US: Resource shuffling impact could be overlooked, sources say

Resource shuffling could have a significant impact on the California carbon market if the Air Resources Board (ARB) finds a situation that it deems to be in violation of its regulations, experts said during the Navigating the American Carbon World conference.

The ARB, California’s cap-and-trade regulator, approved a set of 13 provisions last year that would be excluded from regulations on resource shuffling, or the process of illegally swapping CO2-intensive power for lower-emitting sources in order to avoid regulatory costs.

The provisions were put in place after utility companies said the resource shuffling regulations would prevent them from normal power transactions. Those situations, such as plant retirements or expiring contracts, are intended to stop the most egregious forms of resource shuffling while reducing the impact of the rules on the state’s power supply. Critics, however, have said the 13 provisions are so broadly written that utility companies can utilise them to get around compliance costs in the state’s carbon programme.

Severin Borenstein, a University of California at Berkeley professor, said resource shuffling is a real problem that is no longer getting much attention in the California carbon market.

“There is some of it going on,” Borenstein said. “Whether it is illegal or should be thought of as illegal is the question.”

The ARB has not fined any company for resource shuffling in its two-year history, thus making it difficult to know exactly how much resource shuffling may be occurring because of the ambiguity of rules.

Nicholas van Aelstyn, a principal at the law firm Beveridge & Diamond, said the lack of information has caused some people in the market to discount the impact of resource shuffling.

“When they find a case, it will bring a whole new clarity to this issue,” van Aelstyn said. “It will have a major change on everything.”

Any resource shuffling violation could alter the way power is imported or exported into the state. In turn, those changes could alter the demand for California carbon allowance, because utilities may have to report more emissions in the California carbon market.

The ARB said it is constantly monitoring for resource shuffling, but it has not found any cases that violated the current rules.

Some market participants pointed to the 16% decline in emissions from imported power as evidence of resource shuffling. The ARB did not comment on those allegations last year. Dan.McGraw@icis.com