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The California climate policy no one is talking about

24th July 2019

California is often lauded for its commitment to confront the climate crisis and its leadership in developing innovative policy solutions. The state delivered on its 2020 climate goals by 2016 and its climate ambition is enshrined it its recently established 2045 carbon neutrality goal and zero-carbon electricity mandate. Since then, four other states have put in place similar 100 percent carbon-free electricity standards. California’s aggressive targets should be seen not only as a manifestation of the state’s policy leadership and a market signal, but also as a nod to the importance of advanced energy technologies in sectors most difficult to decarbonize.

Indeed, California quietly instituted further steps to accelerate carbon capture technologies likely to be critical for achieving net-zero emissions. It is a move worthy of attention, as it could set the tone for other states and countries to follow, given California’s history as a global standards-setter on climate.

California’s Air Resources Board (CARB), responsible for most of the state’s climate policy, passed a protocol for carbon capture and storage (CCS) projects within the state’s Low Carbon Fuel Standard (LCFS). Since January, CCS projects reducing the lifecycle emissions from transportation fuels are eligible to receive LCFS credits. Recognizing that emissions are a global problem, the regulation allows direct air capture (DAC) projects anywhere in the world to participate. The credits are trading around $185/tCO2 and stackable with a federal credit known as 45Q, together currently offering around $210 worth of incentives — one of the highest values on carbon globally. The first DAC project, aiming to capture 500,000 tonnes of CO2 annually, was announced recently, with the LCFS likely a keystone of the project’s economics. According to industry chatter, more than half a dozen new CCS projects aim to tap the opportunity over the next three years, representing a more than 50 percent increase in U.S. CCS projects.

Both the zero-carbon electricity mandate and the LCFS update come at an important time, as the United States has already capitalized on the lion’s share of emissions reduction opportunities through fuel-switching. CO2 emissions from fossil fuel combustion rose by 2.7 percent in 2018, representing the second largest annual increase since 2000 despite U.S. coal consumption hitting a 39-year-low. Clearly, inexpensive natural gas is insufficient to sustain U.S. decarbonization trends and ceasing to build new, unabated sources of emissions is a must.

California has long been a leader in catalyzing future technologies. Now the state is backing solutions that could be critical in decarbonizing industry, oil and gas, and other tough sectors, recognizing that commercialization must happen soon. It is right to do so; with rising climate ambition, carbon capture is expected to be an important tool to reach deeper decarbonization, as noted by the UN Intergovernmental Panel on Climate Change (IPCC). In fact, a recent report found that CCS offers the third largest emissions reductions potential in California by 2030.

California reached its 2020 climate goals early largely because of a 34.6 percent drop of electricity sector emissions below 2000 levels, thanks to efficiency and renewable power. Reductions in industry and transportation were only 8 percent and 6.4 percent respectively, demonstrating the need for alternative policy and incentive structures reflected in the LCFS updates.

Therefore, policymakers could consider also adding the CCS Protocol to the state’s carbon market, which covers industrial emissions. Industry accounts for 20.9 percent of the state’s emissions. Around 61.5 percent of these are produced by refining, natural gas processing, hydrogen and cement production. Currently, only CCS projects related to production of fuel sold in California would qualify for credits under the LCFS. Given the paucity of other options for decarbonizing heavy industry — particularly cement — and the low-cost nature of many industrial capture opportunities starting at $15/tCO2, expanding the CCS protocol to the state’s carbon market would be a logical next step.

California’s emissions profile mirrors that of quite a few OECD countries. The UK, which reduced its emissions by a larger share than any other advanced economy, still battles with emissions from transportation, home heating, and industry. Germany, despite significant support for — and fantastic growth of — renewable power, has struggled to achieve similar CO2 reductions amid the shutdown of its nuclear fleet and flat transport sector emissions. Recognizing this stagnating pace of progress, Chancellor Merkel launched a “CCS reset” in Germany’s new “Climate Cabinet.”

Other avenues to support carbon capture in Europe include the EU Fuel Quality Directive, which despite earlier challenges could serve as a mechanism similar to the LCFS. While the EU has thus far not availed itself of this as a tool to advance carbon capture, the forthcoming EU Commission may wish to follow California’s example, if successful. This would ideally be designed to capitalize on Europe’s key initiatives including Norway’s Technology Center Mongstad (TCM), the recently launched Innovation Fund aiming to commercialize next generation clean energy tech, and the UK’s hydrogen plans.

Beyond this, more can be done to help drive policy diffusion to a broader group of global actors. Carbon capture is an opportunity for California and the U.S. federal government policymakers to work cooperatively in tracking and sharing the lessons learned from the implementation of their CCS incentives in various fora, including the Clean Energy Ministerial, the APEC Energy Working Group, and the ASEAN Center for Energy, among others.

With easier, intuitive emissions reductions opportunities harvested, and ever more ambitious and necessary climate goals pointing to a challenging road ahead, California’s leadership on catalyzing the next generation technology is a welcome development. Combined with 45Q, it is poised to demonstrate that forward-looking policy can trigger large-scale private-sector action. It is now up to other states and countries to follow California’s lead as embracing a broad clean energy technology toolkit can serve to enhance climate ambitions and lower the costs of meeting them.

The private sector, championing climate more vocally than ever and increasingly provided with incentives to take action, must also deliver. If there is any state that can prove out this virtuous circle of policy unlocking technologies that in turn empower greater ambition, the Golden State is a likely candidate. Those committed to rising to the climate challenge will be rooting for California’s success.

This piece was first published in The Hill and written by Lee Beck,  our Senior Advisor, Advocacy and Communications, based in our DC-office, and David Livingston, deputy director for climate and advanced energy of the Atlantic Council's Global Energy Center.

 

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