Cap-and-trade program has WTE plants worried

As California auctions emissions credits, industry experts predict higher prices

California kicked off its landmark market-based system for pollution control Nov. 14 with its first auction of greenhouse gas emissions credits. In a state that often serves as a national blueprint for progressive environmental programs, some see the potential for the controversial cap-and-trade regulation to disrupt the waste-to-energy industry.

A central part of California's Global Warming Solutions Act, enacted in 2006, the state's cap-and-trade system requires major emitters of carbon dioxide, methane and other greenhouse gases to keep their emissions below a state-imposed "cap." Facilities that emit more than 25,000 metric tons of greenhouse gases must either obtain allowances if their emissions exceed allotted levels for a given year or reduce their emissions. A portion of the allowances available for 2013 was offered for sale in the November auction.

The system is intended to curb global warming, but some predict it will have a negative impact on California's economy. A common concern is that businesses that purchase allowances will pass on their increased operating costs to their consumers. For major emitters like utilities, refineries and food processing facilities, that could mean consumers will ultimately pay more for energy and food, said Shelly Sullivan, a spokeswoman for the AB 32 Implementation Group, which represents businesses in the process of implementing the cap-and-trade system. For WTE plants, whose anthropogenic carbon emissions trigger the cap-and-trade thresholds, those costs would be transferred to refuse haulers in the form of increased tipping fees, said Frank Caponi from the Los Angeles County Sanitation Districts.

Caponi said he doesn't think WTE facilities should be subject to cap-and-trade regulations because they simply can't afford to buy allowances. He described tipping fees jumping by dollars per ton, not cents; such an increase would make WTE a less appealing option to haulers.

"Everyone works on a margin here; this is not a lucrative business for solid waste," Caponi said. "A hauler will simply make the decision that at that increase in cost, they're just gonna travel an extra 20 minutes on the freeway and go to a landfill."

A drop in business could force WTE facilities to shut down, and make it difficult to start new WTE projects in the state, Caponi said. His department has been discussing those issues with the California Air Resources Board.

"We've shown them — I think pretty effectively — that the waste going to the landfills is going to produce a lot more greenhouse gases than if it went to the waste-to-energy facility. So on that basis, we're just a bad fit for cap-and-trade," he said.

In October, the CARB granted WTE facilities temporary relief from cap-and-trade regulations while they study the issue, Caponi said. But not everyone thinks that's a good idea.

The AB 32 Implementation Group opposed the exclusion of waste-to-energy facilities and further asserts all allowances should be given away for free instead of a portion of them sold.

"The more entities that are carved out of the program, whether it is waste-to-energy or California's universities or water district, reduce the size of the market," Sullivan wrote in an email. "The AB 32 Implementation Group has long advocated that we need a broad market to ensure the program succeeds."

Despite further controversy over the system's economic impact, including a lawsuit filed by the California Chamber of Commerce seeking to invalidate the auction process, 2013 allowances made available for sale in the auction sold out. There was an average of about three bids made for each allowance available for sale, according to information released by the CARB.

Of an estimated 350 industrial facilities affected by the regulations, 73 registered to participate in the first auction, Clegern said. The sold-out auction netted more than $230 million for the state.

The auction effectively set a price for a ton of carbon emissions at $10.09, slightly above the $10 reserve price set by the CARB, according to auction results.

Victoria Hicks, chief of the State Water Project Power and Risk Office at the California Department of Water Resources, said her organization was "very satisfied" with the outcome of the auction. Her department is working to reduce its emissions by eliminating a coal-based power source and pursuing energy efficiency projects, and it was happy with the emissions price established by the auction. The organization was not fazed by the recent lawsuit and plans to move forward under the cap-and-trade system "until there was something that changed," she said.

The CARB's Clegern also called the auction a success, saying it fulfilled the board's expectations.

"It might be that the big surprise was that there were no surprises," he said. "We're very confident that the market will work well."

Caponi said he hopes the state will seriously consider permanently exempting WTE facilities as it moves forward with the cap-and-trade system.

"I think they're sympathetic to our argument," he said.

Contacte Waste & Recycling News reporter Kerri Jansen at kjansen@wasterecyclingnews.com or 313-446-6098.

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