Transparency, policy specificity, and energy forecasting uncertainty in ARB’s Scoping Plan

Nov 21, 2016

Wara and Cullenward submitted a comment to the California Air Resources Board (CARB) on transparency, policy specificity, and energy forecasting uncertainty in ARB’s draft 2030 Scoping Plan analysis.

Our comments today focus on two elements of the Public Workshop on the 2030 Target Scoping Plan (Nov. 7, 2016): CARB staff’s presentation of the Draft Scoping Plan Policy Scenarios and CARB staff’s Preliminary Economic Analyses. Overall, while we believe that the workshop represents an important step in articulating how CARB’s Scoping Plan will achieve the statewide 2030 emissions limit required by SB 32, CARB still lacks critical information necessary for stakeholders—and even CARB—to perform a reasonably informed evaluation and comparison of the Scoping Plan Scenario and its Alternatives.

Significant new analysis is needed to properly inform California’s ambitious climate policy strategy. Moreover, this analysis analysis needs to be performed prior to moving forward to a Draft Scoping Plan.

We describe what we believe is necessary for a full evaluation in our comments below. We highlight five major issues in this letter:

Improved Transparency. In order for stakeholders to evaluate the alternatives presented, CARB should disclose all model inputs, assumptions, and outputs. CARB should also provide additional time for stakeholders to review and evaluate these disclosures.

Policy Specificity. CARB refers to a number of policies that are estimated to have major impacts on simulated emissions, but provides little or no explanation for how these policies would be designed or achieved. For example, CARB states that the refining sector can reduce its emissions 20 to 30% without any discussion as to how these requirements would be imposed or realized. Much more information needs to be provided on how CARB plans to achieve the reductions forecast in order to evaluate the proposed alternatives.

Policy robustness. CARB’s initial scoping plan relied on what turned out to be a very inaccurate forecast of key drivers of California GHG emissions—most notably with respect to the trajectory of state economic growth, a notoriously difficult variable to accurately predict. One consequence of the earlier forecast error is the present oversupply in the state’s cap-and-trade market and hence, limited revenue for the Greenhouse Gas Reduction Fund (GGRF). At the November workshop, staff once again relied upon a single reference emissions scenario; however, the use of a single reference scenario falls short of best practice in long-term policy analysis. We strongly recommend developing multiple reference scenarios that incorporate both low and high electricity load growth, transportation fuel demand growth, population growth, and overall economic growth. Only an analysis that considers multiple baseline scenarios can ensure that the selected Scoping Plan strategy is capable of achieving California’s policy goals.

Energy-economic modeling. CARB’s analysis relies on two models: PATHWAYS, an engineering model that does not take into account interactions between economic sectors, and REMI, an economic model that does not simulate energy or greenhouse gas emissions. As a result, CARB must assume carbon prices, rather than estimate them endogenously. This means that CARB cannot endogenously estimate the macroeconomic impacts of the Draft Scoping Plan Scenario. Similarly, CARB cannot use these models to estimate carbon market prices (Draft Scoping Plan Scenario) or design a carbon tax (Alternative 2) that would achieve the 2030 Target. CARB’s assumptions about carbon pricing under a cap-and-trade program (Draft Scoping Plan Scenario) and under a carbon tax (Alternative 2) are inconsistent and frustrate an even-handed comparison of these two policy mechanisms.

Quantity Certainty. The design of the current cap-and-trade system allows for unlimited banking. Given the ambition of the 2030 Target and the current oversupply in the carbon market, it is very likely that market participants will over-comply in the early 2020s, bank allowances, and under-comply in the second half of the 2020s (using banked allowances to satisfy program requirements in these years). This strategy appears inconsistent with SB 32, however, because the statutory target requires statewide emissions to be at 40% below 1990 levels in 2030—not that the integral of emissions over 2021-2030 equal some fixed quantity. Staff should explain how the Draft Scoping Plan Scenario (cap-and-trade with allowance banking) will comply with the legally mandated 2030 emissions target. An explanation is particularly important given the criticism in the staff presentation regarding lack of an emissions limitation for Alternative 2 (Carbon Tax).

Disclaimer: we are writing in my personal capacities only, not on behalf of our employers, affiliates, or any other organizations.

submitted to the California Independent System Operator (CAISO)

Michael Wara * and Danny Cullenward †§

* Stanford Law School

Near Zero

§ Carnegie Institution for Science, Department of Global Ecology

photo credit: Pahala Basuki via Unsplash