A “boring” look at the California carbon market

Last month, carbon market practitioners and observers gathered in San Francisco for the annual Navigating the American Carbon World (NACW) conference. NACW began in California over a decade ago as a regional meet-up for the nascent community of practice working on voluntary carbon management initiatives. Now, in step with California’s climate leadership and the start of the second shift in North American policy attention from top-down federal efforts to bottom-up state/regional action, the conference’s relevance far exceeds Golden State’s borders. Notably, this year’s NACW convened just four months following the formal start of California’s long-awaited cap-and-trade program, the world’s second largest carbon market.

So what did the carbon trading community have to say at this moment in North American climate policy? To paraphrase Mary Nichols, chair of CA’s climate regulator, the Air Resources Board: It’s boring …in a good way.

It doesn’t take a public relations expert to see that Nichols’s quip was meant to focus attention, in a “no-news-is-good-news” sort of way, on how smoothly the first few months of carbon trading in California have gone. But her characterization of the market being dull —or “routine” as she actually put it— seems to imply a comparison: boring compared to what? To unpack this pronouncement, let’s put “routine” into context.

The ghost of NACW past

Attending the same conference year-after-year inevitably leads one down a path of reflection. Last month’s NACW was my sixth, meaning I’ve only had a seat to the second act of the 11-year run-up to today’s state of play, still enough perspective to scope out at least two distinct periods preceding today’s “routine” era: “exuberance” and “anxiety.”

Exuberance

Turn the dial back to 2008-2009 and a different outlook held the day. On the one hand, CA had climate legislation on the books and was beginning the march toward implementation, but there was also wind behind the sails of much more ambitious programming: federal US cap-and-trade; regional North American schemes; and even a “grand bargain” international deal. At the time, NACW was but the west coast stop in a heavy rotation of carbon market conferences.

With policy optimism in the air, possibility was on the business table. The era was characterized by presentations chock full of measurements of the day’s carbon market, schematics of those on the drawing board, and speculation of what we should expect to come. But, as the connotation of exuberance has perhaps foreshadowed, the projections of the day turned out to be far ahead of its politics. Most of the markets excitedly described in painstaking operational detail during this period never fully came to fruition.

Anxiety (2010-2012)

As exuberant policy and market forecasts came tumbling back to political reality, NACW returned to the state of the State. By 2010, California was well into the process of operationalizing the market mechanisms called for in its 2006 climate law, but the closer the start date, the faster new obstacles seemed to crop up in the program’s path: lawsuits and administrative hold-ups and political challenges, oh my!

At NACW in this nervous time, delays and legal strategies seemed to be the cocktail chatter du jour as antsy participants apprehensively assessed the program’s timeline. In retrospect there seemed to be less worry over the question of whether the program would materialize and more serious concern about when cap-and-trade would begin. (Chalk that distinction up to what you may …an acknowledgement of California’s propensity for litigiousness and ballot box democracy; fundamental differences between the state’s appetite for environmental action and the Washington consensus; or perhaps just an indescribable can-do “California Cool” attitude.) In the end, the program was delayed a year from its original schedule before beginning this January.

Era of routine feeling

Our quick summary of the last half-decade of California carbon conferencing skips over many of the zigs and zags of this plot’s turns. Indeed, a closer look reveals themes that would be at home in an export of the state’s film industry: buildup, suspense, even stubborn perseverance.

Looking back at those developments and gauging the community’s reaction by recalling the zeitgeist of a particular NACW round, I’m inclined to agree with Mary Nichols: California’s carbon market has become routine. Not because it’s been operating for a long time or because it doesn’t have important challenges/decisions ahead. (Despite the Chair’s reassurance it’s important to remember that the program is barely up-and-running and as for hazards ahead, rest assured, they are in no short supply — see the below *asterisk for a short list.)

In my view, what’s routine is the resolve California’s carbon market community has cultivated over the last 11 years. The highs, lows, twists, and turns of a bruising maturity curve have prepared the community to both cut through the giddy projections that often accompany new markets and stay the course during anxious times. Perhaps this vision of “routine” can provide a roadmap for policy and practitioner communities struggling with the challenges of today’s carbon politics.

Keeping on the theme of carbon politics, this post was inspired by a glance across a particularly gloomy few weeks for climate policy. At GHGMI, we are not in the business of apologizing about the state of the carbon markets or telling folks the sky isn’t falling. (Really, we’re much more comfortable writing about, say: how to harmonize carbon management with other communities, the importance of human infrastructure for when the politics suit expanded policy mechanisms, or some of the wonkier bits of GHG accounting.) However, since we serve such an international community we felt it important to put struggles in one part of the world (e.g., the ongoing EU ETS back-loading saga) into balanced context by sharing the story playing out in our backyard. …of course, if we were ever at risk of coming across as too rosy, we need only share the universally glum news of the day: we are now living in a 400ppm CO₂ world. A challenging reality that will take far more than a positive blog post to counterbalance.

Bore more years

Borrowing the format of a conference panel for my wrap-up: What’s my forward-looking “take away” for the audience?

More boring conferences.

Anathema, right? What about the need for fire and inspiration to push policymakers, market potential and opportunity to drive investment?

Those means may yield those ends. But, for better or worse, if the NACW maturity curve is anything to learn from, expect ambition and innovation to be boxed in to routine incremental process. Antithetical as it may seem, slowing down and building social and political infrastructure from the bottom up may offer a sustainable, resilient, and realistic path to achieve scale and ambition.

…or so we should hope, because as we cross 400ppm, scale and ambition are elements that will need to figure ever more prominently into tomorrow’s policies.

*At the start of a long list of near-term challenges facing California’s cap-and-trade program, there’s: the specter of more legal and political challenges on the horizon, the question of new offset types and supply/pricing impacts, the issue of buyer liability hampering offset transactions, the possible integration of avoided deforestation in future years, linkage with Quebec and other states/provinces, and cooperation with other regions, and many many more issues, not to mention the inevitable unexpected challenges.