PRINCIPLES ON CLIMATE LEADERSHIP
The Business Council on Climate Change (BC3) believes that the climate crisis offers corporate leaders an unprecedented opportunity to shift practices to realize economic growth, environmental sustainability, and social well-being. Our mission is to capitalize on the Bay Area’s entrepreneurial culture to create a thriving economy, while at the same time contributing to public dialogue and positive action on climate change. Therefore, we commit to the following principles:
Principle One: Internal Implementation
We acknowledge our responsibility to reduce our impact on climate change and adopt practices within our company’s operations to reduce our greenhouse gas emissions and contribute to a climate-friendly San Francisco Bay Area economy.
Potential Actions include:
· Conduct an assessment of greenhouse gas emissions from operations.
· Set a company-wide greenhouse gas emission reduction goal.
· Develop and implement a greenhouse gas reduction plan as appropriate to each company.
· Monitor and verify progress towards achieving reduction goal.
· Become a certified Bay Area Green Business.
Principle Two: Community Leaders
We will be active leaders in the San Francisco Bay Area community to help combat climate change.
Potential Actions include:
· Provide transportation alternative incentives for employees (public transit / bicycle commuting / carpooling / car share / low emission vehicles).
· Provide educational materials to employees on how to reduce residential greenhouse gas emissions.
· Work with supply chain partners and, where appropriate, with clients and customers to reduce indirect impacts of products and services.
· Incorporate and showcase “green building” strategies.
· Institutionalize corporate policy to offset company travel emissions through carbon credits.
Principle Three: Advocacy and Dialogue
We will advocate and dialogue with policymakers to develop the best business solution through, for example, supporting the Bay Area Council’s advocacy platform on climate change.
Potential Actions include:
· Collaborate with local and state governments to identify policies and incentives for businesses to reduce their greenhouse gas emissions.
· Make public statements—individually and collectively—on the importance of preparing for and minimizing climate change.
· Actively engage sources of capital to invest in clean tech and climate-friendly businesses.
· Sponsor events that raise awareness about climate change in the corporate and/or residential sectors.
· Support appropriate legislation to address climate change.
Principle Four: Collective Action
Through the Business Council on Climate Change, we will collaborate and share best practices with other participating San Francisco Bay Area companies to help solve the problem of climate change.
Potential Actions include:
· Partner with BC3 members to leverage our impact with public agencies, customers, residents and community organizations.
· Provide input on regulatory proceedings at the state and local level (e.g.: California Public Utilities Commission and regional air district).
· Support international initiatives such as the UN Global Compact.
Principle Five: Transparency and Disclosure
We will each report regularly on our activities and progress towards reducing our climate footprint.
Potential Actions include:
· Disclose actions and results in annual reports.
· Participate in the BC3 Learning Forum.
· Share best practices and lessons learned with other members of BC3 and the public.
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The form and structure of a market-based cap and trade system for carbon emissions in California is not a done deal. AB 32 authorized market-mechanisms to be developed to reeduce greenhouse gas emissions. The progressive business community needs to provide support and input to the structure of such a cap and trade system, so that it provides a cost effective avenue for companies to invest in ways to reduce their emissions. A recommendation as to the structure of a cap and trade system has been made in a June 30th report by the Market Advisory Committee. We need to provide input as to the recommendation as to how the allowanfces will be distributed - freely and/or through auction. The scope of the sectors to be included is at issue as is the breadth of the market to include offest options.
Bay Area Council Initial Position Regarding the Form and Structure of a Cap and Trade Program and implementation of AB 32
RE: CAP-AND-TRADE DESIGN
The central feature of a cap and trade program is an enforceable, quantitative limit on emissions from emitters, called “the cap.” A successful cap relies on accurate underlying emissions data regarding the baseline quantity and then changes in emissions over time, with an ability to monitor and enforce the emissions for each capped entity and sector. The integrity of the cap is paramount. Therefore, how it is determined and what value is attributed to an “allowance” to emit must be resolved up front.
The Bay Area Council recommends that the Cap and Trade system have the following elements and avoid the pitfalls of certain structures found counter-productive in other cap and trade systems.
1. The cap should be set at a level to achieve emission reduction goals.
a. Establish Allowances That Result in Reductions: The cap should achieve reductions from its inception. Emissions “allowances” should be based on actual current need and then be progressively ratcheted downward based on the installation of cost effective and available technologies and clean fuels.
b. Coverage Under the Cap: The broadest selection of sectors to be capped must be determined based on a criteria that includes whether the sector contributes a significant amount of greenhouse gas emissions and can be simply administered regarding monitoring the relevant emissions. Ultimately the market for the cap and trade must be broad and multi-sector and deep in providing offset opportunities with transparent price and supply information.
c. A “Safety Valve,” or potential waiver from the cap on emissions, is an important feature, but if too loose can send “uncertainty” waves into a new market and will be counterproductive to the return on investments for those still under the cap. The cost-effective requirements for the emission caps minimizes the need for expanding the safety valve provision beyond providing the Governor power to delay compliance for a year under extraordinary circumstances.
d. A strong market that provides stable pricing must be ensured. Based on pass experience, such as with the energy crisis, vague, discretionary and qualitative caps may not provide customers with adequate cost containment protections. There will be a need for non-discretionary cost cap on allowance prices. There must be options that would cap the price of emission allowances when they become unreasonably high due to a new market that is learning its way. Options that should be investigated include:
i. Reserve Allowances: Do not distribute all allowances in one year, hold a reserve that could be issued based on prices level, (e.g. issue 90% hold 10% certain back)
ii. Banking of Emissions: allow companies to dip back into reserves of emissions saved in past years in a future year where prices for carbon credits have gone above a certain threshold
iii. Average compliance with allowances over Multi-Year period: for instance, a three year compliance period could provide cushion on price volatility management in a given sector due to shortages of particular product or fuel
2. The Method to Distribute the Allowances
a. The policy of distributing allowances should encourage the reduction of emissions
b. There may be selective sectors that should receive free allowances or some proportion of allowance to offset potential costs that will otherwise be immediately passed to customers, such as in the Energy and Utility Sector. However this must be done carefully. In Europe, free distribution of allowances for all allowances has resulted in historic polluters achieving windfall profits, and higher prices for everyone else. For instance, in the electric sector, we support free allocation to the Load Serving Entities for the benefit of their customers, with a subsequent transfer via a CPUC/CARB supervised auction to the first sellers of power who will be at the "point of regulation." Those first sellers will recover the cost of the allowances by charging their purchasing customers for the incremental cost of the allowances when they sell the power to the LSE. Customers of the LSE will be able to offset these increased power costs with the revenues from the original allowance auction. In this way, all parties are held relatively neutral from a cost perspective (no one gets a windfall a la the EU experience) and an auction is held to send price signals encouraging GHG reductions. Of course LSE owned generation would have to purchase allowances in the auction on an equal footing with independent generators.
c. The Cap and Trade market would work most fairly and effectively by having firms bid for their permits. We encourage the California Air Resource Board to auction a small percentage of allowances in the initial years of the regulatory program, gradually increasing the percentage over time. The impacts of an auction on the economy should be evaluated to assure that it does create an unfair economic burden on companies doing businesses in California.
i. An auction provides an efficient means to allocate emission allowances based on actual demand
ii. Revenues obtained by an auction can be used to address economic inequities that disproportionately impact low-income residents, and address environmental justice concerns
iii. Auctioning is simpler to administer and avoids the government setting prices
iv. Auctioning creates the right incentive structure and a level playing field
• Auctions reward early action. Those that undertake early action will benefit from being able to purchase fewer allowances than if the early action had not been taken.
• Auctioning does not disadvantage new entrants who would seek to enter a market.
• Auctions lead to early and better price discovery (understanding of the true value of an allowance), reducing unnecessary volatility in the market.
• Auctions avoid the perverse outcomes that arise from giving away pollution based on historical patterns (“grandfathering”) in which firms that pollute the most are rewarded by receiving the most allowances.
Importance of designing a program that works for California and is integrated in a Robust Global Market on Carbon Emissions
It is important to develop a cap-and-trade program that would mesh well with a regional, national program and international program that trade carbon credits. California businesses operate in the global economy and should be able to reduce the net impact of carbon emissions through investments in other countries, such as in Clean Development Mechanisms in developing countries.
Importance of policies other than cap-and-trade
California’s most important and successful policy strategies pre-AB 32 have involved policies other than cap-and-trade, and the intent of AB 32 was clearly that these strategies should continue and be enhanced. Placing a price on emissions will not be sufficient to ensure that California captures our lowest cost options. Thus, policies other than cap-and-trade, such as standards (clean cars, energy efficiency, renewable portfolio, and others), incentives, and mandates to name just a few examples, are crucial. Regulators should consider the effectiveness of other strategies in determining which sectors will be included in the cap and trade.
Background Reports on Cost Effectiveness:
This potential for cost savings is not simply a theoretical proposition. Studies
indicate substantial cost savings from existing cap-and-trade programs. The two major
studies of cost savings for the SO2 program (Carlson et al., 2000 and Ellerman, 2003b) are in general agreement that savings under the trading program amounted to 43–55 percent of expected compliance costs under an alternative regulatory program that imposed a uniform emission standard. Carlson et al. cite savings of over 65 percent compared to a policy that might have forced post-combustion controls (scrubbers) to achieve the same level of emissions.
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