Thus far, California’s landmark law to cut greenhouse gases from its factories and businesses—a law that has given Gov. Schwarzenegger an international image of environmental activist—has been mostly talk and little action.

Rules covering perhaps 60 percent of the reductions needed to meet the targets are already in place or soon will be, the result of other laws, covering such things as renewable energy standards, energy efficiency, clean-car rules, low-carbon fuel standards and others. One key component, to cut greenhouse gases from car tailpipes, is stalled pending a federal waiver, although that permission is all but certain after President Bush leaves office, experts say.

But at the end of next month, the state Air Resources Board will release its draft plan on putting key provisions of the law, AB32 which Schwarzenegger signed in 2006, into effect. The law is supposed to reduce greenhouse gas emission to 1990 levels by 2020. The report will kick off months of hearings leading up to a final approval in October. The provisions take effect in January—and then begins the drafting of regulations.  

“The scoping plan will lay out the policy framework of how we’re going to achieve the reductions. It will lay out a core set of regulatory measures that account for about 60 percent (of the reductions),” said ARB spokesman Stanley Young.

But it is the other 40 percent that are drawing exceptionally close scrutiny from environmentalists and business interests. That’s because the debate over meeting the 40 percent portion focuses on options over emission enforcement, market systems, including auctions; pay-to-pollute fees, environmental justice and offsets, which allow companies to pollute if they do other things to help the environment. These are pocketbook issues.

“The big question is, where do you get that 40 percent of the emissions? The core measures are mostly in effect, but not all of them,” said the Sierra Club’s Bill Magavern. “So they (the ARB) are going to be looking at a mix of performance standards, incentives and so-called market-based compliance.”

The options reflect questions posed by the ARB: Should the state have a classic regulatory scheme over carbon emissions, the “ pure” or “command and control” regulations? Should there be across-the-board fees? Should emission credits be auctioned off? Should California join a western regional emissions marketplace?

The ARB also is a considering a cap-and-trade system proposed by the state Public Utilities Commission and PUC President Michael Peevey—a proposal that has drawn mixed reviews within the ARB. “That’s a drama that’s going on behind the scenes there,” a Capitol source said.

Schwarzenegger wants some form of market structure in which emission credits can be sold, traded or auctioned, and an ARB advisory board—Schwarzeengger created the board by executive order a month after AB32 was approved. That panel, as expected, recommended that a market system be adopted. That is understood to mean a “cap-and-trade” system in which overall limits are imposed on emissions but companies are allowed to trade credits that allow them to operate.

The idea is that emissions can be reduced by competition within the private marketplace.

“The devil is in the details, the specifics are what will make the program,” said Amisha Patel, a policy advocate with the California Chamber of Commerce. “We would like to see a basket of options, and from our perspective that basket should include cap-and-trade and offsets.”

Environmentalists, who don’t acknowledge the need for any market-based program at all, are leary of allowing emitters to barter credits. They also don’t like offsets. “We are very skeptical of the use of offsets and would like to see them limited very strictly. We would certainly limit them”

Business and industry like them, however. “I think offsets will be significant. From our standpoint, we think offsets will be a very important tool,” Patel said.

A glimpse of a system in which fees are used to enforce emission compliance came last week from Bay Area Air Quality Management District, which voted 15-1 to impose fees on companies that emit carbon emissions – 4.4 cents per ton, beginning on July 1. The fee will generate about $1.1 million annually; the biggest emitters will pay about $50,000 annually, experts said. It is the first time in the nation that such a fee has been imposed.

The fee will not supplant fees, if any, that the ARB decides should be imposed statewide, said Jerry Hill, chairman of the air quality board and a member of the ARB.

“There is a difference here. What the Bay Area board did was to establish a very minimal fee for already-regulated industries and businesses on their carbon emissions. The fee will be used for supporting  climate- change and climate-protection programs. The ARB’s mandate is actually regulating and reducing carbon emissions,” he said.

The San Francisco-area fee, he added, will be folded into the structure that the ARB ultimately chooses.

Ultimately whatever the ARB decides is likely to be a mix of options, as the high-profile board balances policy and politics.
“It is my expectation that there will be a hybrid. There will be a market mechanism, there will be a little bit of “command and control.” There will be a blending of both,” Patel said.