Carbon markets gone wild

Politico

20-02-2025

With help from Alex Nieves and Camille von Kaenel
CARBON JITTERS: Pour one out for California's carbon traders, who are really going through it right now.
What appears to be an administrative hiccup in California's emissions market for transportation fuels is jolting markets and reinflaming a bitter debate over a climate program with a potentially high price tag.
The California Air Resources Board said late Thursday that the state's Office of Administrative Law rejected amendments to its low-carbon fuel standard, which the board approved in November.
By all appearances, it's a technicality. The office, which serves as the final seal of approval for agency regulations, said the rules didn't meet the state's 'clarity standard,' according to CARB.
CARB tried to tamp down worries last night.
'The Office of Administrative Law issued a routine disapproval of the LCFS amendments on technical grounds, not on the merits of the regulation,' spokesperson Dave Clegern said. 'CARB will refine the language per OAL's guidance and resubmit for approval. The LCFS remains in effect in its current form.'
But that didn't calm the secondary market, which dropped from $75 per ton to $57 on the news before rebounding to $66, according to one trader. It also hasn't stopped Republican lawmakers and other longtime LCFS critics from making hay.
'The Newsom Administration's 65-cent gas price hike has been PAUSED by CA's Office of Administrative Law because it didn't meet legal requirements,' Senate Minority Leader Brian Jones said in a statement. 'We've been fighting this since Day 1 and we won't stop now.'
Groups who receive credits under the program, like biofuel and hydrogen producers, are also spiraling.
'Too much is at stake for our state's clean energy future — we cannot afford additional delays,' said Teresa Cooke, executive director of the California Hydrogen Coalition.
A bit of background to explain why people are so triggered: CARB amended the program last year to increase its stringency and drive up credit prices for lower-carbon fuels that had fallen to record lows since a glut of renewable diesel started flooding the market in 2021. It became the center of a fierce cost-of-living debate when CARB put out — and walked back — an estimate that the program could increase gas prices by 47 cents per gallon as a result of fuel suppliers passing on the cost to customers.
'With affordability top of mind, this is a good opportunity for CARB to be transparent and revisit cost impacts of the LCFS amendments on consumers,' said Western States Petroleum Association CEO Catherine Reheis-Boyd.
Administrative hiccups are somewhat routine for agencies seeking OAL's stamp.
The office has rejected seven other CARB rules, most recently 2022's commercial harbor craft rule over similar 'clarity' reasons. It approved all of them once CARB resubmitted, although it took an average of 130 more days, according to consulting firm Capstone. Industry players are already counting down the days.
The reaction says a lot about the skittishness around California's carbon markets — and shows things haven't settled down since last year's fight.
'This is really just an administrative review and there isn't some big-wig in OAL rejecting this policy,' said a carbon trader granted anonymity to discuss trading activity. 'People seem to think it's a rejection of policy, but it isn't.'
Before LCFS took over the news cycle, we were actually planning to write today about the state's other carbon market: the marquee cap-and-trade system for all big emitters that's getting ripe for amendments of its own.
CARB will publish the results of today's quarterly auction next week. That may trigger another round of hand-wringing, if prices keep hovering a few dollars above the state-set floor as they have for the last two quarters.
'I'm expecting them to be lower,' said Assemblymember Isaac Bryan, chair of his chamber's Natural Resources Committee and one of the lawmakers working to bring forward a bill to reauthorize the program before it sunsets in 2030. 'That is why we've got to do this work with some urgency. We want to bring stability to the market.' — BB
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HIGH-SPEED BICKERING: Gov. Gavin Newsom's January budget proposal didn't call for any changes to state funding for high-speed rail, but that didn't stop the controversial project from being a point of heated discussion during the Assembly's first transportation budget hearing today.
Republicans on the committee questioned why California continues to spend on the proposed rail line from Los Angeles to the Bay Area, which President Donald Trump has threatened to investigate over cost overruns. Most of the state's Republican caucus signed a letter to Trump last week supporting an investigation.
The project is estimated to cost between $88 billion and $128 billion to complete — up from an original price tag of $33 billion — and an inspector general report released earlier this month found that construction on an initial Central Valley line is unlikely to be completed by the High-Speed Rail Authority's 2033 timeline.
'If this was a project to renovate our home and the estimate more than tripled, and the contractor couldn't provide a completion date, would you complete that renovation with your own money?' asked Assemblymember Tom Lackey, who represents a portion of northern Los Angeles County that's eventually supposed to have a stop on the line. 'I think it's highly unlikely, highly unlikely, and this project appears to be a betrayal of trust.'
Transportation Secretary Toks Omishakin acknowledged the project's rocky history, but argued the project has employed more than 14,000 workers in the Central Valley and completed environmental reviews that were its biggest impediment. He said the project is on track to start operations in five to seven years.
'This is one of those projects that undoubtedly has a lot of controversy around it, there's no doubt about that,' Omishakin said. 'But I believe this is probably one of the most important transportation projects or infrastructure projects in the entire country.' — AN
CURRENTS OF DEBATE: Two California water gurus on opposite sides of Newsom's proposed tunnel to reroute water around the Sacramento-San Joaquin River Delta south to farms and cities went at it on a panel today.
Jennifer Pierre, the general manager of the State Water Contractors, which get state water deliveries, and Max Gomberg, a former top State Water Resources Control Board official who resigned over the administration's approach to the Delta and now consults for environmental and tribal groups, squared off in a virtual event hosted by the Southern California Water Dialogue.
For context: The water board just kicked off its process to determine how much water to give the state the right to use as part of the tunnel project, which has been around in one controversial form or another for decades.
Pierre brought up the current limits on pumping despite rivers gushing from recent storms: 'I think it's reasonable to think about how we take advantage of these high flow conditions, and that will require both climate responsive operations as well as new infrastructure,' she said.
Retorted Gomberg: 'No one trusts that operations will be as promised. In fact, one of the ongoing disputes has always been because Delta conveyance has been proposed for decades now that if it ever gets built, the pressure to utilize it at full capacity will be overwhelming because of the amount of money that was sunk into building it.' — CvK
TRUMP TAXONOMY: Observers of California's already-choppy lithium sector downplayed the Trump effect today at a panel in Sacramento.
Besides the moderating (?) influence of Elon Musk, who is still an EV manufacturer despite everything, the authors of a recent book on California's lithium-rich Salton Sea region pointed to market maturity, manufacturing facilities in red-leaning states and competition from China as reasons development will continue.
'That pressure is going to lead auto manufacturers to want to continue to move forward,' Manuel Pastor, co-author of 'Charging Forward: Lithium Valley, Electric Vehicles and a Just Energy Future,' told Blanca today at a UC Student and Policy Center event.
The question remains as to whether local communities will reap the benefits. But Pastor did have one concrete prediction: 'I think one thing that Imperial Valley is probably going to do is start to call this 'mining,' because that will lead Donald Trump to think that it's actual mining,' he said. — DK
WATER ALLIANCE: The Central Valley's most powerful and thirstiest farm water agency, Westlands Water District, is considering bringing former Speaker Kevin McCarthy on board as an advisor, a district spokesperson said.
Officials at Westlands have praised Trump's promises to divert more water from Northern California rivers to irrigate parched farms in the Central Valley. McCarthy and Trump clashed at times during the first administration, but seem to have patched things up: the Bakersfield Republican endorsed the President and attended the inauguration last month. — CvK
IN MEMORIAM: Frederic Dross, an executive at solar technology company Solar Swift, died in an avalanche while backcountry skiing in South Lake Tahoe on Monday. A GoFundMe organized for his family describes him as a father and a 'tireless solar warrior.'
— A small fire flared back up Tuesday night at the lithium-ion battery plant in Moss Landing that burned last month.
— Fresnoland dives deep into the Williamson Act, the political third rail that provides tax breaks to farmland owners.
— The Trump administration's job cuts (including Yosemite National Park's sole locksmith) are already causing chaos, delays and cancellations at the country's national parks.