US: Companies shift to cleaner power imports - traders

20 February 2014 23:23 Source:ICIS

California electricity importers are using broad Air Resources Board (ARB) rules to limit imports from CO2-intensive power, thereby reducing their compliance obligations under the state’s cap-and-trade programme, traders told ICIS.

Resource shuffling, or artificially reducing emissions by swapping CO2-intensive power imports with cleaner generation in order to escape compliance costs, is prohibited by California regulator ARB. The board, however, has proposed 13 exceptions, or “safe harbours”, that would not be considered resource shuffling. Those provisions would allow companies to engage in routine power practices, such as substituting electricity imports for power previously supplied by a source that has been retired.

But some participants said companies are still being able to use these harbours to cut compliance obligations.

A West Coast power trader told ICIS that some companies began selling power from carbon-intensive sources and then buying renewables or unspecified power from outside of the state late last year. The source said the tactic was a mixture of reducing carbon compliance obligations and meeting the state’s renewable portfolio standard, which requires at least 33% of power to come from renewable sources.

“I’d argue that [resource shuffling has] brought down emissions from the power sector more than any other factor,” said a source at an environmental brokerage firm.

Data on 2013 imports will not be available until November 2014, and researchers said it is unclear how much shuffling took place without that information.

Any drop in emissions from imports would add bearish pressure to California carbon allowances (CCAs), causing them to stall or stay closer to the $11.34/tonne of CO2 equivalent (tCO2e) floor price.

An ARB spokesman, however, told ICIS that there is no evidence California imports are sidestepping compliance by resource shuffling, and the board is still aiming to approve its safe harbours in April.

Climate advocates and researchers said the ARB needs to narrow the guidelines of its broadly written resource shuffling safe harbours rules to limit the practice.

Traders said it is nearly impossible for the ARB to prevent companies from engaging in resource shuffling due to complexity of the West Coast electricity grid. “Honestly, I don’t think there is a solution,” said a trader from a compliance entity. Dan X. McGraw

By Dan X. McGraw