Legislative Update and Cost-Effectiveness Framework California Air Resources Board

1. Legislative Update and Cost-Effectiveness Framework California Air Resources Board November 3, 2016 California Air Resources Board

2. Outline • Legislative Update • Cost-Effectiveness • Definition • Types of costs • Considerations • Social Costs • Definition • Application in California • California's 2030 Target Scoping Plan California Air Resources Board

3. Legislative Update

4. Greenhouse Gas Targets • AB 32 • Sets 2020 emissions limit and requires Scoping Plan to outline how the limit will be achieved • EO B-30-15 • Establishes midterm GHG emissions reduction target of 40% below 1990 levels by 2030; • Updates AB 32 Scoping Plan to incorporate the 2030 GHG target. • SB 32 • Codifies 2030 midterm GHG target. • AB 197 • Prioritizes measures resulting in direct emissions reduction while considering cost effectivenessand minimizing emissions leakage.

5. SB 1383 – Short-Lived Climate Pollutants • ARB must approve and begin implementing the comprehensive SLCP strategy by Jan 2018 • Achieves 2030 reduction targets: • 40 % reduction in methane emissions below 2013 levels; • 40% reduction in hydrofluorocarbon emissions below 2013 levels; • 50% reduction in black carbon emissions below 2013 levels; • 50% reduction in disposal of organics below 2014 levels by 2020 & 75% reduction by 2025. • Prioritizes production and utilization of renewable natural gas

6. SB 1371 – Natural Gas • Directs CPUC, in consultation with ARB, to: • Adopt rules & procedures to minimize NG leaks from transmission & distribution pipelines; • Reduce emissions to the maximum extent technologically feasible & cost effective • Require gas corporations to file a report on leak management practices, new leaks by grade, leaks being monitored, and gas loss estimate; and • Establish BPs for leak survey technology, patrols, and leak prevention & reduction. • ARB retains authority to adopt rules and regulations to further achieve emission reductions.

7. SB 887 – Natural Gas Storage Wells • Directs ARB, with local air districts and DOGGR, to: • Develop a monitoring program that requires storage facilities to submit monitoring plans that include continuous air monitoring with data publicly available. • Requires Operators to: • Commence mechanical integrity testing by Jan 1, 2018, specified by the DOGGR; and • Submit a risk management plan, including a protocol for public notice of a large/uncontrollable leak and mitigation efforts. • Directs DOGGR to: • Establish standards for well design, construction, and maintenance; • Perform unannounced annual random onsite inspections; and • Determine, in consultation with ARB, what constitutes a reportable leak.

8. SB 888 – Gas Corporations • Mandates CPUC, in consultation with ARB, to: • Assess a monetary penalty to fully offset the GHG impacts of a NG storage facility leak as determined by ARB; • Deposit the penalty to the Gas Storage Facility Leak Mitigation Account with the State Treasury; and • Expend the money as appropriated by the Legislature for direct GHG emissions reduction. • Establishes the Office of Emergency Services (OES) as the lead agency for response to NG leak from a storage facility • Requires OES to coordinate responses, public health, environmental assessment, monitoring, and long term management and control of the leak.

9. AB 1496 – Methane Emissions • Requires ARB, in consultation with state, local, federal agencies and independent scientific experts, to: • Undertake monitoring & measurements of high-emissions methane ‘hot spots’; • Conduct lifecycle GHG emission analysis of NG produced in and imported into the state; • Update relevant policies and programs to incorporate the information gathered above; and • Review the most up-to-date data on methane reactivity as a precursor for ground ozone formation.

10. Cost-Effectiveness and Social Costs

11. Cost-Effectiveness • AB 32 and SB 1371 • maximum technologically feasible and cost-effective • AB 32 definition • Cost per unit of reduced emissions of greenhouse gases adjusted for global warming potential • How is the scope of the costs defined? • Over what time period is are the costs measured? California Air Resources Board

12. Costs in Economic Impact Assessments • Direct regulatory costs • The costs to a directly regulated party that result from compliance with a regulation or standard • Include costs associated with changes in equipment, fuel, and energy expenditures and demand, and infrastructure costs • Macroeconomic costs • The costs to the overall economy of meeting a regulation or standard • Includes direct, indirect, and induced impacts • Provides estimates of impact to GDP, employment, industrial sectors, and individuals California Air Resources Board

13. Social Cost • Direct (or private) costs • Individuals often consider only their costs when making decisions, not the costs that might be incurred by others • Social cost is defined as the total cost to society • Includes the costs to individuals and any external costs that the decisions of individuals may impose on others in the society California Air Resources Board

14. US EPA Definition of Social Cost • From a regulatory standpoint, social cost represents the total burden a regulation will impose on the economy. It can be defined as the sum of all opportunity costs incurred as a result of the regulation. These opportunity costs consist of the value lost to society of all the goods and services that will not be produced and consumed if firms comply with the regulation and reallocate resources away from production activities and towards pollution abatement. California Air Resources Board

15. US EPA Social Cost continued… • To be complete, an estimate of social cost should include both the opportunity costs of current consumption that will be foregone as a result of the regulation, and also the losses that may result if the regulation reduces capital investment and thus future consumption. California Air Resources Board

16. Social Cost Consideration in Statute • AB 32 (2006) • Consider overall societal benefits, including reductions in other air pollutants, diversification of energy sources, and other benefits to the economy, environment, and public health • AB 197 (2016) • Consider the social costs of the emissions of greenhouse gases • Defined as: an estimate of the economic damages, including but not limited to, changes, in net agricultural productivity; impacts to public health; climate adaption impacts, such as property damages from increased flood risk; and changes in energy system costs, per metric ton California Air Resources Board

17. Social Cost of Carbon (SC-CO2) • An estimate of the economic damages associated with a one metric ton increase in CO2 in a given year • Represents the value of damages avoided for a one metric ton reduction in CO2 • Includes impacts to: • Agricultural productivity • Human health • Property damages from increased flood risk • Changes in energy system costs • Does not include economic impacts of co-pollutants or impacts that cannot be accurately monetized California Air Resources Board

18. Social Cost of Carbon in Use • US EPA has used SC-CO2 in rulemakings since 2010 • GHG vehicle standards • Toxic air pollutant rulemakings • Intergovernmental Panel of Climate Change (IPCC)includes SC-CO2 in estimating climate impacts • Public Utility Commissions • Minnesota formally adopted SC-CO2 for integrated resource Planning • Massachusetts requires valuation of CO2 and other air pollutants in integrated resource planning • New York is using the SC-CO2 in clean energy planning California Air Resources Board

19. SC-CO2 (2007$/metric ton) Source: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, United States Government, (May 2013, Revised July 2015). California Air Resources Board

20. Social Cost of Methane (SC-CH4) • An estimate of the economic damages associated with a one metric ton increase in methane in a given year • Includes impacts to: • Agricultural productivity • Human health • Property damages from increased flood risk • Changes in energy system costs • Impacts are specific to methane emissions • Does not include economic impacts of co-pollutants • US EPA uses in sensitivity analyses and in the 2015 Regulatory Impact Analysis of the Proposed Emission Standards for New and Modified Sources in the Oil and Natural Gas Sector California Air Resources Board

21. SC-CH4 (2012$/metric ton) Source: U.S. Environmental Protection Agency, Regulatory Impact Analysis of the Proposed Emission Standards for New and Modified Sources in the Oil and Natural Gas Sector, EPA-452/R-15-002, August 2015 California Air Resources Board

22. 2030 Target Scoping Plan • Outlines social cost methodology and defines the US EPA SC-CO2 • Identifies uncertainties, data limitations, and evolving modeling • Incorporates the concept of SC-CO2 • Presents the range of the economic benefits that occur as a result of the avoided environmental damage that results from achieving the 2030 target • Utilizes the SC-CO2 values in a potential path (carbon tax) to achieve the 2030 target California Air Resources Board

23. Contact Information • Emily Wimberger Chief Economist emily.wimberger@arb.ca.gov • Elizabeth Scheehle Branch Chief, Oil and Gas and Greenhouse Gas Mitigation elizabeth.scheehle@arb.ca.gov • Winardi Setiawan Specialist, Oil and Gas and Greenhouse Gas Mitigation winardi.setiawan@arb.ca.gov California Air Resources Board