/1748-9326/ac1d0b) concludes that the social cost of CO2 emissions is approximately $300 per tonne, with an uncertainty range of $82 to $831.

Guidance from past damages also supports higher cap-and-trade prices

My own calculations for California alone, taken from a 2019 legislative proposal  (Attachment 2) submitted to Senator McGuire, suggest that depending on which losses are included and which year’s values are considered, losses range from 28 to 62 dollars per tonne. Values are higher if fire suppression costs and economic losses are included.

What’s important is not what the precise numbers are, but that:

They are higher than California’s cap-and-trade values,
They are rising, and
They aren’t compensated by polluters.

If need be, surely the state can come up with more precise values. But for that to happen the state and CARB in particular must decide to correct the existing, massive economic market failure in cap-and-trade rules. Not doing so condemns us to more damage and higher financial losses.

California’s financial position may be at risk

Reflecting the market failure, insurance costs are rising for many Californians, and those unable to obtain coverage will have to rely on the state’s FAIR plan. If FAIR is financed by the state it will likely run a deficit as damages mount. I suggest that financing for the FAIR plan could be obtained from prospective floor prices in cap-and-trade, thus compensating those losses by charging those causing the damage.

Reliance on CCS is imprudent but its projected costs offer guidance

I note in slide 5 of CARB’s presentation where it states reliance on carbon capture and storage (CCS) is required to reach 2030 and 2045 goals. That’s frightening. There’s no evidence that CCS can work at scale, and preliminary cost estimates exceed $600 per tonne if it does. These are higher even than estimates of the social cost of carbon, and way above California’s cap-and-trade prices. This alone reveals the unwisdom of relying on CCS.

Conditions have changed since cap-and-trade goals were established, and I hope you and the Board will respond to those changes. I look forward to your response.

Sincerely,

 

John Schaefer, PhD

cc     Senator McGuire
    Assemblymember Wood

Attachment 1

SUBMITTER’S BACKGROUND

Dr. Schaefer brings over four decades of energy engineering experience, including consulting in renewable energy and electric power, economic and technical feasibility, and project management.

Beginning in 1985 he managed field tests of emerging solar and wind projects, for the Electric Power Research Institute.

Subsequent consulting clients include utilities, equipment and power plant developers, government agencies, EPRI, and the United Nations.  

He taught engineering at the University of El Salvador as a Peace Corps Volunteer, at San Jose State, and at Stanford. He holds physics and engineering degrees from Stanford, MIT, and Oberlin.

His dissertation at Stanford addressed modeling of economic development.

 

Attachment 2

ECONOMIC LOSSES AND DAMAGE COSTS PER TONNE OF GHGS

Notes:
(1)  https://en.wikipedia.org/wiki/2020_California_wildfires
(2) https://www.accuweather.com/en/business/the-2019-california-wildfires-c…
(3) https://www.iii.org/fact-statistic/facts-statistics-wildfires
(4) https://en.wikipedia.org/wiki/2018_California_wildfires
(5) https://www.nature.com/articles/s41893-020-00646-7
(6) https://www.munichre.com/topics-online/en/climate-change-and-natural-di…
(7) https://en.wikipedia.org/wiki/2017_California_wildfires