The Impact of AB 32 Compliance on Carbon Management in the US

With its snow-capped mountains, expansive deserts, fertile valleys, and television and movie-worthy beaches, California has it all when it comes to ecological diversity. Assuring that these resources remain for generations to come has been the impetus behind some of the most stringent environmental regulations in the nation. Over the course of the latter half of the twentieth century, environmental regulation has transformed the face of California in a number of ways: drilling regulations have resulted in more environmentally responsible drilling; water quality regulations have resulted in less water pollution; and air quality regulations have strove to make great strides towards decreasing air pollution. 

The U.S. Congress, recognizing the extreme pollution issues faced by the most populous state and a need for the State to be able to take more direct action, approved of California enforcing pollution standards that are more stringent than those passed by the federal government. As a result, California has consistently paved the way in innovative and creative ways to address environmental and health concerns within its state borders. In 1965, the state become the first in the Union to regulate vehicle exhaust by setting limits on hydrocarbons and carbon monoxide emissions; followed two years later by the formation of the California Air Resources Board (ARB), now a part of the California EPA, to set the nation’s first air quality standards for total suspended particulates, photochemical oxidants, sulfur dioxide, nitrogen dioxide, and other pollutants.

The latest example of spearheading air quality regulations has occurred with the passing of AB 32 in September 2006, signed into law by then-governor Arnold Schwarzenegger. Much like the environmental laws preceding it, AB32 attempted to fill the void in the regulation of carbon dioxide where the U.S. government had decided not to take action. AB32 directs industries to reduce all greenhouse gas emissions by 25% over a 13 year period. 

As covered in a blog article entitled, "Use of AB32 Compliance for NEPA Purposes," in moving forward with greenhouse gas emissions (GHG) reductions as outlined in AB32, ARB has adopted the Climate Change Scoping Plan, outlining the baseline and future-year GHG emissions inventory for the state, and the regulatory and voluntary measure compliance path to achieve the emission reduction goals of AB32. One of the key components of AB32 is the launch of the cap-and-trade program, one of the critical strategies the State is implementing to achieve AB32’s mandate. But what implications does this have on a nationwide level, if any?

Primarily, California’s cap-and-trade program is the nation’s first economy-wide GHG cap-and-trade program; a guinea pig if you will, in market-based emission controls. August 30, 2012 marked the inaugural test of the State’s controversial greenhouse-gas market, in which tons of fake GHGs were auctioned online. This mock auction was a trial-run in preparation of the first real sale of GHG credits, set for November of this year. 

This program establishes a “cap” on the aggregate emissions from the state’s largest emitters, but does not dictate specific reduction requirements on any one emitter, allowing flexibility to “trade” pollution credits at quarterly auctions or on the market in order to comply. The cap however declines each year, resulting in fewer available allowances, meaning the industry must reduce emissions or pay increasingly higher prices for allowances to account for their carbon output.

The program is significant because for the first time, the market will set a price on carbon; if the system works as designed, the most efficient companies will be financially rewarded, polluters will pay, and overall, GHGs would be reduced.  As businesses both in California and nationwide attempt to grapple with climate change through the reduction of GHGs, FirstCarbon Solutions (FCS) can offer advice and assistance with projects, and can help you strategize how best to comply with the latest GHG guidance and carbon management that will aid your business accomplish its GHG emissions goals. 

Did you enjoy this post? The author of this article is Angela McIntire. Learn more about her here.