California's pathbreaking market approach to combating climate change just celebrated its first anniversary in ho-hum fashion. Thinking back to the state's ill-fated experiment with markets to deregulate utilities, critics said that my cap measure, part of Assembly Bill 32, would cause electricity and other energy prices to skyrocket. But just the opposite has occurred: Owing to the California Air Resources Board's skillful program design, prices under the cap have stayed low and the system's performance has been pretty "boring," according to the cap's chief architect, Chairman Mary D. Nichols.
Next year, though, transportation fuels are slated to come under the cap, and the oil industry has been understandably concerned that the cap will drive pump prices higher. In response, Senate President Pro Tem Darrell Steinberg introduced a proposal to place the transportation sector under a carbon tax, instead of ARB's cap. The reasoning was that a tax on the carbon content of fuels provides more price certainty than a cap on carbon emissions. But on Friday, ARB will consider an existing measure to ensure prices at the pump are manageable.
That policy tool, which ARB put into place at the system's onset, is known as offsets. ARB already has approved compliance grade offsets for livestock methane, forestry, ozone-depleting substances and urban forests. Emitters under a cap can cut carbon by using cleaner tools and fuels. Additionally, they may invest in lower-cost initiatives called offsets that drive down emissions of global warming gases, such as methane, which are even more damaging to the planet's atmosphere than carbon dioxide.
How do offsets work? Let's take two seemingly incongruous industries: hog farmers in North Carolina and a capped California utility. Hogs emit methane, which is harmful for the atmosphere; but hog farmers in North Carolina can capture that methane, neutralize it and sell it under California's cap as a livestock methane offset.
Enter the power of offsets: California has a category of compliance grade offsets that encourage farmers to reduce methane from their livestock. Farmers who invest in projects to curb methane from hog waste can sell low-cost offsets to capped emitters in California. An electricity generator in California buys the offset. In this way dangerous methane goes down, the California utility complies with the state's cap and the farmer's investment in a cleaner environment is covered. Best of all, Californians don't feel pinched at the pump or when they receive their monthly electricity bill.
Offsets are a critical tool to keeping California's cap affordable. But, there is another factor that is equally important: Offsets give California the opportunity to clean up energy-intensive industries that are not currently regulated by cap and trade. Often, that means industries that are out of state, which greatly expands the reach of our state's policy.
That's why I decided early on to support projects to trap and destroy coal mine methane. Enter my clients, mine methane capture offset project developers. Methane is a normal byproduct of underground coal mining. Historically, mines have ventilated the highly explosive gas and let it escape into the atmosphere, where it traps heat and contributes to global warming. New technologies exist to trap and destroy the methane gas so it never reaches the atmosphere.
Such projects have other important upsides. Unlike offset projects that use trees' ability to temporarily store global warming gases as they grow, projects to capture and destroy methane keep the potent gas permanently out of the Earth's upper atmosphere. If a forest burns, gets felled or is killed off by bark beetles, the carbon stored in the wood returns to the atmosphere, rendering an offset worthless. And while California regulates or is about to regulate greenhouse gases from sources such as landfills, coal mine projects are unregulated - they are "in addition" to existing laws, qualifying them as a true offset under AB 32 regulations. Without offsets, harmful emissions from underground coal mines will continue unabated.
Finally, while many types of offsets are measured using estimates, the methane from coal mines is measured with expensive, sophisticated equipment and checked by independent verifiers annually - all of which gives California regulators confidence that the offsets represent greenhouse gas reductions that really occurred.
Having a supply of high-quality, rigorous mine methane offsets on hand next year when the carbon-intensive transportation fuels sector comes under the state's cap is the most surefire method to keeping prices manageable at the pump. ARB's compliance grade offsets are vital to keeping abatement costs low, and, in doing so provide price certainty to business - a key goal I've embraced since authoring AB 32. By approving offsets from mine methane, ARB will deliver another win-win.
Fabian Núñez is former speaker of the California Assembly and author of AB 32.