June 18, 2009

Dear Green-e Stakeholders,

Center for Resource Solutions and Green-e would like to draw your attention to recent California legislation regarding the sales and marketing of carbon offsets. California Senate Bill 722 (Steinberg) is written ostensibly to protect consumers of carbon offsets located in the state of California. But SB 722 also has the potential to curtail the market for renewable energy certificates, and potentially green electricity products, within California. This bill was passed in the Senate on May 14, and is scheduled for hearing in the California State Assembly Committee on Natural Resources on June 22.

While the voluntary renewable energy market is not the primary target of this bill, it is also not explicitly protected from the potential effects of the bill’s implementation. Senator Steinberg's bill, in its current form (search for it here), limits offsets to those that meet at least one of the following conditions:

(a) The credit or emission reduction meets methodologies that have been adopted by the State Air Resources Board as being in compliance with Division 25.5 (commencing with Section 38500), including, but not limited to, Section 38571.

(b) The credit or emission reduction complies with one or more protocols for voluntary emission reductions of greenhouse gases adopted by the California Climate Action Registry consistent with the requirements in former Chapter 6 (commencing with Section 42800) of Part 4 of Division 26, as effective on December 31, 2007, and is registered with the California Climate Action Registry.

(c) The person demonstrates, and discloses in any advertising or other sales or promotional material made available to the public, that the credit or emission reduction meets all of the following conditions:

…(3) The credit or emission reduction is verifiable by a state, regional, or local agency within the State of California.

No mechanism currently exists for a credit to be "verifiable by a state, regional, or local agency within the State of California," and the intent of this section is unclear. The California Climate Action Registry, State of California, and State Air Resources Board (ARB) currently have no protocols for approving renewable energy credits, and the green power market is not clearly exempt from SB 722. While the ARB would be a good agency to fulfill this task, it is uncertain whether the agency has either the resources or the desire, considering the amount of time and effort spent on the implementation of AB 32. If this bill is meant to allow only offsets that meet AB 32 protocols, it is likely that these will also not reach the voluntary market, because available supply is likely to be bought up by regulated entities, as has often been seen in international regulatory schemes. If limiting that option to AB 32–compliant offsets is not the intent, this language is open ended and will create market uncertainty.

Although SB 722 is a laudable attempt to address potential confusion in the carbon marketplace, it could also result in even more confusion, while enacting civil penalties and opening a cause of action for citizen lawsuits against sellers of carbon offsets that are not certified as specified (in specifying that "any person" may sue under this provision, the new bill allows for recovery of attorney fees and costs by the prospective plaintiffs). The bill is essentially a rewrite of SB 1762 (Perata, see our previous market advisory), which was introduced in the prior legislative session and vetoed by Governor Schwarzenegger.

Many consumers and businesses in California, and across the country, currently purchase renewable energy or renewable energy certificates to reduce or offset the GHG impacts of electricity consumption. This a widely accepted practice endorsed by the U.S. EPA Climate Leaders program, as well as many leading registries and environmental groups. By omitting the legitimate role that regional and national renewable energy purchases can make in reducing GHG emissions in the electricity sector, this bill inadvertently dramatically reduces Californians’ ability to choose renewable energy as a means to reduce the GHG emissions associated with their electricity use.

The primary concern of CRS staff is ensuring the integrity of RECs sold in California, protecting the voluntary renewable energy market from SB 722, and defending the current ability of consumers in California to reduce the greenhouse gas emissions associated with their electricity use. If you are selling green electricity, RECs, or offsets to consumers in California, are concerned with SB 722, and wish to make your concerns known, you should participate in the upcoming hearing and if located in California contact your local legislator.

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