Achieving California’s Land Use and Transportation
Greenhouse Gas Emission Targets Under AB 32:
An Exploration of Potential Policy Processes and Mechanisms
A Report for the California Air Resources Board and
the California Department of Transportation
Susan A. Shaheen, Ph. D.
Honda Distinguished Scholar in Transportation, University of California, Davis, &
Co- Director, Transportation Sustainability Research Center ( TSRC)
University of California, Berkeley
1301 S. 46th Street. Bldg 190; Richmond, CA 94804- 4648
510- 665- 3483 ( O); 510- 665- 2183 ( F); sashaheen@ tsrc. berkeley. edu; sashaheen@ ucdavis. edu
Jade Benjamin- Chung
Graduate Student Researcher
University of California, Berkeley
1301 S. 46th Street. Bldg 190; Richmond, CA 94804- 4648
jadebc@ gmail. com
Denise Allen
Research Analyst
Transportation Sustainability Research Center ( TSRC)
University of California, Berkeley
1301 S. 46th Street. Bldg 190; Richmond, CA 94804- 4648
dallen@ tsrc. berkeley. edu
Linda Howe- Steiger, Ph. D.
Research Associate
Technology Transfer
University of California, Berkeley
1301 S. 46th Street. Bldg 155; Richmond, CA 94804- 4648
University of California Berkeley
steigerl@ comcast. net
October 1, 2009
ii
ACKNOWLEDGEMENTS
The authors would like to thank the California Air Resources Board ( ARB), California
Department of Transportation ( Caltrans), California Energy Commission ( CEC), and the Energy
Efficiency Center at the University of California, Davis for their generous contributions to this
research. In particular, we would like to acknowledge Jeff Weir, Lezlie Kimura, Kurt Karperos,
and Lynn Terry of ARB; Reza Navai, Nancy Chinlund, and Larry Orcutt of Caltrans; and
Panama Bartholomy of CEC. We are especially grateful to the 24 experts that provided their time
to participate in the interviews and to all of the panelists who participated in the workshops. The
Technology Transfer program at the University of California ( UC), Berkeley for their assistance
was invaluable in setting up the workshops. We would also like to thank Bob Johnston, Gordon
Garry, Dan Sperling, and for their support and advice. Thanks also go to Rachel Finson, Caroline
Rodier, Melissa Chung, Shannon Lewis, Brenda Dix, Martin Brown, and Charlene Kemmerer of
the Innovative Mobility Research group of the Transportation Sustainability Research Center for
their assistance gathering the literature, preparing expert interview summaries and synopsis, and
assisting with the workshops. We are deeply grateful for the support that we have received on
this study from Dan Sperling and Lauren Hilliard of the Institute of Transportation Studies at the
University of California, Davis. The contents of this report reflect the views of the authors, who
are responsible for the facts and the accuracy of the data presented herein.
iii
ABSTRACT
Continuing its role as a leader in air pollution policymaking, California led the nation by passing
the first global warming legislation in the U. S.: the Global Warming Solutions Act or Assembly
Bill 32 ( AB 32). The legislation requires California to decrease greenhouse gas ( GHG) emissions
to 1990 levels by 2020 ( approximately a 27 percent reduction) using an enforceable statewide
target to be phased in beginning in 2012. In addition, in 2005 Governor Schwarzenegger issued
Executive Order S- 3- 05, which charges California with the task of reducing GHG emissions to
2000 levels by 2010, reducing emissions to 1990 levels by 2020, and reducing emissions to 80
percent below 1990 levels by 2050. This report represents a body of work conducted to assist the
State of California in its efforts to develop a plan to achieve the emission targets set forth by AB
32. This research includes a literature review, expert interviews, and regional stakeholder
workshops to identify and explore possible policy processes ( e. g., cap and trade, budgets,
feebates, etc.), mechanisms ( e. g., smart growth and ITS), and strategies that could be employed
to meet AB 32’ s GHG reduction goals.
iv
EXECUTIVE SUMMARY
Photographs of melting glaciers and forecasts of rising sea levels, along with hotter average
global temperatures and more severe storm and drought events, have focused public interest on
the issue of climate change in recent years. It has become an issue that state and federal
governments acknowledge they must address to avoid major environmental consequences in the
future. Transportation is a major contributor of carbon dioxide ( CO2) and other greenhouse gas
emissions ( GHG) from human activity, accounting for approximately 14 percent of total
anthropogenic emissions globally and about 27 percent in the U. S.
Continuing its role as a leader in air pollution policymaking, California led the nation by passing
the first global warming legislation in the U. S: the Global Warming Solutions Act or Assembly
Bill 32 ( AB 32). The legislation requires California to decrease GHG emissions to 1990 levels by
2020 ( approximately a 27 percent reduction) using an enforceable statewide target to be phased
in beginning in 2012. In addition, in 2005 Governor Schwarzenegger issued Executive Order S-
3- 05, which charges California with the task of reducing GHG emissions to 2000 levels by 2010,
reducing emissions to 1990 levels by 2020, and reducing emissions to 80 percent below 1990
levels by 2050. The California Air Resources Board ( ARB), which is charged with implementing
the target, must adhere to the following principles: 1) equitable distribution of costs and benefits;
2) no direct, indirect, or cumulative air pollution increases in local communities; 3) protection of
entities that have made efforts to curb emissions prior to AB 32; and 4) coordination of emission
reduction efforts with other states and countries. ARB was required to adopt the legislation by
January 1, 2008, and to develop a plan for reducing emissions by January 1, 2009. Those actions
that can be enforced early will be adopted in 2010, and the rest of the measures will be adopted
in 2011.
This report represents a body of work conducted to assist the State of California in its efforts to
develop a plan to achieve the emission targets set forth by AB 32. This research includes a
literature review, expert interviews, and regional stakeholder workshops to identify and explore
possible policy processes ( e. g., cap and trade, budgets, feebates, etc.), mechanisms ( e. g., smart
growth and ITS), and strategies that could be employed to meet AB 32’ s GHG reduction goals.
LITERATURE REVIEW
Global warming mitigation is of increasing concern worldwide, and more and more
policymakers have drafted and passed legislation that will commit states and countries to reduce
GHG emissions. Despite its economic prowess, the U. S. has failed to adopt GHG reduction
policies at the national level in as aggressive a fashion as other countries with a similar per capita
gross domestic product. By passing AB 32, California has committed itself to becoming a leader
in GHG emission reductions in the U. S., and the policies implemented in California will likely
shape decisions made at the national level regarding global warming mitigation. The literature
review summarizes the key transportation and land use- related policy approaches, possible
policy mechanisms, and strategies that could be employed to meet AB 32’ s GHG reduction
goals. A variety of policy approaches are available on a spectrum ranging from voluntary to
regulatory; while regulatory approaches have traditionally been used in environmental policy in
the U. S., market- based approaches have become increasingly popular due to concerns about the
v
cost of GHG reduction. Due to the wide range of policies needed to meet AB 32 goals, a mix of
policy approaches is likely to be adopted.
To implement AB 32, several policy mechanisms are available. Regional emission targets will be
set by ARB in consultation with local governments. Cap and trade is a major policy mechanism
that is already underway in the European Union ( EU). While the EU examples do not directly
target transportation, some have proposed a variety of potential cap- and- trade mechanisms that
could be implemented in the transportation sector. The Scoping Plan does not directly specify a
cap- and- trade mechanism to address the transportation and land use connection. However, this
area may be eligible for California cap- and- trade revenues, which could be used as an incentive
for local governments in promoting better land use planning.
Within a given policy approach and policy mechanism, there are numerous potential strategies
that may be employed to reach AB 32 goals, which range from easy to implement strategies,
such as park- and- ride facilities, to much more politically and administratively challenging
approaches, such as congestion pricing. Such breadth of potential strategies is useful, as the State
will likely need to introduce multiple strategies in tandem to be as effective as possible.
The Land Use Subgroup of the Climate Action Team ( LUSCAT) as well as the Economic and
Technology Advancement Advisory Committee ( ETAAC) both provided recommendations for
AB 32 implementation. While their recommendations differed in some details, general themes
emerged from both including the implementation of a suite of policies in conjunction with new
funding mechanisms, coordination between the public and private sector, and engagement of
citizens and consumers through education and information. The Scoping Plan adopted many of
the approaches mentioned by both advisory groups with several under further development.
EXPERT INTERVIEWS
Between February and July 2008, researchers completed 15, two- hour ( on average) expert
interviews with 24 participants who represented various perspectives on the problems and
solutions for meeting the emission reduction targets mandated by AB 32 and Executive Order S-
3- 05. Experts were interviewed from a range of stakeholder groups, including state and local
transportation agencies, local government, elected officials, builders and developers, regional
agencies, environmental advocates, and business groups. Most experts were from California and
had over 20 years experience in their field.
Experts were first asked to consider various GHG emission reduction strategies including land
use, mobility management, pricing, intelligent transportation systems ( ITS), and behavioral
change. There was near consensus among experts that a reduction in vehicle miles traveled
( VMT) should be the highest priority for meeting AB 32 requirements. The strategies most
commonly cited by experts to reduce VMT included smart growth, transit- oriented development
( TOD), pricing, and encouraging the development of “ best practice” blueprint planning. Pricing
and improving public transit were viewed as short- term strategies ( although funding and political
support may be challenging), while land use changes were cited by nearly every expert as the
most important approach for meeting the 2050 target. Experts also discussed how to overcome
barriers that may prevent the implementation of GHG reduction strategies. Experts identified
behavioral change, pricing, reducing VMT, and smart growth as the strategies that are the most
vi
difficult to implement.
The experts were also asked to consider which of the policy approaches ( i. e., voluntary,
regulatory, market based) or combination of approaches would be the most effective at achieving
GHG emission reductions in the transportation sector. The majority endorsed a mix of voluntary,
regulatory, and market- based approaches. A mixed voluntary and market- based approach was
considered best for personal behavioral change and compliance with land use policies and
targets. Regulatory approaches were coupled with voluntary or market- based approaches.
Next, experts were asked how the 2020/ 2050 GHG reduction targets should be achieved for
transportation and VMT/ vehicle use in particular and why. The majority of experts identified
increased housing density as the method to achieve targets for transportation and VMT. Carbon
dioxide emissions were the measure that most experts thought should be used to evaluate
reductions.
There was consensus that to set meaningful VMT targets, better models need to be developed for
quantifying the emission benefit resulting from reduced VMT. The majority of experts favored
absolute targets that were tailored to each region’s characteristics, although a minority of experts
did favor a per capita approach.
The experts also were asked to comment on what type of educational outreach is necessary to
inform the public about ways to reduce GHG emissions from transportation and if they were
aware of any existing efforts/ campaigns by other organizations that could serve as an effective
model. The majority of experts agreed that public education was integral to achieving AB 32
goals. However, one expert thought that growing a “ green and organic” culture in California
would be more effective at changing behavior than educational campaigns. The main methods of
public outreach included media partnerships, marketing, and training programs.
Finally, experts were asked to restate the most important points of their interview and offer any
final comments. Funding and targets were cited as the most important take- home points across
all stakeholder groups. Interestingly, many stakeholder groups wanted to emphasize many of the
same key points: 1) a combination of strategies are needed ( found across all stakeholder groups);
2) pricing is needed but is challenging to implement ( found across all stakeholder groups); 3)
regulatory reforms ( e. g., California Environmental Quality Act ( CEQA)) are needed to
streamline “ smart” land use practices and infill development ( found across all stakeholder
groups); 4) emphasize behavioral change ( found across all stakeholder groups); and 5) targets
must consider regional differences ( i. e., urban cores vs. agricultural centers) ( found across all
stakeholder groups).
STAKEHOLDER WORKSHOPS INTERVIEWS
Between March and April 2008, researchers conducted five regional one- day AB 32 workshops
on the land use and transportation connection. The five regions included: Oakland/ Bay Area,
Sacramento, San Diego, Los Angeles, and Fresno/ San Joaquin Valley. Between seven and 15
individuals participated in each of the workshops. Participants represented a range of stakeholder
groups, including state and local transportation agencies, local government, elected officials,
builders and developers, regional agencies, environmental advocates, and business groups.
vii
The most significant outcome from the five regional workshops is the general consensus across
the regions and stakeholder groups regarding the long- term effectiveness of changing land use
patterns from the dominant 20th century pattern of single use, automobile dependent development
( more sprawling) towards a new paradigm for the 21st century. This new paradigm reflects
denser, smaller- sized homes; supports more walkable development forms; mixed residential,
commercial, and retail land uses; “ clean” jobs; and public transit and other modes that are
convenient and accessible. The co- benefits of this approach are perceived across both the regions
and stakeholder groups as being notable in promoting individual health and general
environmental sustainability.
Pricing strategies were also viewed across the region as critical success factors. Pricing should be
used to send economic signals that discourage use of single occupant gasoline- powered vehicles
and encourage public transit and low/ non- emitting alternatives, including bicycling and walking.
Behavioral change, which included public education campaigns to promote and encourage
individuals towards making low carbon choices, was viewed by most panelists as “ good” or
“ right,” with one exception ( i. e., in San Diego many panelists considered the public ready to
make the right choice immediately). This was the third most effective strategy across the State.
All regions believed these messages needed to personalize the problem of climate change for
each region and to focus on encouraging individuals to make specific choices that were
available. All panels recommended close coordination between public campaign messages and
the availability of low carbon options. Many recommended the use of highly professional
marketing strategies, making use of California’s home grown entertainment industry to make
low carbon lifestyles trendy.
ITS and mobility management were considered by most as lower profile but still effective
strategies that should be implemented and supported for their real, although marginal, impacts.
A constant theme of all discussions on reduction strategies involved the need for strong clear
messages and assistance, including technical and financial assistance to local governments and
implementing agencies. Many specific strategies were suggested, including more effective land
use planning and zoning assistance from the State and statewide pricing guidelines or regulations
to ensure consistency of approach across the regions. At the same time, all regions wanted to
customize and target their approaches, particularly with regards to public marketing and
education campaigns.
viii
TABLE OF CONTENTS
Acknowledgments............................................................................................................... ii
Abstract .............................................................................................................................. iii
Executive Summary........................................................................................................... iv
Table of Contents............................................................................................................. viii
List of Tables ....................................................................................................................... x
Chapter 1: Literature Review............................................................................................... 1
Policy Overview....................................................................................................... 4
Policy Mechanisms ................................................................................................ 13
Reduction Strategies .............................................................................................. 30
Scoping Plan .......................................................................................................... 43
Conclusion ............................................................................................................. 46
Chapter 2: Expert Interviews ............................................................................................. 48
GHG Emission Reduction Strategies..................................................................... 49
Barriers to GHG Reduction Strategy Implementation........................................... 50
Policy Approaches ................................................................................................. 51
Emission Targets.................................................................................................... 52
Policy Mechanisms and Approaches ..................................................................... 53
Modeling and Baseline Assessment, Monitoring, and Enforcement..................... 56
Public Education and Outreach.............................................................................. 57
Main Points ............................................................................................................ 58
Summary................................................................................................................ 59
Chapter 3: Stakeholder Workshops ................................................................................... 63
Highlights and Recommendations from Regional Workshops.............................. 67
Comparison and Analysis across Regions by Topic.............................................. 73
ix
References..................................................................................................................... .... 89
Appendix A..................................................................................................................... A- 1
Appendix B ...................................................................................................................... B- 1
x
LIST OF TABLES
Table 1 Regulatory Policies to Reduce GHG Emissions
Table 2 Market- Based Policies to Reduce GHG Emissions
Table 3 Proposed Legislation Related to GHG Emissions Targets
Table 4 Expert Interview Participants by Stakeholder Group
Table 5 Summary of Reduction Strategy Barriers and Methods to Overcome
Table 6 Regional Expert AB 32 Workshop Schedule and Participants
Table 7 Timeframe 2010 to 2020  Comparison of Rankings Across Regions
Table 8 Timeframe 2021 to 2050 Comparison of Rankings Across Regions
1
CHAPTER 1: LITERATURE REVIEW
There is overwhelming scientific consensus and growing political consensus that it is time to
create policies to address global warming ( MacCracken, 2002). Greenhouse gases ( GHG)
include carbon dioxide ( CO2), methane ( CH4), nitrous oxide ( N2O), and halocarbons ( HCFCs);
all of these gases naturally exist in the atmosphere, but in recent years their concentrations have
increased at an unnatural rate due to human activity, such as fossil fuel use ( MacCracken, 2002).
A major source of fossil fuel use is transportation. In the United States ( U. S.), transportation
results in over 27 percent of anthropogenic GHG emissions, and in California, 41 percent of
GHG emissions are due to transportation ( Shaheen and Lipman, 2007; ETAAC, 2008).
Transportation uses over half of California’s oil supply ( McManus, 2007). Meanwhile, the
average fuel economy of new vehicles has decreased due to increased proportions of light- duty
trucks and sport utility vehicle ( SUV) purchases ( duVair et al., 2002). In California, the rate of
vehicle miles traveled ( VMT) growth proportionately exceeds population growth ( LUSCAT,
2008). Improved standards of living increase the demand for vehicle ownership and for
international trade, which increases freight transportation in California ( ETAAC, 2008). Longer
commute distances also have contributed to increases in VMT, while congestion has continued to
increase; both factors contribute to GHG emissions ( ETAAC, 2008). These trends indicate that if
action is not taken that achieves significant long- term emission reductions, climate change will
continue and its effects will worsen ( MacCracken, 2002). This paper discusses potential
transportation- and land use- related policy approaches, mechanisms, and strategies to reduce
GHG emissions in California under the landmark legislation of Assembly Bill ( AB) 32  the
California Global Warming Solutions Act.
The factors determining GHG emissions due to transportation are numerous and diverse,
including the type of fuel used, the fuel efficiency of the vehicle, mode choice, land use, and
travel behavior. The burning of fossil fuels results in GHG emissions, so cleaner fuels, such as
ethanol mixtures or biofuels, could provide a promising alternative to petroleum- based fuels. The
technology and size of the vehicle itself determines the amount of fuel used per mile as well, and
thus affects GHG emissions. In addition, mode choice that minimizes car use, such as buses and
trains, can contribute to decreased GHG emissions by reducing the number of trips taken in
passenger cars and light- duty trucks. The less obvious factor, which is more challenging to
address, is the connection between land use and transportation. The density of developments; the
mix between housing, commercial, and institutional use; accessibility of destinations; and
connectivity to nearby regions all determine driving behavior. Generally, when land use focuses
on density, as in urban areas, the accessibility and diversity of transportation modes is higher,
reducing the need for an automobile. On the other hand, suburban and rural areas often have
fewer transportation options and destinations are more spread apart, making automobile use a
necessity ( Litman, 2008).
The consequences of increased global warming are serious and affect almost all sectors,
including agriculture, forestry, public health, transportation, and energy supply. In an analysis of
the potential consequences of climate change in California, the most dramatic scenario included
more frequent and severe heat waves, wildfires, floods, and air pollution ( Cayan, 2006). Rising
temperatures decrease the amount of snow in the Sierras and threaten the State’s water supply
( McManus, 2007). The 1,100 miles of coastline in California and the communities along the
coast are also particularly vulnerable to increasing sea levels due to global warming ( McManus,
2
2007). California agriculture, in particular, is the sector most likely to experience the negative
effects of climate change ( Cayan, 2006). In the U. S., California is the largest agricultural
producer, generating $ 68 billion in California, employing over one million workers, and
accounting for 13 percent of agricultural sales nationwide ( Cayan, 2006). As temperatures and
CO2 concentrations rise, changes in water supply and pests may threaten agricultural production.
In addition, increased temperatures result in higher levels of ground- level ozone and particulate
matter ( PM), making it more difficult to meet existing ambient air quality standards ( duVair et
al., 2002). Reduced air quality not only threatens the environment but also public health.
Currently, 90 percent of the California population already lives in regions that violate the State’s
air quality standards for ground- level ozone or airborne PM ( Luers, 2006). As the levels of these
pollutants increase, so will the risk of asthma, acute respiratory disease, cardiovascular disease,
and decreased lung function. In addition, higher temperatures will increase the risk of death from
dehydration, heat stroke, and heart attacks ( Luers, 2006).
Population and transportation trends in California paint a dismal picture for GHG mitigation
without extensive policy changes. It is projected that California’s population will grow by 12
million people over the next 20 years to a level of 45 million ( duVair et al., 2002). Nationally,
VMT has increased more quickly than highway capacity, population growth, and the economy,
and it is expected to increase at double the population growth rate in the future ( Handy, 2005- lit;
duVair et al., 2002). Despite these trends, until recently U. S. policymakers have not focused on
policies to reduce GHG emissions. The Energy Policy and Conservation Act of 1975 created
Corporate Average Fuel Economy ( I) standards to improve the energy efficiency of passenger
cars or light trucks ( Greene et al., 2005). In December 2007, President George W. Bush signed
the Energy Independence and Security Act, which aims to improve fuel economy and decrease
dependence on foreign oil. This legislation will achieve these goals by setting the national fuel
economy standard to 35 miles per gallon by 2020 and by creating a mandatory Renewable Fuel
Standard ( RFS), which requires fuel producers to use at least 36 billion gallons of biofuel in
2022 ( Office of the Press Secretary, 2007). The Clean Air Act and related policies have focused
on reducing air pollution but not specifically GHG emissions.
Continuing its role as a leader in air pollution policymaking, the California legislature recently
passed the most extensive policy at the US state level to decrease GHG emissions  AB 32. The
legislation requires California to decrease GHG emissions to 1990 levels by 2020 ( approximately
a 27 percent reduction) using an enforceable statewide cap to be phased out beginning in 2012.
In addition, in 2005 Governor Schwarzenegger issued Executive Order S- 3- 05, which charges
California with the task of reducing GHG emissions to 2000 levels by 2010, reducing emissions
to 1990 levels by 2020, and reducing emissions to 80 percent below 1990 levels by 2050. The
California Air Resources Board ( ARB), which is charged with implementing the cap, must
adhere to the following principles: 1) equitable distribution of costs and benefits; 2) no direct,
indirect, or cumulative air pollution increases in local communities; 3) protection of entities that
have made efforts to curb emissions prior to AB 32; and 4) coordination of emission reduction
efforts with other states and countries. ARB was required to adopt the legislation by January 1,
2008, and a plan for reducing emissions by January 1, 2009. Those actions that can be enforced
early will be adopted in 2010, and the rest of the measures will be adopted in 2011.
The ARB is also charged with developing a Scoping Plan, which outlines the GHG reduction
activities to be conducted in the State under AB 32. The measures in the Scoping Plan were
3
available for public comment in four workshops held between November 30, 2007 and April 17,
2008. The Draft Scoping Plan became available for public review on June 28, 2008. The
proposed Scoping Plan was released on October 15, 2008; it was adopted by the Board on
December 12, 2008. This paper discusses potential policy approaches, mechanisms, and
strategies for GHG mitigation in California that ARB might consider.
Significant contributions to the Draft and Final Scoping Plan have been made by the Climate
Action Team ( CAT), which is comprised of representatives from state agencies and departments
convened in working subgroups. The Land Use Subgroup of the Climate Action Team, or
LUSCAT, reviewed thousands of policy proposals for AB 32 and made policy recommendations
to the ARB in April 2008. It also was responsible for developing strategies for the 2008 Climate
Action Team ( CAT) Report and 2009 ARB Scoping Plan, as outlined in AB 32 and Governor
Schwarzenegger’s Executive Order S- 3- 05. LUSCAT was comprised of individuals from the
California Energy Commission ( CEC), California Environmental Protection Agency ( Cal/ EPA),
ARB, the California Department of Transportation, and other agencies; representatives of land
use, local government, the environmental community, housing, environmental justice, and the
utility and building industry representatives; public transit operators; regional and local
governments; non- governmental organizations; and developers. They had to design policies
relevant to all sectors since land use influences affordable housing, transportation, air quality,
economic development, water supply, agriculture, environmental quality, and health, among
other sectors.
LUSCAT adhered to a long- term land use vision as they crafted their policy recommendations.
These included identifying planning strategies and processes at all levels of government to
reduce GHG emissions and having the State articulate land use decisions that reduce GHG
emissions. Policies should build upon existing models for improved planning capability; be
comprehensive but flexible to adapt as circumstances change; and coordinate planning across
Federal, State, regional, and local agencies. LUSCAT prioritized policies that: 1) address current
financial disincentives to planning that reduce GHGs; 2) include utilities in infrastructure
planning; and 3) create incentives for planning that improve quality of life, including resource
and housing conservation; and 4) consider life- cycle costs and assessment. Finally, LUSCAT
was committed to considering the impacts of planning decisions on population growth and
distribution.
To develop their policy recommendations, LUSCAT prioritized the over 180 proposals they
received and selected those that could provide feasible reductions or build a foundation for future
reductions. The strategies LUSCAT recommended should have a net cost of zero through 2020
by leveraging and redistributing existing funding revenues for land use and transportation
activities. However, they also stated that direct investment of State funds was needed and
mentioned the need for tax policy reform to allow local and regional governments to adopt their
recommendations. The authors include LUSCAT’s recommendations in each section of the
discussion that follows.
In addition, the Economic and Technical Advancement Advisory Committee ( ETAAC) was
created under AB 32 to advise ARB on activities, policies, funding opportunities, and new
technology and research needed to achieve GHG reduction goals. The committee submitted
policy recommendations to ARB in February 2008. Recommendations from the ETAAC report
also are referenced throughout this analysis.
4
This chapter includes a review of the climate change and environmental policy literature
pertinent to the transportation and land use connection in reducing GHG emissions. It also
reflects key issues pertinent to AB 32 implementation, which were identified during
transportation/ land use stakeholder workshops and interviews conducted by University of
California, Berkeley and Davis researchers in Spring 2008. The first section provides an
overview of policy approaches – regulatory, voluntary, and market- based – with relevant
examples drawn from the environmental policy literature. Next, policy mechanisms are
discussed, including the use of emission targets, cap- and- trade mechanisms, and potential
barriers to implementing AB 32. This section relies heavily on examples from the Kyoto
Protocol and the European Union Emission Trading Scheme, which are models in the field of
cap- and- trade for GHG emissions. The third section outlines policy strategies for GHG emission
reductions that fall within the policy approaches discussed in the first section. Because AB 32’ s
goals will likely require a suite of policies at multiple levels, the effect of combining policies is
discussed where applicable. Finally, the authors summarize the AB 32 Final Scoping Plan, as
well as key findings from this literature review.
POLICY OVERVIEW
The policy approaches for achieving reductions in GHG emissions fall into three main
categories: voluntary, regulatory, and market based. While each is more effective under certain
political or economic conditions, they also are frequently used in tandem. There are a variety of
reasons to regulate in the context of environmental policies; most commonly, environmental
regulation is implemented because the market is not able to efficiently allocate resources. As a
result, public goods are insufficient, externalities pervasive and persistent, natural monopolies
form, and there is imperfect information ( Portney, 2000).
Traditionally, most U. S. environmental protection has used a regulatory approach, often called
“ command and control,” which mandates environmental standards through legislation and
enforces policies through litigation, sanctions, and penalties. These policies have been criticized
because they are time consuming to enforce, threaten industry profits, do not always promote
technological innovation, and are often manipulated for political purposes ( Portney, 2000;
Khanna, 2002). Policymakers have increasingly turned to voluntary or market- based policies,
which are less stringent for industry and rely on more industry initiative and cooperation.
However, these policies have also raised concerns, primarily among environmental groups, that
the goals of legislation may be severely diluted due to more flexible approaches and industry
influence. Policymakers must reach a balance between the imperfect market and imperfect
policies. This section discusses all three policy mechanisms and provides examples of each in the
context of environmental regulation and GHG mitigation.
Regulatory Policies
Regulatory policy mechanisms are defined through legislation that mandates certain targets or
emission reduction systems and enforces the mandate through penalties, litigation, or sanctions.
This policy mechanism has dominated U. S. environmental legislation until recently ( Portney,
2000). Current regulatory policies require that manufacturers certify new vehicles and model
5
types to meet emission limits for nitrous oxides ( NOX), carbon monoxide ( CO), hydrocarbons
( HC), diesel, and PM – but not GHG gases ( CO2, CH4, N2O).
Within the category of regulatory policies, there are three main approaches relevant to
environmental regulation: 1) the zero- risk approach, 2) the technology- based approach, and 3)
the balancing approach. To illustrate the variability in costs associated with regulatory policies,
“ one survey of eight empirical studies of air pollution control found that the ratio of actual
aggregate costs of the conventional command- and- control approach to the aggregate costs of
least- cost benchmarks ranged from 1.07 for sulfate emissions in the L[ os] A[ ngeles] area to 22.0
for hydrocarbon emissions at all domestic DuPont plants” ( Portney, 2000, p. 32). This finding
indicates that the impact of different types of regulatory measures varies greatly and must be
considered when choosing between the following regulatory approaches.
The zero- based approach is a commonly used policy mechanism that sets environmental targets
needed to reach certain goals, such as to prevent disease or slow climate change. Industries are
required to decrease emission levels to meet these targets and are penalized if they do not. These
policies can often be unrealistic and infeasible because even if all U. S. industries complied
perfectly, other states’ or countries’ emissions could contribute to emission levels, making it
impossible to reach targets. In addition, there are no trade- offs between the cost of protection and
the benefits of the stated goals. As a result, it may be necessary for industry and consumers to
incur greater costs to meet standards within the defined timeframe. The original Clean Air Act
( CAA), which passed in 1963 and 1970, is an example of a zero- risk “ command- and- control”
policy. The legislation set ambient environmental standards for air pollution prevention and
control for both stationary and moving sources ( Portney, 2000).
Next, the technology- based approach creates policies that only permit pollution after sources
have implemented the best available technology to reduce emissions. A major challenge of this
type of policy is determining which technology to mandate; emissions can almost always be
reduced with additional expenditures. In addition, while more flexible than the zero- risk
approach, it is inflexible about the control means and thus also may require sources to incur high
costs. Rigid technology mandates could hinder improvements in efficiency over time. Examples
of policies employing this approach include the Clean Water Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, and parts of the CAA ( Portney, 2000).
Finally, the balancing approach weighs competing emission sources. Regulators set standards
to protect health or the environment while also considering the potential costs and consequences
of the regulation. Such an approach requires that regulators and administrators make difficult
decisions, particularly when there is insufficient accurate information about costs and benefits. A
balancing approach was used with the 1997 Safe Drinking Water Act in which U. S.
Environmental Protection Agency ( EPA) administrators were required to balance the health risk
reductions with additional costs associated with more stringent standards ( Portney, 2000).
A variety of environmental “ command- and- control” policies have been created around the world,
as shown in Table 1 ( below). In theory, such policies could be cost effective, but to create
policies that are not prohibitively costly, policymakers would need detailed information about
the compliance costs firms face to set different standards for each pollution source ( Stavins,
2001). Generally, such information is unavailable, and such policies have become less appealing.
The new trend in environmental regulation has prioritized cost effectiveness and efficiency over
strict environmental standards.
6
Table 1 Regulatory Policies to Reduce GHG Emissions
Policy Focus Examples
Passenger car fuel Canada
 Motor Vehicle Fuel Consumption: replication of the I program in the U. S.
but standards are not binding
China
 Weight- based fuel economy standards
Japan
 Energy Conservation Law: fuel efficiency standards for passenger
vehicles
 Energy Saving Act: large transportation companies must submit
strategic plans and reports on energy consumption; transportation
companies and manufacturers must collaborate to reduce CO2
emissions and may face penalties for not doing so
U. S.
 Corporate Average Fuel Economy ( I) legislation: regulates CO2
emissions from passenger cars; the policy includes some intra- company
trading instruments
 California’s Low Carbon Fuel Standard
Technology California
 Zero Emission Vehicle ( ZEV) Program: mandates manufacturers to
introduce low- or zero- emission vehicles to the market in California
Brazil and Tokyo, Japan
 Diesel vehicles banned, increases in bioethanol fuels in Brazil and
liquefied petroleum gas or LPG taxis in Tokyo
Fuel Brazil
 Brazilian National Alcohol Programme: supports production and use of
biofuels made from sugarcane
Europe
 European Directive on promotion of biofuels and other renewable fuels
for transport: states must ensure that the minimum percent of biofuels
and other renewable fuels to reach markets is two percent by 2005 and
5.75 percent by 2010
U. S.
 Legislation that promotes ethanol production for motor fuel
 1990 Clean Air Act – oxygenated fuel program: in CO non- attainment
areas, gasoline must contain 2.7 percent oxygen
GHG emissions from
passenger cars
California
 Proposal to regulate GHG emissions from passenger cars in 2009
Europe
 European Commission announcement that legislation will be passed to
regulate CO2 emissions from passenger cars
Successful California Policy Models
A number of environmental and health policies that passed in California since the late- 1980s can
serve as policy models for AB 32, including tobacco legislation, the Landscaping Water
Conservation Act ( AB 325), legislation to promote recycling and create the California Integrated
Waste Management Board ( AB 939), and energy efficiency regulations ( Title 24).
7
In 1998, California became the leader in tobacco control by passing Proposition 99, which was
coupled with increasing public awareness of the public health effects of tobacco smoking. This
proposition increased the cigarette excise tax by 25 cents per pack to discourage purchases and
used tax revenue for tobacco education and research, media campaigns, and public health
services ( Jacobson, 1997). Following this successful legislation, in 1994, California passed AB
13 ( California Smoke- free Workplace Law) to ban smoking in enclosed workplaces and also
passed the Stop Tobacco Access to Kids Enforcement ( STAKE) Act, which aimed to reduce
teens’ cigarette access. STAKE requires retailers to check the ID of anyone who appears under
age 18 that attempts to purchase a tobacco product and to post signs that state that it is illegal to
sell to minors. Finally, STAKE banned the sales of tobacco products in most vending machines.
The legislation received immense public support that continued for many years ( Jacobson, 1997).
In 1996, public support for such legislation was high: 88 percent of Californians supported
higher criminal penalties for retailers that sold cigarettes to minors; 86 percent supported smoke-free
indoor workplaces; and 85 percent supported smoking bans in restaurants ( Jacobson, 1997).
Since 1988, cigarette consumption, the prevalence of smoking, and secondhand smoke exposure
has decreased in California ( Tobacco Education and Research Oversight Committee, 2003). The
success of these policies and continued public support demonstrate that it is possible to reduce
tobacco consumption dramatically despite aggressive attacks on this legislation by the tobacco
industry and the heavy marketing of tobacco products ( Tobacco Education and Research
Oversight Committee, 2003).
During the same time period, recycling legislation also was passed in the context of mounting
recognition of the waste crisis in California. In 1988, each California resident disposed of 1,500
pounds of waste on average; this amount was greater than in any other state in the U. S. ( AB 939
– California Public Resources Code Section 40000 et seq). At this time, the State lacked a
coherent policy to manage solid waste effectively and in an environmentally sound manner.
Nationally, there was a crisis in diminishing landfill capacity; meanwhile the public increasingly
accepted the need to reuse and recycle ( CIWMB, 2007). AB 939, which passed in 1989 with
unprecedented political consensus, required local jurisdictions to divert waste to recycling by 25
percent in 1995 and 50 percent in 2000. The legislation also created a framework for program
implementation, solid waste planning, and solid waste facility and landfill compliance and
established the California Integrated Waste Management Board ( CIWMB, 2007), which oversees
progress towards diversion goals and generally provides regulatory oversight. Today, landfill
capacity is no longer a State crisis, and numerous other local recycling initiatives have been
launched in California.
Both tobacco and recycling legislation in California arose in a similar context to that of GHG
emissions and global warming today – public awareness of the need for policies is rising, yet
institutional structures remain barriers. However, learning from the experience of tobacco and
recycling policies in California, AB 32 policies might capitalize on public support in a timely
fashion to help reduce GHG emissions. Other effective policies that have been passed during a
time of crisis in California include the 2005 Building Energy Efficiency Standards ( Title 24) and
the Water Efficient Landscape Ordinance ( AB 325). Title 24 was designed to improve energy
efficiency and delivery, reduce energy bills, and to encourage the adoption of energy efficiency
research findings in California. AB 325 required the California Department of Water Resources
to generate a model water efficient landscape ordinance that would lead to improved water- use
efficiency.
8
Voluntary Policies
There are a growing number of business- led initiatives that encourage production decisions that
protect the environment. These actions have been spurred by the often high costs of “ command-and-
control” policies as well as inflexible technology- related regulations ( Khanna, 2002). In
addition, as public awareness of industries’ role in environmental problems mounts, the threat of
liability for environmental damages increases. Thus, shareholders have begun to include
environmental impacts in their investment decisions, and firms have begun to proactively seek
voluntary agreements with governments — often to avoid legislation ( Khanna, 2002).
Voluntary policy approaches consist of commitments made by corporations  either unilaterally
or through negotiation  to reach environmental goals. In the context of environmental policy,
corporations generally agree to change their practices to achieve a desired environmental change,
but the agreement is not enforceable through litigation or sanctions ( Welch et al., 2000). There
are three main reasons why corporations adopt voluntary agreements: 1) changing their behavior
to achieve environmental goals may allow them to influence, manipulate, or eschew the
enforcement or establishment of government regulations; 2) changes in practices may yield both
environmental gains and improvements in economic efficiency, often due to improved
technology; 3) consumers and investors may favor products from and investments in companies
engaging in voluntary environmental improvements; and 4) corporations may benevolently
desire to invest in public goods ( Welch et al., 2000). In addition to these benefits, there also may
be costs to corporations of making voluntary agreements; these include having to acquire new
technologies, improve skills, and hire public affairs specialists, legal experts, and lobbyists
( Welch et al., 2000).
While there are numerous potential benefits of voluntary agreements for corporations, there are
fewer for governments and citizens. In general, the literature analyzing the policy implications of
voluntary agreements presents voluntary agreements as ineffectual relative to other policy
mechanisms. One author interpreted voluntary agreements as “ barter transactions in which the
business community imposes an obligation on itself to act in a certain manner, and government
in return refrains from enforcing the desired conduct” ( Rennings et al., 1997, p. 246).
Oftentimes, governments use the threat of regulation to create an incentive for corporations to
make voluntary agreements. However, in the process of defining the agreement, the original
desired change becomes diluted ( Rennings et al., 1997). Another main disadvantage is the lack
of transparency and public involvement in the formation of agreements, particularly because
agreements are made much more quickly than legislation ( Ryan and Turton, 2007).
Most voluntary agreements fall into three categories: 1) unilateral, 2) public agreements, or 3)
negotiated agreements. In unilateral agreements, corporations initiate in the absence of
government intervention and then communicate their goals to employees, customers,
shareholders, and other stakeholders. Frequently, such agreements are made when abatement
activities are profitable for firms, and the main purpose of them is to improve the public image of
the firm ( Ryan and Turton, 2007).
Alternatively, governments can request that firms meet environmental goals through public
agreements, which are not mandated by legislation. Generally, these agreements are made when
governmental agencies lack the authority to pass legislation to reach environmental goals.
9
Agreements are often accompanied by research and development subsidies and technical
assistance ( Ryan and Turton, 2007). Examples include the U. S. Climate Change Action Plan of
1993, which was comprised of several public agreements, such as Green Lights, Climate Wise,
Motor Challenge, and Energy Star Buildings. Because these agreements have helped introduce
cost- effective technologies that improve energy efficiency, they have been considered successful.
Another national example is the Bush administration’s pledge to decrease the ratio of GHG
emissions to total economic output by 18 percent between 2002 and 2012 ( Ryan and Turton,
2007). In addition to requesting corporations to decrease emissions, the administration provided
firms with early reduction credits that they could use against future emission regulations. While
not as stringent as potential legislation, these agreements may have helped reduce political
opposition to future mandatory policies ( Ryan and Turton, 2007). Finally, in negotiated
agreements, commitments to reach environmental goals are agreed to by both parties. Such
agreements are popular in transportation policy ( Ryan and Turton, 2007).
Examples of such agreements support the concern that voluntary agreements are ineffectual.
Following the United Framework Convention on Climate Change ( UFCCC) in 1992, many
European countries quickly adopted voluntary agreements to reduce GHG emissions. Chidiak
( 2002) presents a case study of two of the seven voluntary agreements to reduce GHG emissions
adopted in France at the time. A French aluminum company and the packaging glass industry
association both made agreements to reach specific emission targets. For these companies, public
image and concurrent negotiations about other environmental regulations were significant
motivations to make voluntary agreements. Chidiak ( 2002) argues that the targets in the
agreements were not ambitious due to a “ lack of policy co- ordination towards the related goals
of energy efficiency improvement and GHG reduction, as well as from internal differences at the
Ministry of the Environment, in charge of negotiating the voluntary agreements” ( Chidiak, 2002,
p. 122). As a result, the targets in the voluntary agreements did not require actions beyond those
needed to generate profit and comply with existing environmental legislation ( Chidiak, 2002).
The companies did keep their commitments without enforcement, but it was likely because it
was not necessary to change their “ business as usual” operations. The aluminum company
achieved its objective by 1997, but the glass industry did not due to greater than expected
increases in production during the same period ( Chidiak, 2002).
Rennings et al. ( 1997) performed a similar analysis of cases in voluntary agreements in 1991 and
1995 to reduce CO2 emissions and also concluded that agreements did not require action beyond
“ business as usual;” in addition, agreements did not set reference and target years, making it
difficult to assess achievement of objectives ( Rennings et al., 1997). These examples highlight
the reasons for the general consensus that voluntary mechanisms are feasible policy instruments
when political resistance prevents implementation of mandatory or regulatory mechanisms, but
that otherwise they are not as effective as other types of policies.
Market- Based Policies
Market- based policies use incentives to encourage desired practices to reduce emissions without
making explicit requirements to control emission levels ( Portney, 2000). The main advantages of
such an approach are that they are cost effective and create incentives for technological
innovation. In theory, these types of policies are flexible in how industries meet environmental
goals, and this flexibility allows them to achieve these goals at a lower cost to industry and
10
society. A common criticism of these policies, often made by environmental groups, is that
progress towards environmental and public health goals may be hindered or never fully achieved
( Portney, 2000). While they have not been used commonly in previous U. S. environmental
policy, frustrations with the rigidity of command- and- control approaches and questions about the
effectiveness of voluntary approaches have made market- based policies increasingly attractive to
policymakers. This section discusses the various examples of market- based policies relevant to
reducing GHG emissions.
Taxes and charges create fees or taxes for each unit of pollution generated. Passenger car
taxes/ charges are typically intended to increase revenue and have no environmental targets. Such
taxes can be levied when vehicles are acquired or registered, periodically during ownership, or
when fuel is purchased. Such a tax could either be increased or restructured to decrease the
demand for passenger cars and induce GHG emission reductions. Taxes could be applied in the
form of vehicle acquisition ( registration taxes), circulation taxes for periodic ownership, or fuel
taxes. One of the disadvantages of this approach is that it can be very politically difficult to
determine the appropriate level for such taxes, particularly because GHG emissions are a global
problem that transcends state and national borders. In addition, depending on the amount of the
tax, drivers may decrease use, which could result in reduced tax revenues ( Ryan and Turton,
2007). Congestion charges are an increasingly popular example that has been implemented in
Stockholm and London and proposed for New York and San Francisco.
Tradable permits, or cap- and- trade systems, define an acceptable level of pollution and
distributes the total amount among sources using permits. These can be divided into three
categories: 1) downstream mechanisms, which target transport users; 2) midstream mechanisms,
which target vehicle manufacturers and service providers; and 3) upstream mechanisms, which
focus on fuel suppliers, including refineries, fuel trading companies, and importers ( Ryan and
Turton, 2007).
Examples include the leaded gas phase- down, water quality permit trading, chlorofluorocarbon
trading, the sulfur dioxide allowance system, and the Regional Clean Air Incentives Market
( RECLAIM) program in Los Angeles ( Portney, 2000). In addition, the 1974 an 1977 CAA
legislation included an emission trading program that awarded firms that reduced emissions
below a set level credits that they could use against future higher emissions or trade with other
sources within their firm or between firms. States have not been required to adopt the legislation,
so participation has been limited, but one source estimated that the program has resulted in a
savings of $ 5 to $ 12 billion ( Portney, 2000). Some consider CO2 emission trading systems,
which address all stages of the vehicle life cycle, to be the more effective than policies that focus
on manufacturing alone ( Ryan and Turton, 2007).
Market barrier reductions create markets, liability rules, and information programs to facilitate
emission reductions. These policies include those to restructure electricity generation and
transmission, legislation holding firms responsible for the environmental damages of their
practices, and educational programs to provide consumers with information about goods with
negative environmental impacts. An example is the Energy Policy and Conservation Act of 1975
that requires that producers place labels on certain appliances and equipment detailing their
energy efficiency and costs ( Portney, 2000).
Government subsidy reductions decrease or remove subsidies for products or services that are
economically inefficient or environmentally unsound. For instance, fossil fuel energy subsidies,
11
which cost the U. S. Federal government $ 17 billion each year, could be reduced to decrease the
purchase and use of such fuels ( Portney, 2000).
Information, in the form of labels, allows consumers to incorporate emission and fuel
consumption information into their purchasing decisions. Around the world, labeling has been
used to provide information about the energy use of refrigerators, washing machines,
dishwashers, and other domestic products. Seals of approval or grading systems can be used and
are often easier to understand, but they also can bias consumers’ decisions. In general, product
information is most effective when the government is involved in the development of the label to
increase customer confidence. The European labeling directive requires that member states
create a guide with fuel consumption information for all vehicle models. In the U. S., the
Department of Energy and the EPA are jointly responsible for www. fueleconomy. gov, which
provides similar information. In addition, ARB maintains a list of low- and zero- emission
vehicles on their website ( Ryan and Turton, 2007).
As Table 2 ( below) shows, numerous market- based GHG reduction policies have been
implemented around the world.
12
Table 2 Market- Based Policies to Reduce GHG Emissions
Passenger car
tax/ charge
Policies
Tax on vehicle
acquisition
 European Union ( EU): registration taxes
 Netherlands: reduced registration tax for fuel- efficient
passenger cars
 Portugal: reduced registration tax for vehicles
exclusively using liquefied petroleum gas or natural
gas
 Japan: reduced taxes on fuel- efficient vehicles
 U. S.: tax reduction for new hybrid and electric
vehicles
Tax on vehicle
ownership
 EU: most member states – periodic circulation tax
 United Kingdom ( UK): CO2- based annual circulation
tax
 Japan: reduced circulation tax for low- emission
vehicles
Taxes on fuel  Belgium, Denmark, Finland, France, Italy,
Luxembourg, the Netherlands, Norway, Sweden:
carbon taxes
 UK: fuel tax elevator
Tax reductions and
credits for alternative
fuels
 EU: member states allowed to decrease or abolish
taxes on alternative fuels; many countries have
excise duty exemption for biofuels
 U. S.: decreased tax on bioethanol fuel; E85 blends
eligible for tax credit or reduction
 Australia: excise duty exemption on domestically
produced biofuels
Congestion charging  Singapore: Electronic Road Pricing ( ERP)
 Scandinavian cities ( Trondheim, Oslo, Bergen):
pricing reform
 London: pricing reform
 Stockholm: pricing reform
Taxes and charges
Pay- as- you- drive
insurance/ fees
 Israel
 U. S. ( Texas, Philadelphia, Oregon)
 The Netherlands
 South Africa
 UK
Cap and trade  Kyoto Protocol Emissions Trading Mechanism
 EU Emissions Trading Scheme
 Japan: Japan’s Voluntary Emissions Trading Scheme
2006- 7
Market barrier
reductions
 U. S. Energy Policy and Conservation Act of 1975
Government subsidy
reductions
 Fossil fuel energy subsidies in the U. S.
Information  Japan: New Energy and Industrial Technology
Development Organization ( NEDO) created the ‘ CEV
Eco Delivery Label’ for goods delivered in a clean
energy vehicle
 EU: European Directive on labeling in 1999  for fuel
economy, CO2 emissions, car dealerships
13
While market- based policies are increasingly popular, they have faced resistance from
environmental groups, which has raised concerns that such policies will sacrifice environmental
protection for cost savings and efficiency. In addition, industries have not strongly promoted
them because they are hesitant to support any potential regulation, even if it is more cost
effective or flexible than command- and- control approaches. Finally, public resistance also has
made such policies less common; while prices increase due to command- and- control policies, it
is difficult for the public to associate price increases directly with such policies. Nevertheless, an
advantage of market- based policies is that they make environmental costs somewhat more
transparent ( Portney, 2000).
Policy Approaches Recommended By LUSCAT
LUSCAT recommends both market- based and voluntary policies. Their voluntary policy
recommendation is to use incentives to promote the protection of natural resources and
agricultural land. In addition, they recommend market- based approaches including parking
pricing, parking maxima/ caps, shared parking, unbundled parking costs, parking cash out, and
employer outreach to change parking policies. They also recommend exploring tax incentives to
reduce GHG emissions, such as tax incentives for employers providing public transit benefits to
employees ( LUSCAT, 2008).
Evaluation of Policy Instruments
Ryan and Turton ( 2007) define the following as tools to evaluate different policy instruments: 1)
static economic efficiency ( e. g., minimum cost), 2) dynamic economic efficiency ( e. g.,
continuing incentives to improve technology), 3) equitable distribution, 4) administrative and
political feasibility, and 5) environmental effectiveness ( Ryan and Turton, 2007). Not
surprisingly, the way a policy instrument is designed affects its effectiveness more than the
choice of the instrument itself.
There are certain challenges that are relevant to all of the policies discussed above. GHGs are a
global problem that cannot only be solved locally – the cooperation of many countries is
necessary to reduce GHG emissions. In addition, the consequences of GHG emissions on climate
change are difficult to notice in the short run, making public acceptability lower than for other
types of emissions and environmental pollutants. Finally, cars are a major non- point source of
emissions; many individuals drive vehicles, and cars have a long- life cycle, making it unlikely
that grandfathering and phase- in approaches will have any impact in the near future ( Ryan and
Turton, 2007).
POLICY MECHANISMS
Policies to reduce emissions generally employ two mechanisms: 1) emission targets and 2)
emission trading. Emission targets can be implemented on their own, often through a regulatory
or voluntary policy. However, they also can serve as the “ cap” in cap- and- trade systems. This
section discusses the multiple types of targets, cap- and- trade systems and their advantages and
disadvantages, and offsets. First, examples of cap- and- trade from the European Union and the
14
U. S. are examined. Second, offset literature is presented— largely from forestry. Next, the
authors discuss potential policy mechanisms and barriers to reducing GHG emissions with a
specific focus on pre- existing legislation in California that could affect AB 32 policies. These
include the California Environmental Quality Act ( CEQA), Regional Housing Needs Allocation
( RHNA), Indirect Source Rules ( ISR), and Local Agency Formation Committees ( LAFCos).
This section closes with a description of LUSCAT recommendations relevant to possible policy
mechanisms and implementation barriers.
Emission Targets
Targets of any kind can be implemented at the firm, sector, national, or international level. In
theory, targets should be chosen to achieve the greatest difference in GHG emissions from those
based on business- as- usual projections ( Strachan, 2007). There are several variations in the type
of target that could achieve such goals depending on the state of the economy. The most
straightforward form of emission reductions are absolute emission targets or “ caps,” which
specify the total amount of reductions that are recommended or mandated to decrease emissions
relative to an historical baseline. The classic example of a policy with emission targets is the
Kyoto Protocol. In the original negotiations in 1997, the Protocol proposed that developed
countries reduce their annual emissions by about five percent on average during 2008- 2012 ( or
back to 1990 emission levels).
Internationally, a major challenge to using emission targets has been that for countries that are
experiencing rapid economic growth, particularly developing countries, emission reduction
requirements can be so costly that they impede growth. Another disadvantage is that it is difficult
to estimate the baseline scenario upon which to base future success. Achievement of fixed
emission targets is much easier when economic growth is lower than when it is proceeding
rapidly ( Herzog et al., 2006). In addition, the cost of implementing such targets could vary
greatly depending on the economic conditions at the time.
Intensity Targets
One potential solution to the threat of economic disadvantage is to use intensity targets. In
contrast to an absolute target, intensity targets define emission reductions in relation to
productivity or economic output ( e. g., tons of CO2 per million dollars of gross domestic product
( GDP)). Intensity indicators are a factor of both the quantity of energy used per unit of GDP and
the carbon content of the energy in use ( Herzog et al., 2006). An example of such standards is
the I standards, which created minimum vehicle performance levels for the number of miles
driven per gas gallon ( Herzog et al., 2006). Such intensity targets can take on a wide variety of
forms, including linear formulas between GHG and economic output as well as more complex
forms.
An advantage of intensity targets is that they can adjust to economic changes and do not penalize
fast economic growth; for this reason, they are seen as preferable for developing countries.
Additionally, intensity targets do not necessarily imply a declining rate of emissions as absolute
targets do ( Pizer, 2005). Such flexibility may ease the process of adopting new environmental
policies for industry. While it may seem as if intensity targets are less stringent than absolute
15
targets in terms of their environmental impacts, if economic growth is greater than expected,
emission reductions may be higher and even surpass reductions under absolute targets, assuming
full compliance ( Herzog et al., 2006). Finally, intensity targets remove the need for baseline
estimation, which can be difficult; a performance rate is the goal rather than a total emissions
amount compared to a previous time period ( Strachan, 2007). However, a major disadvantage is
that it is not possible to predict the amount of future emission reductions under intensity targets
because it depends on economic output. In addition, it is generally concluded that public
understanding of intensity targets is lower than absolute targets because they are more difficult to
communicate. Misunderstandings can obstruct effective policy implementation. Generally,
intensity targets and absolute targets are not correlated, but both can effectively achieve
environmental goals if targets are set with enough stringency so that they are met ( Herzog et al.,
2006).
Both developed and developing countries have proposed or experimented with intensity targets.
After withdrawing from the Kyoto Protocol in 2001, the Bush Administration created a climate
policy in 2002 that set goals to decrease GHG emissions intensity in the U. S. by 18 percent by
2012 ( Herzog et al., 2006). A common criticism of this policy is that emission intensity tends to
decrease over time in major economies regardless of intensity policies; such “ natural” decreases
are a result of economic incentives to improve efficiency ( Herzog et al., 2006). The emission
intensity was forecasted to decrease by 14 percent with no intensity policy, making the Bush
Administration’s policy only require an additional four percent decrease in emission intensity
( Strachan, 2007). Nevertheless, it was claimed that only a four percent decrease would yield a
savings of an additional 106 million tons of carbon by 2012 ( Strachan, 2007). Kolstad criticizes
the Bush policy for failing to stipulate mechanisms to actually achieve such reductions. He states
that reducing GHG emissions intensity requires a change in the structure of production away
from industries that heavily emit GHGs and adopting proactive reduction measures, such as
reducing VMT ( Kolstad, 2005).
Argentina implemented an intensity target in the hopes that other countries that signed the Kyoto
Protocol would do so as well. At first, the target was voluntary, but it was intended to become
legally binding if taken on by the Climate Convention ( Herzog et al., 2006). The intensity target
was adjusted by the square root of Argentina’s GDP. The plan was eventually abandoned
because other developing countries did not adopt similar policies, and there was no opportunity
to adopt the policy under the Kyoto Protocol ( Herzog et al., 2006). In the United Kingdom ( UK),
the Climate Change Levy Agreements ( CCLA) included intensity targets for energy- intense
industrial sectors. Industries were given an 80 percent rebate on levies if they adopted targets,
with the choice of GHG emission reduction targets, energy use targets, or intensity targets
( Herzog et al., 2006). Firms also could choose to participate in the UK Emissions Trading
Scheme ( ETS) before 2007.
Cap- and- Trade Systems
The most well- known and common market- based mechanism to decrease GHG emissions is cap
and trade. Under a cap- and- trade system, a central authority, such as a governmental agency, sets
a cap for the maximum amount of GHGs that may be emitted. GHG emitters, such as companies,
are allocated a certain fixed amount of permits and must also hold an equivalent number of
credits that represent the amount to which they are allowed to emit. Companies and other entities
16
holding permits must emit under the amount set by the cap. If they emit greater than that amount,
they must purchase or trade credits from other entities that emit fewer GHGs. Permit buyers pay
for the excess GHGs they emit, and permit sellers are rewarded for emitting the amount under
the cap. Cap- and- trade mechanisms are increasingly popular because they can potentially result
in lower economic costs and allow firms greater flexibility than command- and- control measures.
However, some environmental groups argue that they do not result in the same environmental
performance as more stringent, traditional measures. Ellerman ( 2003) argues that pre- existing
cap- and- trade initiatives demonstrate that cap- and- trade programs are more environmentally
effective and economically efficient than regulatory approaches ( Ellerman, 2003).
The allocation of allowances in cap- and- trade systems is usually the most challenging yet
important component. Essentially, the way in which allocations are made and the magnitude of
allocations determines the significance of the entire system, including its environmental
effectiveness and political feasibility ( Grubb et al., 2005). The three types of allocation are: 1)
grandfathering, 2) benchmarking, and 3) auctioning of permits. The grandfathering scheme has
been used the most frequently to date because it is the most politically palatable. A central
authority determines the volume and distribution of permits, which is often subject to heavy
lobbying from relevant industries. Permits are often distributed for free and are made according
to each participating entity’s historical emissions. Thus, the entities that have emitted the greatest
amounts in the past receive the greatest number of permits to emit in the future. Such an
approach is commonly criticized for creating market distortions. Companies that receive a larger
number of permits may pass on the marginal cost of emissions to consumers, generating
additional, or “ windfall” profits ( Betz et al., 2006).
In contrast, benchmarking determines the allocation using specific emission values per
production unit for groups of products or corporations ( Betz et al., 2006). Allowances are
determined by multiplying benchmarks by past or projected emission rates for individual entities
( Betz et al., 2006). There are three main ways that benchmarks can be calculated: 1) average
benchmarks are calculated using the average of emission values weighted for the activity by
group, using the average technology installed; 2) benchmarks could be based on the best
technology available; and 3) benchmarks also can apply uniformly across all participating
entities in a group ( Betz et al., 2006). Most benchmarks are average benchmarks that assume
average technology. In comparison to conventional grandfathering approaches, benchmarking is
often considered to be more fair and efficient. An advantage of benchmarking is that it would
allow for comparison across participating countries or states and would allow for streamlined
and harmonized allocation between countries and states. However, for such an allocation
approach to be effective, a large amount of data must be collected and analyzed.
In addition to benchmarking, from an economic perspective, auctioning permits is considered
preferable to conventional grandfathering allocation because it prevents market distortions ( Betz
et al., 2006). Competitive bidding under such a system would allow permits to be sold at their
market price. In addition, they are considered to be more equitable because “ the polluter pays”
principle would be in effect ( Betz et al., 2006). Governments can use revenues generated from
auctions to decrease other market distortions ( Grubb et al., 2005). The disadvantage of
auctioning is that firms that are in international markets would face adverse impacts on their
competitiveness. Although some analyses have concluded that concerns about competitiveness
are exaggerated, mixed allocation methods are often the most realistic ( Grubb et al., 2005).
17
Most emission caps are absolute targets based on historical, current, or projected future
emissions, but recently relative targets have been explored as an alternative ( Gielen et al., 2002).
The UK has implemented trading schemes using flexible targets, and the Netherlands has
proposed their use ( Gielen et al., 2002). Relative targets are often considered to be easier to
combine with existing policies and are more politically feasible. According to Gielen et al.
( 2002), cap- and- trade systems with relative caps are less economically efficient and involve
greater uncertainty than those with absolute caps. Another disadvantage is that relative caps
implicitly must be grandfathered and cannot be auctioned. As a result, no additional revenue can
be raised, which can be used to adjust for distortions in taxation and monitoring costs ( Gielen et
al., 2002).
Cap and Trade Under the Kyoto Protocol
The Kyoto Protocol contains three “ flexibility mechanisms” that are designed to decrease the
total cost of reaching emission targets. These mechanisms recognize that the cost of reducing
emissions varies greatly by region. They include the Clean Development Mechanism ( CDM),
Joint Implementation ( JI), and Emissions Trading ( ET). The CDM allows for developed
countries ( Annex I Parties) to conduct GHG emission reduction or carbon absorption activities in
developing countries ( non- Annex I Parties). Essentially, it provides the developing world with a
subsidy to achieve decreased GHG emissions ( Wara, 2006). The Joint Implementation
mechanism allows developed countries to conduct emission reduction projects in other
developed countries but use the reduction to meet its Kyoto target. Finally, the Kyoto Protocol
specifies an Emissions Trading mechanism, which allows developed countries to trade units of
emission allowances with each other. The CDM and JI mechanism differ from Emissions
Trading in that they do not require participating entities to purchase permits if they do not
decrease emissions. Rather, on a project basis, a baseline is set based on business- as- usual, and
reductions below the baseline generate credits. While these credits may be purchased by other
entities, there is no obligation to purchase them. On the other hand, ET does mandate the
purchase of permits if emissions exceed targets ( Wara, 2006).
European Union Emissions Trading Scheme ( ETS)
By far the most developed and largest cap- and- trade system focusing on CO2 at the company
level is the European Union Emissions Trading Scheme ( ETS), which is now a major influence
in the growing global carbon market. The system was designed to allow companies in EU
Member States to allocate permits in their own country and trade them across the EU to meet
Kyoto Protocol emission reduction goals at a cost of under 0.1 percent of GDP. The EU has set a
goal to reduce emissions to 30 percent under 1990 levels by 2020, as long as other developed
countries commit to similar reductions during the period after 2012. Phase I lasted from 2005 to
2007 and focused on large emitters of CO2 in the power and heat generation industries as well as
other energy- intensive industrial sectors. In the ETS, an allowance equals the tradable right to
emit one ton of CO2. Permits determine requirements for monitoring and reporting of emissions
for each participating company or “ installation.” These allowances are held in electronic
registries in each Member State. Several organized exchanges have been created in Europe to
allow for permit trading, and the price of permits for sale or trade is determined by supply and
18
demand. In the first year of the ETS, over 270 million permits worth € 5 billion were traded, and
in the second year, 800 million permits were traded ( European Commission, 2007). In response
to the growth of this carbon market, traders, financial specialists, management specialists,
auditors, and verifiers all focusing on carbon have emerged.
The European Commission has designed a mandatory emission monitoring and reporting process
to maximize compliance to the ETS. At the end of each calendar year, installations are required
to surrender the amount of allowances that equals their verified CO2 emissions in that year.
Independent verifiers must check installations’ reports to ensure that they meet the criteria
specified by ETS legislation. To prevent re- use of allowances, they are then cancelled, and
installations with left over allowances may sell or save them. The penalty for emitting more than
allowances permit was € 40 per ton emitted from 2005 to 2007, and this has increased to € 100 as
of 2008 ( European Commission, 2007).
Member States are responsible for designing national allocation plans ( NAPs), and currently
most plans distribute allocations free of charge based on historical emissions ( grandfathering).
Although the European Commission has the ability to challenge NAPs under certain conditions,
to date most NAPs have been solely created by the Member States. In Phase I in 2005, most
allocations allowed for emissions over the amount already emitted and equivalent to business- as-usual
projections ( Grubb et al., 2005). Across all Member States, the increase in allocation
ranged from three to five percent, even though the Kyoto Protocol goals would imply a decrease
of three percent by 2006 ( Grubb et al., 2005). Permit allocations that do not challenge
installations to reduce emissions could threaten the ETS’ stability and “ undermine the market-based
nature of the Kyoto Protocol and [. . .] the international cohesion behind it” ( Grubb et al.,
2005, p. 133). In addition, there was perceived a differential permit allocation among Member
States, which caused industries to become concerned about a “ competitive race- to- the- bottom” in
determining allocations ( Grubb et al., 2005, p. 136).
The cap- and- trade literature reports similar challenges in the allocation of permits in Phase II of
the ETS. Generally, the Member States used the same allocation methods in Phase II as in Phase
I. Averaging across Member States, the total amount of permits in each period, or the emission
budget, for Phase II is only 2.6 percent lower than the historical emissions in 2005 and 3.1
percent lower than Phase I budgets ( Betz et al., 2006). There has been minimal progress in
implementing consistent and harmonized rules across Member States, partly because of the use
of such allocation policies ( Betz et al., 2006). Thus, there is still great room for improvement in
environmental effectiveness and economic efficiency in permit allocation in the ETS ( Betz et al.,
2006).
In the U. S., six different types of emission trading systems were used by 1998, and their
performance has been mixed ( Solomon, 1999). These included two intra- state airsheds, two
national systems, one international system, and one watershed ( Solomon, 1999). The two most
well known examples of these are the Sulfur Allowance and Trading ( SAT) program and the
Regional Clean Air Incentives Market ( RECLAIM) program in southern California. The
strengths and weaknesses of each program provide important lessons for future cap- and- trade
programs to be implemented in the U. S.
19
The Sulfur Allowance Trading ( SAT) Program
The SAT program was created during the Clean Air Act amendments of 1990, the goal being to
minimize and reduce damages from sulfur dioxide ( SO2) emissions. The program resulted from
ten years of political debate between politicians and environmental groups about regulatory
versus market- based policy approaches ( Schwarze et al., 2000). The goal of SAT was to reduce
emissions by 50 percent. Permits were issued to emitters of SO2, which were mainly stationary
sources, such as power plants, and permit holders were allowed to emit one ton of SO2 per year.
Bonus allowances were given to participating entities that switched to renewable energy sources,
used advanced clean coal technology, or conducted early emission reduction efforts. An accurate
and expensive system was developed to evaluate emissions from participating sources ( Schwarze
et al., 2000). Between 1995 and 1999, under 15 percent of sources were mandated, but from
2000 on, all utilities were included in the program. The staggered implementation schedule
provided regions that had the highest compliance costs more flexibility in adjusting to the policy
change. Each year, the average annual emissions are standardized to the economic output over a
three- year period.
The policy required individual sources to report to the U. S. EPA about the extent of emissions,
and the EPA reported an emission inventory to the public. However, besides allocating and
tracking allowances, issuing permits, and serving as a monitoring and enforcement agent, the
EPA’s and state air agencies’ roles were intended to be minimal ( Solomon, 1999). After a slow
start, a private market developed successfully ( Solomon, 1999). The public was involved through
the Acid Rain Advisory Committee, which contained representatives of utility, coal, natural gas
industries, environmental organizations, consumer interest groups, and academia. The public also
could participate in the process by purchasing permits at auctions; environmental and student
groups purchased “ allowance retirements,” which held symbolic value and provided concerned
individuals with the opportunity to pay for a better environment and in theory limit the number
of permits available to firms to purchase if they exceeded emission caps ( Schwartz et al., 2000).
This program is generally considered to be the most successful trading program because of its
low transaction costs and lack of monitoring difficulties ( Solomon, 1999). In addition, a large
decrease in emissions was experienced relatively quickly, and there were no exemptions,
exceptions, or relaxations of the original requirements ( Ellerman, 2003). It was initially feared
hot spots in which emissions greatly exceeded caps would develop; however, these never
appeared ( Ellerman, 2003). Nevertheless, trading levels and cost savings of the SAT program
have been modest ( Solomon, 1999).
The RECLAIM Program
Another well- known cap- and- trade example designed after the SAT initiative is the RECLAIM
program in the South Coast Air Quality Management District ( Solomon, 1999). The goal was to
create a policy that would allow the regional air shed to comply with ambient ozone and
particulate matter standards after over two decades of non- compliance. In contrast with the SAT
program, the policy resulted from fewer than five years of debate ( Schwarze et al., 2000). After
so many years of failure, it was clear that proceeding with command- and- control programs
would have been too costly and politically impractical ( Ellerman, 2003). The program aimed to
reduce NOX emissions by 75 percent and sulfur oxide ( SOX) emissions by 60 percent. The
20
program engaged 10 percent of NOX and SOX sources in the area; most emissions were due to
small stationary and mobile sources ( Schwarze et al., 2000).
Because of the mixed nature of the pollutants, there were two zones with limited direction in
which permits could be bought and sold, and no inter- temporal trading was allowed. These rules
were designed to prevent hot spots in the zones where it was most difficult to decrease
emissions. The most accurate technology for emission evaluation was only mandated for two
thirds of participating facilities, and reporting requirements were the same as for SAT ( Schwarze
et al., 2000). The baseline was set based on the maximum annual emissions for each
participating entity over a four- year historic period. In 2001, both NOX and SOX emissions were
reduced by approximately 40 percent from 1994 levels; when the program was fully phased- in in
2003, the reduction over pre- program emission levels was estimated to be 50 percent ( Ellerman,
2003). Each year since the program started, the SOX cap has been met, but NOX emissions
exceeded the cap in 2000 and 2001 due to the electricity market problems in California at that
time ( Ellerman, 2003).
Schwarze et al. ( 2000) compare and contrast the SAT and RECLAIM programs. Both programs
included demanding environmental targets that would have required very costly programs to
achieve reductions, if not through a market- based approach. Conflicts about how to distribute
permits arose in both programs; SAT experienced regional conflicts about whether or not to
grandfather permits or adopt them immediately, and RECLAIM experienced tensions between
environmental growth and protection. In the end, both used grandfathering, which provided
historical emitters with free permits during the initial allocation and provided newcomers with
special access. In each program, some permits were traded for political instead of economic
reasons. The tracking of permit ownership and transactions was similar for both programs.
Finally, both programs employ absolute and historical baselines ( Schwarze et al., 2000).
Adapting Cap and Trade to the Transportation Sector
Most market- based mechanisms involving cap and trade have involved stationary emitters
( Millard- Ball, 2008). Cap- and- trade systems that focus on transportation have the potential to
lead to enormous GHG emission reductions as well ( Millard- Ball, 2008). There are four main
approaches to cap- and- trade systems for the transportation sector. First, upstream trading
would target refineries or importers of fuels. These entities would hold permits that limit the total
amount of carbon content and output from all of their products and processes. The challenge to
such approach would be determining how refineries could decrease emissions; one of their only
options may be to decrease the carbon composition of gas by adding ethanol or other substances
( Millard- Ball, 2008). Refiners would likely pass on the costs of such a system to the price of
fuel, which would potentially affect consumers’ choices of fuel and vehicle type. However, the
overall impact would be small because vehicle travel has inelastic demand. In addition, there
would be minimal to no benefits for congestion and air quality improvements. Nevertheless, this
form of cap and trade for transportation is the most popular among analysts, partly because it
allows for broad coverage and has minimal administrative costs ( Millard- Ball, 2008; Winkelman
et al., 2000). In addition, such a system would be most effective when implemented in tandem
with carbon- efficiency standards ( Millard- Ball, 2008).
21
Next, downstream trading would target individual motorists who would receive a free
allowance of permits initially and could purchase additional permits later. Such permits could be
held on a smartcard, at fuel pumps, or through banks. The cap would be for the amount of fuel
consumers could use in a given time period. Alternatively, the number of cars, VMT, or parking
spaces could be capped, and permits for each item could be traded between individuals.
Vehicle manufacturers could also be targeted in a cap- and- trade program. While they are not
directly in the chain of fuel supply, manufacturers influence the fuel efficiency of the vehicles in
the market. Manufacturers would purchase permits for emissions attributed to their vehicles.
Such a system would require the accurate setting of imputed emissions from different vehicles. It
would have to be determined whether manufacturers would be responsible for the emissions of
all the vehicles on the road or the lifetime emissions from all new vehicle sales. The advantage of
this approach is that it avoids changing fuel prices, which is politically sensitive, has low
administrative costs since there are few manufacturers, and would affect the type of fuel and
vehicle purchases. The California Climate Action Team considers this approach to be the most
practical method of including the transportation sector in cap- and- trade systems. It is estimated
that such a system could decrease emissions by 25 to 38 percent over a 15- year period ( Millard-
Ball, 2008).
Finally, a hybrid system could be used that divides responsibility between vehicle
manufacturers and fuel producers. Such a system would both improve the carbon content of fuel
and the fuel efficiency of vehicles. Such a system would be complex both politically and
administratively because of the numerous players involved ( Winkelman et al., 2000). Although
such a system would not directly affect land use and transportation infrastructure, a portion of
revenue from carbon allowance auctions could be allocated for such activities ( Winkelman et al.,
2000).
Millard- Ball ( 2008) proposes a new type of trading system called the “ municipal mobility
manager” in which municipalities buy allowances in the same amount as the emissions they
manage. The program would include emissions from urban transport and potentially residential
and commercial buildings too. Incentives would be created to encourage managers to reduce
emissions. The idea is that the differences in emissions due to land use, transportation
investments, and related policies would lead to differential emission levels across municipalities.
A trading system focusing on municipality managers would inherently encourage long- term
planning, such as land use planning, which is difficult for other cap- and- trade systems to affect.
The price signals from carbon trading between municipalities would likely cause managers to
create less carbon intensive programs and policies.
The program could either be implemented at the municipality level or at the regional level
through Metropolitan Planning Organizations ( MPOs), which have more control over large
investment decisions. It would have to be determined whether municipalities would be
responsible for emissions from all of their residents’ trips, for all vehicle travel on municipal
streets, or for emissions from trips ending in their jurisdiction. Using the latter method would
decrease incentives to reduce through traffic. In addition, VMT would need to be calculated
accurately, either based on VMT and speeds or using a representative sample of roads that
represented the vehicle fleet composition of the region. A disadvantage of this system is that
policies and plans made in the past, such as land use policies, would affect current emissions but
could not be reversed, making the system potentially inequitable and politically difficult to
22
implement. To avoid such inequity, fees could be levied on new development that account for
the estimated future emissions; alternatively, counties could receive additional permits annually
depending on population changes ( Millard- Ball, 2008).
Current U. S. Legislation on Emission Targets and Cap and Trade
In 2007, four senate bills ( i. e., Sanders- Boxer, Kerry- Snowe, McCain- Lieberman, and
Bingaman- Specter) were proposed to create mandatory GHG emission caps across the economy,
and one ( Feinstein- Carper) was proposed to create a cap for the electricity sector. All of the bills
mandate such caps, and some also mandate or recommend cap- and- trade permit systems for
CO2. In addition, all of the bills apply these mandates to all six GHGs: CO2, CH4, N2O,
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride ( Kopp and Pizer, 2007). Some
bills recommend upstream regulations, which apply to refiners and importers of petroleum,
whereas downstream regulations target electric utilities, power generators, and other sources.
Table 3 presents these four bills and compares their regulation level, permit allocation, and
emission targets.
Table 3 Proposed Legislation Related to GHG Emissions Targets
Sanders- Boxer Kerry- Snowe McCain-
Lieberman
Bingaman-
Specter
Feinstein-
Carper
Level of
Regulation
EPA decides EPA decides
Downstream:
Electric utilities
and large sources;
Upstream:
petroleum
importer and
refiner
Upstream: all
sources
Downstream:
electric power
generators
2020
Emission
Reduction
Targets
42.0 percent 42.0 percent 39.0 percent 25.0 percent 7.6 percent
2030
Emission
Reduction
Targets
63.0 percent 61.0 percent 59.0 percent 45.0 percent 21.9 percent
Permit
Allocation
EPA decides EPA decides EPA decides
Initial auction of 10
percent of permits;
gradual increase
to 65 percent
Auction of 15
percent of
permits in
2011, gradual
increase to
100 percent in
2036
Source: Kopp and Pizer, 2007
23
LUSCAT’s Recommendations on Targets and Cap and Trade
LUSCAT recommends that ARB define GHG emission reduction targets specific to
transportation and land use sectors at the State and regional level. Creating targets at these levels
will “ most effectively balance the needs of population growth, housing, resource protection, and
integrated transportation infrastructure” ( LUSCAT, 2008, p. 53). In addition, MPOs and
Regional Transportation Planning Associations ( RTPAs) already estimate transportation activity
and emissions regionally. The targets should be designed to meet both 2020 and 2050 goals, as
outlined in Governor Schwarzenegger’s Executive Order S- 3- 05. LUSCAT recommends the use
of the best available modeling techniques for transportation and land use emissions to set the
target levels. Once the target is set, the State should provide local governments with a GHG
quantification protocol and guidance on best practices. ARB should regularly track
measurements of transportation and land use GHG emissions in State inventories. LUSCAT does
not further specify the type of target to be used  absolute versus intensity.
In addition, LUSCAT recommends using a cap- and- trade market auction system and
earmarking part of the proceeds for compact development, brownfield development, and
improvements to existing infrastructure; protection of working and natural landscapes with high
sequestration value; and investments in urban forestry, urban parks, and urban farming
programs ( LUSCAT, 2008). They do not specify how such a system would be implemented.
Offsets
In December 1997, the Kyoto Protocol was created and approved by the Conference of Parties to
the United Nations Framework Convention on Climate Change ( UNFCCC). Under this protocol,
39 industrialized ( Annex I) nations and developing ( non- Annex I) nations are obligated to reduce
their GHG emissions by about five percent below the 1990 levels by the end of the first time
period ( 2008 to 2012) ( Bloomfield and Pearson, 2000; Moura- Costa, 2001; Osborne and Kiker,
2005). These countries can fulfill their commitment through carbon offsets, whereby Annex I
countries purchase carbon credits from non- Annex I countries by investing in their GHG
emission reduction projects ( Bloomfield and Pearson, 2000; Osborne and Kiker, 2005).
“ A carbon offset negates or ‘ neutralizes’ a ton of CO2e ( carbon dioxide equivalent) emitted in
one place by avoiding the release of a ton of CO2e elsewhere or absorbing/ sequestering a ton of
CO2e that would have otherwise remained in the atmosphere. It can also offset other greenhouse
gases such as methane and hydrofluorocarbons” ( Taiyab, 2006). For a project to be considered a
real carbon offset it must have ‘ additionality,’ meaning that the emission reductions in the
project must be beyond what would have taken place in a ‘ business as usual’ situation ( Chomitz,
1999; Moura- Costa, 2001; Tucker, 2001; Taiyab, 2006). Companies, organizations, or
individuals can offset their GHG emissions either through a compliance or voluntary reduction
regime. Compliance groups are comprised of companies and organizations that are required by
law and regulated to reduce their GHG emissions ( Taiyab, 2006; de Steiguer, 2008). Voluntary
reduction groups are mostly comprised of private organizations and individuals who “ simply
want to reduce their ‘ carbon footprint,’ not by law, but to promote a carbon- neutral lifestyle” ( de
Steiguer, 2008).
24
The groups in both the compliance and voluntary markets can reduce their GHG emissions by
investing in two main types of projects: 1) land use and 2) energy ( Cutright, 1996). Land use
involves: 1) “ protecting existing forests or afforestation ( avoidance of deforestation)” ( Brown
and Adger, 1994); and 2) “ carbon sequestration underground or in soils and forests ( the storage
of carbon in the soil, trees, plantations, etc.)” ( Taiyab, 2006); and 3) the “ disposal of animal
waste and methane” ( de Steiguer, 2008). Energy projects involve “ renewable energy, energy
efficiency, destruction of various industrial gases,” ( Taiyab, 2006) and fuel switching ( Cutright,
1996).
Some researchers believe land use change and forestry ( LUCF) projects are seen as less credible
than energy projects. Some reasons given are: “( 1) It is impossible to guarantee that the trees will
not be burned or otherwise destroyed at some point in the future, thus releasing the carbon
dioxide back into the atmosphere, ( 2) Forestry projects will distract attention from the real
problem, which is the world’s fossil- fuel based energy system, ( 3) Difficulty in accurately
measuring carbon sequestration from trees, ( 4) Negative environmental effects and displacement
of local populations that have been caused by large mono- culture plantation projects in the past
and, ( 5) Some providers are selling their offsets from tree planting projects that were already
subsidized by government grants, and therefore it’s additionality is questionable” ( Taiyab, 2006).
However, Chomitz ( 1999) believes that LUCF and energy projects cannot be compared, and
therefore, energy projects cannot be considered superior. Interestingly, Chomitz also mentions
that LUCF projects hold the distinction of being at “ risk [ for] accidentally or deliberately
reversing the carbon sequestration” ( 1999). Also, LUCF projects, specifically agricultural and
forestry ( AF) technologies, tend to have a finite life because truly permanent sequestration is not
likely ( Wilman and Mahendrarajah, 2002), which is why energy projects, such as fuel switching
and energy efficiency improvements, are so important ( McCarl and Sands, 2007).
Finally, offsets are discussed as an additional measure under consideration for AB 32
implementation in ARB’s Draft Scoping Plan ( see Draft Scoping Plan synopsis below), as well
in the ETAAC report. According to ETAAC, “ Offsets allow a capped entity to claim credit or
emissions reductions achieved outside of the cap and trade system…. ETACC agrees that a
standards- based approach to offsets is preferable to case- by- case review since this approach
reduces transaction costs as well as increases predictability, both of which encourage early
action, innovation, and clear price signals” ( ETAAC, 2008, p. 9- 5). Further, ETAAC suggests
that offsets can play a key role in a voluntary market, particularly if a California Carbon Trust is
established. The Carbon Trust would allocate incentive funds generated from allowance revenues
to encourage GHG reductions inside and outside of the cap. This Trust could act as a buyer in a
voluntary market and generate additional capital in the market. Offset limits may be advisable to
encourage progress in particular segments. Limits, however, could increase cap- and- trade
compliance costs and should be used cautiously depending upon the sector ( ETACC, 2008).
Potential Barriers to AB 32 Land Use and Transportation Policy Implementation
and SB 375
Several existing California policies that promote environmental protection could pose potential
barriers to the implementation of AB 32 policies. These include the California Environmental
Quality Act ( CEQA), the Regional Housing Needs Allocation ( RHNA), Local Agency
25
Formation Committees ( LAFCos), and potentially Indirect Source Rules ( ISRs). However,
Senate Bill ( SB) 375, which mandates “ sustainable growth” plans, promises to address the
CEQA and RHNA barriers. Governor Schwarzenegger signed SB 375 on September 30, 2008. It
is described in more detail below, following a discussion of CEQA, RHNA, LAFCos, and ISRs.
California Environmental Quality Act ( CEQA)
CEQA requirements to evaluate environmental impacts of all proposed projects impose an
additional step upon developers that may slow the process of sustainable development. In
addition, the RHNA policy requires a level of investigation that could potentially slow the
process of sustainable development. This section discusses the potential impact of both policy
measures upon AB 32 policies as well SB 375, which is expected to curb the effects of the pre-existing
legislation for AB 32.
It has been posited that CEQA both presents a risk and a potential benefit to GHG emission
reduction efforts. It seems counterintuitive that legislation intended to protect the environment
could hamper GHG reductions. The goal of CEQA is to make environmental considerations
central to State and local agency decisions. Any project proposed by the State or local agency
that could potentially have environmental effects must be evaluated for such impacts, and the
agency must report any potentially adverse environmental effects, identify possible measures to
reduce such adverse effects, and must adopt such measures if they can feasibly reduce negative
environmental effects. Once the project is implemented, the agency that proposed it is required to
monitor its environmental impacts. There is no central agency that oversees the whole process;
rather, compliance is generally assessed through discretionary initiatives run by professional
non- profits, citizens’ groups, and State or local government. CEQA’s strength is that it has broad
coverage and allows for feasible and flexible compliance; however, the cost in dollars and time
of compliance usually greatly exceeds the benefits received by the agency. To date, the
California courts have enforced CEQA rigorously and have highlighted the need for analysis of
cumulative impacts ( Owen, forthcoming). However, the intersection between GHG emissions
and CEQA is new enough that there have been no published legal decisions on how agencies
should comply with both ( Owen, forthcoming).
GHGs that cause climate change are a perfect example of a cumulative environmental impact;
despite the difficulty in precisely measuring such cumulative impacts, CEQA requires such an
evaluation. AB 32 and CEQA have drastically different legal structures. AB 32 is a centralized
policy in which the ARB delegates responsibility to single agencies, while CEQA is highly
decentralized with ad hoc and unorganized monitoring and enforcement. From a legal
perspective, Owen ( forthcoming) argues that usually centralized policies like AB 32 fail to be
completely comprehensive, so CEQA’s structure can strengthen AB 32 by reaching any areas
that AB 32 does not cover. Owen also argues that the flexibility in mitigation measures under
CEQA could encourage innovation management at a low cost ( Owen, forthcoming).
The idea that CEQA can increase the effectiveness of AB 32 is not espoused by many, however;
most members of the environmental policy field argue that CEQA’s requirements are too
lengthy, complex, and costly and thus hinder sustainable development. In particular, its
administration by local agencies can lead to densities that are lower than planned ( ULI, 2002).
The Urban Land Institute ( 2002) criticizes CEQA for containing numerous redundancies that
26
cause delays and increase development costs ( ULI, 2002). In addition, it is often claimed that
simply conducting obligatory assessment studies does not guarantee environmental
improvements ( Owen, forthcoming). In particular, AB 32’ s emphasis on brownfield
development could be particularly hindered by CEQA. AB 32 encourages rapid development of
such areas, and while already difficult to attract investors to develop such areas, CEQA’s
requirements make development even less likely ( ULI, 2002).
Recently, Attorney General Jerry Brown has brought attention to CEQA by warning that he will
crack down on CEQA reviews that do not incorporate GHGs. He has placed pressure upon cities
and counties experiencing rapid growth, such as Sacramento and Yuba, to act immediately to
mitigate climate change by assessing the environmental effects of proposed development and
transportation plans. Between April 2006 and July 2007, he wrote 14 letters to counties and cities
demanding that they calculate GHG emissions for their region and take action to curb emissions
( Bowman, 2007).
In April 2007, the attorney general’s office sued San Bernardino County for failing to completely
evaluate and report the potential effects of its general plan upon global warming and for failing
to adopt policies and programs that mitigate GHG emissions. The lawsuit was settled in August
2007. The settlement requires that the county: 1) create an inventory of GHG sources that are
known or “ reasonably discoverable” in the county; 2) develop a GHG inventory for 1990, 2007,
and 2020 projects; and 3) develop an emission reduction target attributable to land use decisions
and internal government operations in the county ( Sacramento Bee, 2007). Considering that San
Bernardino is the largest county by land area in the country, even minimal decreases of its
carbon footprint could reduce emissions by 10 percent by 2020. Thus, San Bernardino could
become a leader in setting targets and adopting policies that reduce GHG emissions at the county
level.
While San Bernardino County seems to be pleased with the settlement, Brown’s efforts have
been met with resistance from counties, legislators, and developers, many of who are concerned
that he is against growth ( Bowman, 2007). Some have responded by preemptively incorporating
GHGs into their CEQA reviews, while others have continued current review processes. Despite
this resistance, it is possible that the lawsuit with San Bernardino as well as the pressure Brown
has placed upon other counties could allow for quicker implementation of GHG evaluation and
mitigation policies in regional blueprints and at the county level.
SB 375 promises the incentive of CEQA streamlining and exemptions for projects that conform
to the mandated regional growth plans. Transit- priority projects are eligible for the same
streamlined environmental review as residential or mixed- use projects. In addition, some public
transit- priority projects will be fully exempt under CEQA.
Regional Housing Needs Allocation ( RHNA)
In California, housing element law is designed to increase the supply, choice, and affordability of
housing through market- based mechanisms ( LUSCAT, 2008). These laws recognize the need for
land use plans and local regulation that allow for rather than constrain adequate housing
development. California State Housing Law requires that regional housing needs be updated
periodically per RHNA. The councils of governments develop the Regional Housing Need Plan
27
( RHNP), which contains the expected portion of the State’s housing needs in cities and counties
in the region over an allocation period of about eight years. First, the State Department of
Finance determines housing needs across all income levels, and these needs are divided by
region. The resulting number is assigned to the councils of governments, which must describe
how they will meet housing needs and goals in their region.
The RHNP is intended to encourage increases in the housing supply and mix of housing types,
infill development, and intraregional relationships between housing and jobs ( LUSCAT, 2008).
Infill development is the renovation of existing empty or underused real estate for housing or
commercial purposes, contributing to increased density. In creating the RHNP, the councils of
governments must balance competing interests with the need for growth and additional housing.
Communities use RHNA in planning land use and determining the local resource allocation.
Indeed, each city and county is required to adopt a general plan for land use and planning using
RHNA. Local governments retain control over the type and quantity of housing, while the
private sector has the opportunity to develop additional housing units according to market
demand.
RHNA could have presented a barrier to AB 32 implementation. However, this has been
addressed by SB 375, which now links housing and planning efforts for the first time. MPOs are
required to develop a “ Sustainable Communities Strategy” ( SCS) that outlines how they will
reach their GHG target. The SCS will become part of the MPO’s regional transportation plan
( RTP) and now must include RHNA.
Local Area Formation Commissions ( LAFCOs)
Historically, when California experienced rapid growth, many new local governmental agencies
were created simultaneously but were poorly coordinated, resulting in overlapping jurisdictions
and poor planning. LAFCos were created to encourage local agencies to form in an orderly
fashion to prevent such overlap and inefficiency ( CALAFCo, 2008). Fifty- eight LAFCos in
California work with almost 3,500 governmental agencies; with multiple agencies, service
boundaries often overlap and can result in higher costs to taxpayers and wasted services
( CALAFCo, 2008). LAFCos seek to create balanced and efficient services to meet Californians’
needs. They coordinate changes in boundaries between local governments and prepare each city
and special district’s sphere of influence or planning boundary, which extends beyond the legal
boundary to designate a future service area. Their role requires them to consider land use policies
and service capacities, and they seek to preserve agricultural land resources as well as to
discourage urban sprawl. In addition, they consider infill capacity as well as GHG emissions
before granting approvals to expand spheres of influence ( LUSCAT, 2008). Without the
permission of LAFCOs, it is not possible to change zoning. This requirement may pose a barrier
to AB 32 implementation by slowing processes that seek to change land use dramatically or
develop brownfields ( LAFCo and RHNA expert, 2008).
Indirect Source Rule ( ISRs)
Indirect Source Rules ( ISRs) aim to mitigate pollution created by new development projects,
whether commercial, residential, or industrial. They place caps on the amount of allowed
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emissions and require developers to reduce or mitigate emissions under these caps. They were
originally proposed in the 1970s, when the U. S. EPA was criticized for making state air quality
plans but failing to maintain air quality ( Environmental Defense Fund ( EDF)). The courts
proposed ISRs to allow for air quality maintenance and to incorporate air quality into planning,
but resistance from the building and development industries succeeded in limiting the U. S.
EPA’s authority to implement ISRs. In the Clean Air Act Amendments of 1977, states were
allowed to implement ISRs, but they were optional. Since the 1990s, most ISRs have been
adopted in rural areas and aimed to create impact fee revenues; however, they did not prioritize
emission mitigation ( EDF, forthcoming). In 2005, the San Joaquin Valleywide Air Pollution
Control District ( SJV APCD) and the Imperial County Air Pollution Control District in
California adopted ISRs, which require that developers decrease or mitigate pollution due to
future developments, traffic impacts, and overall land use patterns. With more advanced
modeling techniques available than in the past, the SJV APCD has been able to more accurately
quantify indirect pollution due to development. Today, the goal of ISRs is to support
development that increases density and reduces VMT while simultaneously decreasing
emissions.
Not surprisingly, developers— specifically by the California Building Industry Association, have
challenged SJV APCD’s ISR adoption. In 2006, the California Building Industry Association
filed a lawsuit against SJV APCD; they posited that the ISRs were “ unauthorized, preempted by
state law, and/ or constitute an invalid special tax” ( Clark, 2008, p. 1). The industry association
lost. They plan to file an appeal. Generally, State agencies feel that air districts are capable of
implementing ISRs, but many have been cautious due to the potential threat of lawsuits ( ISR
expert, 2008).
ISRs vary between air districts and states, but in general, they may address vehicle emissions that
result from developments, highways, energy needs of homes and businesses, and pollution
created during construction of new developments ( EDF, forthcoming). Developers are often
encouraged to plan buildings that have measures to reduce indirect pollution, such as improved
insulation, designs that use natural lighting, landscaping that reduces heat in the summer, and
transportation that decreases VMT ( EDF, forthcoming). When the pollution exceeds the ISR cap,
some regulators charge a mitigation fee, which is used to decrease pollution off site due to the
new development. As with other policies and regulations discussed in this section, ISRs have the
ability to encourage increased density, improved public transportation, infill development, and
increased housing choices, including affordable housing ( EDF, forthcoming). However, ISRs’
similarities with CEQA and overlaps with RHNA and LAFCos mean that there may be potential
inefficiencies in implementation.
Senate Bill ( SB) 375
On September 30, 2008, Governor Schwarzenegger signed SB 375 into law. Senator Darrell
Steinberg ( D- Sacramento) introduced the bill in 2007 to address CEQA and RHNA reform in the
context of climate change. Under SB 375, ARB will create GHG reduction targets by region in
California after consulting with local governments by September 30, 2010. Each region ( with the
exception of rural areas) must incorporate that target into their RTP; this will result in a
“ sustainable communities strategy” ( or SCS). Regions unable to achieve the targets through their
metropolitan transportation plan ( MTP) would still be allowed to adopt the MTP, but they must
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submit an Alternative Planning Strategy ( APS) that would meet the target. The APS would
outline the steps it would take to achieve the target, such as seeking additional funding for public
transit operations; however, the region would not be obligated to adopt these measures.
An expedited CEQA review process resulting from SB 375  including an open and transparent
public participation process  serves as the key incentive to amend land use plans to conform to a
SCS. Transit- priority projects are eligible for the same streamlined environmental review as
residential or mixed- use projects. In addition, some public transit- priority projects will be fully
exempt under CEQA.
It also includes RHNA reform by changing this process from a five- year schedule to an eight
year one, “ which would also sync the RHNA process with every other cycle of the MTP process.
Local governments would be required to rezone their properties to meet their allocation within 3
years ( 4 in some circumstances) of the adoption of a housing element. The RHNA allocation
would be consistent with the MTP land use element” ( or the SCS) ( McKeever, 2008, p. 2).
Finally, SB 375 requires that the California Transportation Commission ( or CTC) work with
ARB to maintain transportation demand modeling guidelines to more accurately track the effect
of land use choices on transportation in California.
LUSCAT Policy Mechanism Recommendations
LUSCAT recognized that there are many barriers to growth that reduces GHG emissions at all
levels of government. Some policies that were designed to protect the environment have been
used to block such growth. For instance, CEQA has occasionally been used to prevent infill
development ( e. g., not- in- my- backyard opponents) when it has been appropriate ( LUSCAT,
2008). LUSCAT asserted that the process of securing land use entitlements for developers
building housing is “ uncertain, lengthy, and costly,” particularly for infill housing; this is partly
due to the inappropriate use of CEQA ( LUSCAT, 2008, p. 37). The approval process for new
residential development needs to be streamlined and more certain. Thus, LUSCAT
recommended that the State consider reforming CEQA to incorporate analysis of GHG
mitigation strategies and impacts ( LUSCAT, 2008). In addition, the State should improve CEQA
by decreasing the barriers to approving compact developments, infill, and affordable housing. As
noted earlier, these recommendations have been adopted through the passage of SB 375.
One of the policies submitted to LUSCAT was to expand ISRs to all air pollution management
districts in California. LUSCAT acknowledged that ISRs are similar to other project design
elements that local governments, public transit agencies, regional transportation planning
associations, air districts, and affordable housing subsidy programs require or recommend. While
ISRs do have the potential to strengthen AB 32, they “ must be reconciled with other existing and
proposed emissions mitigation requirements of general or specific plans, [ regional transportation
plans) RTPs, [ air quality management plans or] AQMPs, and the environmental review
documents for these plans and any CEQA mitigation requirements for development applications,
of all relevant agencies” ( LUSCAT, 2008, p. 48). Redundant policies and mitigation efforts
should be avoided, including those that would assess mitigation fees for measures that have
already been reviewed by local government permitting processes. To decrease the carbon
footprint of transportation, the State could adopt an ISR in which emission mitigation is
accomplished through project design or by purchasing off- site reductions ( e. g., carbon
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sequestration, or renewable energy generation). Alternatively, the ISR could work within CEQA,
if emissions exceed caps and trigger an EIR. The State could create a model ISR rule or a model
CEQA threshold, which local governments could use to adopt the policy in their jurisdictions
( LUSCAT, 2008, p. 70).
REDUCTION STRATEGIES
Within each policy approach outlined above, there are numerous potential strategies for reducing
GHGs. Some strategies, such as smart growth, require several large and small policies at the
State and local level that fundamentally change the structure of transportation and housing
infrastructure. Other approaches are easier to implement, such as ridesharing and intelligent
transportation systems ( ITS).
Smart Growth and Land Use
Since World War II, the dominant form of growth in the U. S. has been low density and has
decoupled employment locations from residential areas ( Bento et al., 2005). The resulting
pattern of land use is commonly characterized as urban sprawl in which new developments
spread from urban areas into low- density undeveloped areas; homes, shops, and workplaces are
located separately. Accessibility is low and heavily reliant on road networks, and there is a lack
of thriving centers of activity, such as downtowns ( Ewing et al., 2008). As a result, auto-dependency
continues, and as the population grows, VMT increases. In the next 20 years, it is
projected that VMT will increase by 100 percent, and traffic congestion will increase 200 percent
in California alone ( ULI, 2002). Although there have been efforts to improve the technology of
vehicles and fuels to reduce GHG emissions, such improvements are likely to be offset by
growth in VMT ( Ewing et al., 2007). Simultaneously, the rate of land consumption for
development is almost triple that of population growth ( Ewing et al., 2007). This type of rapid
growth results in sprawl, which is a particular challenge in California. Using an index developed
to measure urban sprawl, two regions in California were ranked among the top ten most
sprawling metropolitan areas in the U. S.  Riverside, San Bernardino and Oxnard, Ventura
( Ewing et al., 20078). Such changes can lead to increased environmental externalities, as well as
decreased economic competitiveness due to elevated congestion ( ULI, 2002).
The connection between transportation and land use seems obvious  urban sprawl means longer
commute times and decreased neighborhood walkability. However, in a literature review of
papers studying this topic, Handy et al. ( 2005) question the evidence for this connection. This
topic was not heavily researched until the 1980s, and recent literature reviews describe more than
70 studies exploring this topic. In Handy ( 2005), the author specifically examines four
assumptions. First, she reviews the literature on the relationship between growth in the number
of highways and sprawl. Historically, empirical evidence has supported the conclusion that
building freeways contributes to suburbanization. The literature evaluating this subject also
supports this relationship,