 I'd like to welcome you all in and begin this panel. The title of which is Mitigating California Carbon. We were trying to come up with a more catchy title, but that's really what we'd like to accomplish here. I think all of you know that in 2006, California passed some landmark legislation. We refer to it as AB 32. The Greenhouse Global Warming Solution Act. And actually I was at the California Energy Commission at the time. I started there in 2006. And like every other environmentalist in the state, we all take credit for having written that bill. At least it seems that way. But it really was an extraordinary piece of bipartisan legislation. I was involved in helping the Public Utilities Commission draft some of the regulations, or I should say suggestions, on how to do the regulations to the Air Resources Board at that time. And of course I became a believer in what California was trying to do. And that was to provide the leadership for the rest of the country in addressing climate change. So I'm very interested, as I hope you all are, in hearing how that implementation is going. And we've got two excellent panelists to help us address that here. I'm just going to make a few more introductory remarks. And then I'll start asking some questions. What we'll do then is open it up to the audience. And then of course I'd like each of you to give us some closing remarks. We've had panels here at the Energy Summit, the Silicon Valley Energy Summit on AB 32 in the past. Of course I don't expect you to remember those year to year. But we're now getting into the implementation. So we're now finally seeing the fruits of the work of those within government and industry that have to figure out how to implement the statutes that the legislature passed. This is a complicated. It's a milestone law that really requires careful, transparent, and comprehensive legal charting so that it will stand up, so that it works and it'll be successful. If you would just put up the first slide that I have. I'm not going to speak to these slides. I just thought it would be helpful for those of you that are good at multitasking. I came across this. I think it does a pretty good explanation of how complicated this is, at least for the cap and trade portion of the AB 32 implementation. The Air Resources Board is charged with the job of really figuring out how to implement the intent of the legislation. And we have one of the key individuals from the Air Resources Board with us today, Virgil Walsh. He's advisor to the chairman, Mary Nichols. I'm also pleased to welcome Kathy Reyes-Boyd, the president of the Western States Petroleum Association. That's an organization that, in my words, engages with government on behalf of its members in a very constructive way. And whose members' companies, really at the end of the day, have to implement the regulations in their business practices. At least for transportation fuels. So I've said a little bit about the format. We've got a lot of information to discuss. I'm going to ask some questions and look for Virgil and Kathy to do their best to provide jargon and acronym-free responses. So, of course, I'll interrupt you if I don't even know what you're talking about. And, of course, at the end of the day, what we'd like to get a sense at the end of the hour is what is the real effect for consumers and how will this be felt by all of us? Of course, I think we'll get some different views on all of that. Now, I know each of these, both of these folks, they're extraordinary individuals. They're dedicated environmentalists. They're committed to California's bottom line and that is the economic, environmental, and social well-being of the state. Let me start out with you, Virgil. May I call you Virgil? Yes, sir, you may. You know, I always do the last-name thing ever since I was a commissioner, but hyphenated names are a problem for me. Oh, they are. They're a problem for me. Virgil, it's been a long time since our paths have crossed. Even though we both worked in government at the same time, we overlapped for a number of years, we kept our respective heads down. I know your head's been down because it takes a while for you to get back to respond to me on an email. Please tell us what you've been up to for the last, oh, six years or so since you left the Environmental Defense Fund. What have you been doing at the ARB? Sure. Well, first of all, thanks for having me here and I understand we're being taped, which is why those lights are on, so I'm actually not scouting. They're there. People are out there. I'm squinting. So we've been busy at ARB implementing AB 32 as you noted. And this year is actually, it's the halfway point since AB 32 was passed and when we are required as a state to meet the target of AB 32, which is to reduce greenhouse gas emissions to 1990 levels by 2020. So we've got now most of the major policy components in place and we're on track. We're on track to meet the 2020 target and we're on track to position ourselves to continue making reductions over the long term because as we all know, that's really what it's going to take if we're going to avoid the significant impacts of climate change. It's been somewhat unpredictable. When we began this back in 2006, as I think many folks here recall, there was a significant expectation that other states, the country as a whole and other countries would follow quickly on California's heels in terms of adopting significant meaningful policies to reduce emissions and as we all know, that didn't happen necessarily as we had all expected. And so we chose of course in California to continue moving forward. One, because we believe what we're doing is good for our state but two, because we understand that what we do here ultimately does influence what goes on outside our borders. And it's actually really exciting because in the last month really, what we've seen is some of those actions that we were expecting to happen much sooner. In April, Governor Brown made a trip to China where a major focus there was discussions about the actions. Did you go on that trip? I did not go on that trip. Two weeks ago, my boss, Chairman Nichols, returned to China to participate in the launch of the first of what will be seven cap-and-trade programs that are now underway there. And in many instances, modeled extensively after our program. In fact, the Chinese have gone so far as to translate our regulations into Chinese so that they can actually model some of their rules off of them. And of course, the president, you know, earlier this week announced his direction for a policy approach at the national level. And in his announcement, he was very clear that at least part of it was building on the leadership of states. And I think there's obviously no better example of that than California. Virgil, you've covered the whole spectrum already. We're going to drill down in each of those a little bit. Let me turn to Kathy real quick and ask you, Kathy. You know, you work in an industry that we kind of love to hate, right? Except for maybe the students in this room. I suspect everyone drove here today and used some form of petroleum products. I'm going to scoop you. Did you see the front of Bloomberg Business Week? BP is getting rolled in the Gulf, right? I forget what it says here. They're up to 20. I think it was $18.4 billion worth of damages. If you haven't seen this, I'll let you take a look at that. But industry, we love to hate, right? We all use it. What do you do at the Western States Petroleum Association? What's WISPA all about? I'm sorry, WISPA is the word turned into an acronym. There you go. Western States Petroleum Association. So first of all, thank you, Jeff, and very much appreciate being here. I'm sure I'm not the most popular person in the room. So thank you for having me. It's also very nice to be with Virgil. We've known each other for a very long time as I have Commissioner Byron here. Jeff. Jeff, so it's a pleasure to be here and participate in this conversation because I think it's a very important one. So at the Western States Petroleum Association, we cover six states. California is our largest state. And we also are in Washington, Oregon, Arizona, Nevada, and the wonderful state of Hawaii, although they don't let me go there very often. But California being our biggest state and that being because I think as many of you know, we have 38 million people here. And I think in 2020, it's up to over 50 million people who end up being quite mobile and really use a lot of transportation fuels. So we have 14 refiners in the state of California that produce those fuels. And just a few tidbits to just put this into context, not just sort of just the facts, ma'am, I always like dreadnet, but 96% of all the transportation fuel in California at the current time comes from gasoline and diesel. And as a state, California as a state is the third largest consuming state of transportation fuels in the world. And there's only two in front of California and that is the U.S. as a nation and China. So we have a tendency to drive a lot, be very mobile, and that's certainly because there's a lot of people who enjoy living in California. But when you look at that, it doesn't mean that that's the equation that has to be in place for the future. Our companies are investing as much as the federal government and any other private entity in alternative and renewable fuel. But we also have to continue during this transition to the low carbon economy to still provide mobility while that happens. And for California, that's 42 million gallons of gasoline a day. It's 11 million gallons of diesel a day. That's over, as you're sitting here in this hour, that's over 2 million gallons of gasoline and diesel every hour of every day, 365 days. So I only put that out there to say a lot of what we have to do is continue to provide mobility as we transition into other alternative ways of transportation, whether they're electricity, hydrogen, biofuels, which we'll get into low carbon fuel standard in the cap and trade program. That all has to happen in a way, and I have a slide, maybe we'll put it up later, that basically shows our concern between now and 2015, 2016, is whether or not that becomes a fuel cliff or whether that becomes a bridge to the future. And I hope that's kind of what we get into a little bit in this conversation is what is that period of time. And if we don't do it right, what we will have is a climate change program in California that will suffer because it won't be the magic word sustainable. And the consumer has to be willing to understand and deal with those impacts over this time period in a way that is acceptable to them. Because I've said this a million times, I mean all of us are consumers, right? So we wake up every day and we expect to drive from A to B, turn our lights on and heat and cool our homes, you know, every day without an eruption affordably. So the expectations are high and so that transition becomes very important. That's a lot of what I do at the Western States Petroleum Associates is engage with groups like the Natural Gas Vehicle Coalition, the Electric Technology Coalition, the, you know, Coalition for Clean Air, the NRDC. All of these are conversations we're all having. They are resources board, the Energy Commission to figure out how we do this right. And I know since you've, I think WSPA has always done a very good job of engaging and being at the table and providing really constructive input. But we'll check with Virgil on that in just a second. Virgil AB32, also known as this Global Warming Solution Act, it's about reducing California's greenhouse gases with market mechanisms instead of a carbon tax. Can you give us a brief explanation of the mechanisms that are in the law? Just the overview so everyone here can understand. We, the parts of it that you've been working on that the Air Resources Board has been working on. Like I said, I put this little slide up just in the background so folks can get a sense of the cap and trade program. And then there's of course the low carbon fuel standard. Could you just briefly describe those so that we'll get a sense of what these are and if there's other mechanisms that are in play? So actually just a point of clarification. AB32, the approach that we've taken as a state and not just ARB involves certainly market mechanisms but it also involves a number of more traditional regulatory approaches. Okay, he's, clarification is correcting me which is good. Many of which, as you know, have been in place and successful for some time including for example the energy efficiency standards that the Energy Commission, the Title 24 standards that the Energy Commission oversees, et cetera. So there are a variety of components to AB32 including what have already been mentioned here, the cap and trade program, a low carbon fuel standard, the renewable portfolio standard which is the 33% by 2020 requirement and a number, in fact dozens of other smaller more focused kinds of regulations or incentives or programs of that nature. But just to briefly hit on the two that you mentioned, the cap and trade program that we have in California covers about 85% of the emissions statewide and the general concept and this is a very, I mean it's quite simple actually in concept. You put a cap over the emissions over time, the cap declines and industries of a certain size are part of the program and required to hold what we call allowances equivalent to the total amount of emissions they produce in a given year. They have an incentive to reduce or they can go out and acquire additional allowances if they choose not to and the whole point of it is to provide industries with the ability to make the decisions they would like to make as opposed to having government tell them specifically what they should or should not do. So you said 85% of the greenhouse gases, that's just from stationary sources though, correct? So 85% of statewide emissions. So that beginning in 2015 we would actually include transportation fuels in the program. In the cap and trade program? That's correct. Thank you. So and the low carbon fuel standard which is another component of AB32 is also quite simple in concept. It's a requirement that suppliers of transportation fuels in California reduce the carbon content of the fuels. They provide 10% by 2020. Similarly, it's up to the individual companies how they want to pursue those reductions. There's a variety of avenues that can be pursued investing in a whole multitude of lower carbon liquid fuels or electricity as a transportation fuel or hydrogen or things of that nature. So that's the sort of general thrust of each of those. It's obviously much more complex in practice. Each of those rules is probably hundreds of pages long. The details matter here and so there are a lot of details but conceptually that's how those two pieces work. And of course workshops, you have a number, how many public workshops have you held would you say in the last six years over these topics? I think we've actually counted, I believe we've actually exceeded 1,000 at this point. 1,000 workshops, has it been very transparent, Kathy? Yeah, I think they've done a good job on engaging the stakeholders on the workshops. I can't say many of our comments have been accepted but I think the process has been open and transparent. Oh, so the ARB has not accepted much of the input from the industry? That shouldn't be much of a surprise to many. Oh, well that's not the way it was at the energy commission, of course. Virgil, any response to that? Yeah, I think we've taken a significant amount of input from a variety of stakeholders and we have always tried to balance the approach we've taken and there's sort of a notion in the regulatory world if the environmental groups think you haven't gone far enough and the business groups think you've gone too far, you're probably in the right place and that's a position we find ourselves in and it seems to be working. So this was not the order that I had planned to go but let's drill down on this a little bit more. I think this is important. What are the main issues or I'm assuming it's more than one but if it's only one, go right ahead, Kathy. Yeah, and I think in all fairness we didn't know then what we know now. So we've been through many years of development of both the cap and trade program and the low carbon fuel standard and those are the two I think big elements really of what the Air Resources Board is trying to do. The vision that we're trying to accomplish is extremely meritorious. There's no debate about the need to address climate change. I think really how we do it as Virgil said the details are what become important. So when you take the cap and trade program we'll start there. This is a program that is designed to reduce obviously our emissions over time under this cap and our companies support what we call market mechanisms. Cap and trade is a market mechanism as is a carbon tax. Those are both market mechanisms. You know, in a carbon tax, you know the price. Oh, no, no. We do not allow bottled water. It doesn't allow bottled water. Thank you, but no bottled water. One of the worst ideas foisted upon mankind. Go ahead. No, no problem. So that could be a whole other conversation. It is. So the market mechanism of cap and trade is you know the emission reductions are after, but you're not quite sure about the price. Carbon tax, it's the reverse. You may know the price, but you're not quite sure about the emission reductions. But they're both market mechanisms. One is more politically sellable than the other, which is why their resources board really gravitated towards a cap and trade piece instead of a carbon tax. In their scoping plan, they had both identified that carbon tax was an alternative. Some type of a carbon tax at times can generate some significant dollars that could be reinvested, which is why people look there. But anything that has the word tax on it is a difficult one. I learned that the hard way as well, speaking to legislators saying there's a lot easier way to do this. Then cap and trade. I mean, for instance, five cents a gallon at the pump is, you know, if you do that over six years, you can get up to, you know, $30 billion a year or $5 billion a year in dollars that could be reinvested. But again, that's, you know, 30 cent impact to the consumer is pretty significant even if you stage it over time. So there's been a lot of people who have talked about an option like that, but it is a difficult thing for a governor to step out on some kind of an option that puts that kind of a pressure on the consumer. So we find ourselves in the cap and trade world and for us, we really take no issue with reducing our emissions under the cap. That's a two percent reduction per year as we move towards the levels we're trying to achieve. That is something that we're investing in and we're dealing with and not going to say it's not going to be costly and expensive. It will, but that's the piece that is really sort of the environmental side of the equation. That's a guaranteed reduction in emissions. The trading piece is supposed to be the flexibility for business. That's why you don't do command and control regs. You do cap and trade, which provides a flexible mechanism for business to find the most cost effective way to reduce their emissions. Unfortunately, in our view, we don't think this program is currently designed in that manner and that's because the flexibility on the trading side hasn't become as flexible as we had hoped. For instance, there is an additional piece of the regulation that's called trade exposure. So companies, businesses in California are determined to be highly trade exposed, moderately trade exposed or low trade exposed. If you are not lucky enough to get in the highly trade exposed category, you have to surrender your allocations under the cap and trade program at an increasing rate between now and 2020 over three compliance periods. That's the cap. That's actually not the cap. That is what, on top of the cap, so in addition to the 2% reduction you make as a business, you now, if you're not highly trade exposed, which means the Air Resources Board isn't as worried about you, that you have to surrender your allocations at an increasing rate. So it means you have to go out in the market and purchase more than just dealing with your 2% cap. For an industry like ours, we're obviously not placed in that category by the Air Resources Board, although I think we should be. So we have an additional expense in the cap and trade program that some other businesses do not. And it's a very large expense in dealing with surrendering our allocations or our allowances under this program. So we don't take issue with the declining cap. We do take issue with how we've been classified as trade exposed. And then the other issue, just to put out there, and I don't know how we're going to quite deal with it yet, is fuels under the cap. So all the emissions from all the vehicles that travel through California, all those emissions will be placed under the cap and trade program in 2015. Now currently under the cap and trade program, businesses are given to start out 90% of their allowances. One allowance equals a ton of emissions. I guess that's the best way to talk about it. A ton of CO2. A ton of CO2. So in the beginning, you're equivalent. So in the beginning you're given enough allowances to cover your emissions over time that decreases under the cap. In the cap and trade program on top of that, those are extracted from not highly trade exposed industries on top of the 2%. And then fuels come under the cap in 2015, which the refining industry receives zero allowances. So that means all of those emissions have to be offset. That's a lot of vehicles, a lot of emissions, and the costs are pretty dramatic. So pass it on to the consumer. That will see how that goes. And I think it'll be something for the legislature and the governor to deal with in 2015 when and if that occurs because the cost of the consumer could be quite impactful. And as I've said, when you've done some of the polling and there's been many polls by all kinds of people on climate change, and certainly California is extremely supportive of climate change policy. When the next question comes, you know how much are you willing to pay for it? That answer becomes very different. So how we do this, the timeline we do it, at the rate we do it, is really, really important. For our industry, unfortunately, we're about in every bucket that the resources board has in their scoping plan. So we've got... Your buckets are full of oil. Well, after this, you won't have to worry. There won't be as full. But for instance, the cap and trade program itself, we just talked about the cap, fuels under the cap in 2015. So as a stationary source, we have to deal with it as a provider of fuels. And then the low carbon fuel standard is the third policy. And that policy is for the refiners who sell fuel into California to reduce the carbon intensity of that fuel 10% by 2020. And we can get into the details of that. What I just want to leave you with is there's three regulations all on the climate change policy on one particular sector in a very short time period. And when we looked at the costs of those and the impacts of those through a study we commissioned, it's pretty significant impacts on this industry. There will be some of the 14 refiners who will not survive between now in 2015, 2016. There will be a reduction of refining capacity. There will be a loss of 30,000 jobs. There will be an impact to the... to our ability to recover the recost between 30 and over a dollar a gallon. Now, that's cost recovery, our cost to recover. I'm not predicting impact on the consumer. But those are significant things for the state of California to talk about in the transition. Because I know that in talking with Chairwoman Nichols and I think Virgil will agree with this, it was never the Air Resources Board intent in this regulation to put the refining industry in California out of business. It was not their intent to lose 30,000 jobs or 30 to 40% of the refining capacity. Certainly not a time period where the biofuels will not be available to supplant them. So I'm putting it out there as a timing issue, not as a the regulation is not meritorious, not as in what we're trying to achieve is absolutely meritorious. It's the timeline has become a complexity that we did not see in 2006 when AB 32 has passed or 2009 when the low carbon fuel standard was passed. All right, you doom sayer. What's the timeline look like going forward if AB 32 is implemented on the schedule it is? I'm going to give you a second to respond, a second Virgil. Give me a moment to respond. If we're on this current timeline for implementation, when does this start happening? When do we see these refineries shutting down and 30,000 jobs lost? And I can tell you as a former energy commissioner, we are very thin on refinery in the state. We use it as we refine it and losing refineries will cause shortages and much higher prices for gasoline. So, but you know, are you credible? Do we really believe you with all these negative? That's not what I want to ask. What's the timeline? When are we going to start seeing these impacts next year? So the Boston Consulting Group is internationally renowned and who we hired to look at this. And why did we do that? We did it because they understand every refinery. They understand cost structures of each refinery. They understand global trade flows. So what we wanted to bring to the conversation was how will refiners behave as a result of these regulations and will you actually deliver the results that you expect from these rules? And we think that there's a better way to achieve the goals of especially the low carbon fuel standard. I'll focus on that one. It's probably the most impactful. Then the current regulation and that is because the biofuels, the electric vehicles, the hydrogen, the natural gas vehicles have not come to fruition in the volume and scale that had been anticipated in the timeline of this regulation. So if we don't step back and look at that complexity and how it's developed, the Boston Consulting Group believes there'll be some big unintended consequences between now and 2015. Now we'll have a debate and I know the Air Resources Board does not believe it's 2015. It's probably in their view 2016 and 2017. But I think what we all agree with is the urgency to do something and talk about it is now because for my companies, they make decisions 10 years out. So whether you believe a fuels cliff is here in 2015 or we have issues in 2017, for our members, it's really irrelevant. Our decisions are going to be made in the very near future on how we deal with the marketplace in California. Okay, I want to give Virgil a chance to respond. And Virgil, you and the Air Resources Board are not on trial here. You have a very tough job. You're trying to implement these statutes in a way that's consistent with what the legislature intended. But you must be concerned about cost as well. Is what Kathy's saying about the increased potential cost shutting down refineries? Is this factored in? And to what extent do you think it is a factor? Well, first of all, I actually quite enjoy working with Kathy and so I don't want the oil industry to go out of business because then I wouldn't get to work with Kathy. You wouldn't have been able to drive here. Let me put it this way. It's been more than a decade now. California, the legislature passed and charged ARB with developing regulations to cut tailpipe emissions, bringing house gas emissions from tailpipe, passenger vehicles. The Pavley regulations, as many of you probably know. Senator Pavley. Then Assemblywoman Pavley, now Senator Pavley. And the automotive industry vehemently opposed the effort to develop the regulations. Too expensive. Technology doesn't exist. Consumers won't stand for it. Cannot happen. Will not happen. And we engaged in a multi-year political policy and legal challenge. And as I think most folks here now know, we, the United States, now have not one but actually two sets of regulations to cut GHGs from passenger vehicles as a result of California's rules. And last year, when the president stood up to announce the second round that will extend beyond 2020 into 2025 in the process, save consumers a lot of money over the life of their vehicle because they're going to be much more efficient on stage with the president were a number of the major auto manufacturers. And the point I make is, of course, that it turns out they could do it. And so that's what we're believing in this case. We think we can push our industries to be innovative, to do it in a way that protects consumers, and to do it in a way that's consistent with what we're doing not just in California, but globally in terms of trying to reduce emissions. More directly to your question, Jeff, we take very seriously the impact of our rules on cost to consumers. That's a major consideration. It always is. And we are always evaluating how our regulations are being implemented and what the effect that they're having is. And so I think, you know, Kathy made the point and I would completely agree with her. It's, you know, it is important to understand the timing and the slope and the trajectory. And, you know, it's something that we're always keeping our eye on, but history tells us. And the example I gave you, there are many more. History tells us that usually when you ask some of the smartest, most resource, most innovative companies in the world to do something, they will figure out a way to do it. And they'll figure out a way to do it that is significantly cheaper than what many folks think it's going to actually cost. Well, you raise a good point. I mean, Ms. Rias Boyd puts a nice face on this on behalf of her industry. Kathy. But let me quote from one of your members here. The Shell Oil's president, Marvin Odom, said at the Commonwealth Club's Climate One last month, climate change is urgent, action needs to happen. But then you also have other members that have brought lawsuits that have slowed this all down, I believe, on the order of about a year's worth of effort. I mean, it's very difficult to run an organization like yours. And the credibility issue that Virgil raises, my word, not his, but there's been times when we've had to push this industry, just like any other industry, in order to develop the new technology and do the new things. And so I guess, Kathy, the question is, is Virgil right? Are we, you know, is it just scare, gloom and doom that we're going to fall off this cliff? So here's the problem with the low carbon fuel standard. You don't hear any of our members having difficulty complying with it today. That is because the Air Resources Board did something very smart. They did a compliance pathway from now till 2020 that ramped up over time. It started out small, and then it grew over time as you approached 2020 to allow technology to develop, hopefully. Remember, this was 2009, 2008, that this was all developed. And that we hoped that that trajectory would work. So unfortunately, what we're finding is next year, 2015, when the percentages of what we have to blend in our fuel to reduce our carbon intensity 10% by 2020 grow, they grow at a rate where there isn't enough available low carbon intensity fuel in the world to even come close to meeting those obligations. So for our industry, who makes gasoline and diesel, diesel's a little easier than the gasoline side, because we have renewable diesel and biodiesel, a little easier right now to comply with. But for gasoline, the pathway forward is non-existent. Once we've used all the Midwest corn ethanol we can use, and again, it has a carbon intensity that's not that much better than gasoline, so it doesn't get us very far. And then we go to Brazilian sugarcane, which is... By the way, they've not seen these slides. These are my own. I'm just putting them up as background, I think, to help you understand what she's talking about. So Brazilian sugarcane ethanol, better carbon intensity, it gets us a little more down that pathway, and then it won't get us any farther. The only way Brazilian ethanol would get us any farther, if you went to a completely E85 transportation-driven ethanol system for California, which would take a lot of ethanol, a lot of Brazilian ethanol, probably more than they could possibly make. They'd probably have to build another bio refinery, and all of it would have to come here. But you'd have to get fuel-flex vehicles from the small amount that we have to basically everybody driving them, and change the infrastructure of gas stations to include an E85 pump like Brazil. So, yeah, that's possible, but that's because you could blend 85% of it to your fuel, and fortunately, we have a blend wall of 10% on gasoline. We can't put any more than 10% of ethanol in our fuel by law. This does get pretty technical. So I'm just putting some of the complexity is that the way the regulation was designed was good. It hoped that the availability of this low-intensive fuel would come so that we could blend it in our fuel and comply. The fact is it's not here and won't be in this period that we're talking about. So that's why this timing becomes important. What are we going to do about that? Now, the Air Resources Board's answer to that is that you could purchase low-carbon fuel-standard credits so that you can continue to supply gasoline to the marketplace that isn't low-carbon-intensive gasoline that meets the specs because there isn't any available. For our industry, I mean, that may be a viable pathway for a time because the credits right now are inadequate quantity because, again, we're at a very low period in blending so we have a lot of credits that can be generated. As that gets harder, these credits get very, very hard to generate, the scarcity of them increases, and the price of them goes up. The trading of low-carbon fuel-standard credits, I just looked, was $60 last week and it's $72 this week, I think? $60 per... Per... Per... Tennessee O2, thank you. Same metric as talking on the question. So, again, it's... I think the world is... What has happened is we've evolved to a place different than we thought we would be when we designed this in 2009. It's just in the interest of time. I'm going to move us to another topic. Let's put Virgil on the spot a little bit. Let's talk about cap and trade. This isn't the first time we've done cap and trade. Just for a little bit of background, the European Union Emission Trading Scheme, the Regional Greenhouse Gas Initiative, or REGGI, back in the New England states, the Clear Air Interstate Rule for SO2 emissions. Now we have AB32. Now, I'm sure we've learned a lot from these three other trading mechanisms or markets that have gone on in the past. What's the difference about the way AB32 is being implemented, Virgil? I... These three markets that I just mentioned had a lot of economic change. Demand drops and too many allowances and one caused a lot of difficulty. Government interference, where government changes the rules, can have an effect. These go on for long periods of time. I mean, you never know. A governor might say, hey, I'm going to take all the proceeds from these money instead of investing them back into energy efficiency. I'll just give a loan to the legislation, the legislature, which by the way is what Governor Brown did last month. How is ARB addressing all the known unknowns and those unknown unknowns, right? There's a lot at stake here in what we're doing, unilaterally as a state. How are you addressing that to make sure you've created a market situation that won't cause economic harm? And first of all, I would advise any entity who's going to ever develop a cap and trade program not to call it a scheme. That's... Which the... It's not the same connotations for us here in the States. It's not. Yeah, I mean, the short answer is that we have learned a great deal from the other programs that have been designed and implemented before. You know, not to sort of toot our own horn, but the Air Resources Board has a 40-plus-year history of developing extraordinarily effective air quality regulations. I think that's absolutely true. And we're benefiting from that in California. That is the exact same approach we've taken in the development of our cap and trade program. We spent several years of intensive work designing it, testing it, running it through its paces, letting people practice with it. We convened a number of committees that include some of the folks here today to advise on a variety of facets of the rule, the economic aspects, the regulatory aspects. So we designed a program that we were only ready to start when we were entirely confident that it was actually going to function as we had designed it. And so far, so good. Now, of course, as you note, Jeff, we have to be vigilant always going forward to make sure that we are paying very close attention to how it's working. I won't get into the details, but the actual regulation itself has a number of features that are inherent in it so that it does account for certain kinds of market fluctuation, certain kinds of swings in allowance prices, unexpected events, that kind of thing. So it's already designed with, you know, double and triple kinds of safeguards, but in addition to that, of course, we do now as we're moving into an implementation phase continue to be sort of on top of every aspect of it. And so far, I think it's working quite effectively. So I'm going to ask you one more question. Then we're going to open it up to questions. So I'll ask those with the microphones to be ready just because we're, as always, running out of time. So you can't have a market that's just one state. I mean, the grand plan was to see the federal government pick this up. Maybe we're going to see some action there now. But so far, who else has shown some interest in this? We need a market that spreads across where every place CO2 goes. Well, as I mentioned at the outset, China is now in the process of developing seven regional programs which, if all goes according to plan, will actually result in a national program. Australia is in the process of transitioning from a carbon tax to a cap and trade program. As I think a number of folks here know, we're actually pursuing a linkage with the Canadian province of Quebec. There are a number, South Korea, for example, has a cap and trade program. There are a number of other subnational, meaning state or provincial level efforts underway. And then the only other thing I would say is, you know, on Tuesday or whenever it was when the President announced his plan, one of the things that he said was, of course, that he was going to direct the EPA to pursue regulations for stationary sources. And so you've already created those? Well, here's the deal. The Clean Air Act provides a framework, and the framework lets the feds establish standards. But within the Clean Air Act, there's this provision that's called 111D. And 111D actually lets states meet whatever the federal standard is by developing their own program that works best for the states. And so as you start to look around, I think you're going to see a number of states saying, hmm, that thing that California did looks pretty attractive, and not just on cap and trade, but in terms of our energy efficiency and in terms of our renewable programs. So electric sector writ large, which the cap and trade program covers in California, I think you're going to see a lot of states really take a serious look at developing programs similar as a means to comply with any federal standard that gets promulgated under the Clean Air Act. And maybe the states is where it's all going to happen. So I've tried to ask a breadth of questions, but I want to open it up to you all. I think we've got about just under 10 minutes left. So let's open it up for some questions. It's very difficult to see because of the lights. If you have a question, please raise your hand. And we have a couple over here, microphone. Keep your hands up so you're, so there we go. So second, second, we'll go second question over to here and third question here, please go right ahead. Yeah, would you identify yourself please? My name is Kathleen Kinney and I'm with biomethane. And so I happen to work with a renewable fuel that is technically carbon negative. And so as best as I figure it for every gram of CO2 emitted there are eight grams that are basically kept from entering the atmosphere. And so I don't see that kind of fuel on this graph. I wonder if that's- This is my graph. I just threw this up so you'd all have a sense of the relative CO2 intensity of these. But please go ahead, ask your question. Right, so I'm wondering if that's been factored into the timelines that you talk about because I believe that that kind of fuel is being developed in California and how that might change the game. Either one or both? Well, I can't speak specifically to the fuel although something that's carbon negative sounds pretty cool. Yeah, did you bring any with you? But I mean that's the general notion here, right? It's to create some incentive for these kinds of fuels and technologies to not just be sort of developed and shown to be viable alternatives but to actually be produced in significant quantities so that they can become more sort of mainstream alternatives. I think the short answer is that the Air Resources Board is very interested in promoting those kinds of fuels. Max, Henry from Lumen and Decision Systems. I guess Ms. Eheis-Bloy. Kathy. Kathy. It's easier. Okay, good. You pointed out that the kinds of low carbon biofuels, cellosic fuels have not come online in the volume that many of us were hoping perhaps when some of these, the RFS and the California rules came out. And we expect that there will be a learning curve. Right now they're too expensive. At least they're not cost competitive in the way that, you know, corn ethanol at least is cost competitive even if it's arguably not low carbon. So I guess my question is, does the, do the existing mechanisms provide the incentive to start producing those cellosic ethanol to, even though it may be more expensive the first lot, so that will come down the learning curve, get over the bump and induce the other point when it starts to be cost competitive without having some additional incentive structure? Good. Does that happen or could that happen? That's a great question. Thank you. And when you look at the federal RFS, as we all know that is a regulation, oh sorry, renewable fuel standard. Thank you. Very good. That is a regulation of the federal level that's really trying to push the whole advanced biofuel, biofuel part of this equation, right? Not necessarily, not obviously electricity, hydrogen alternatives, but from the biofuel standpoint. And I think it's not just an issue of whether cellulosic is cost competitive. It is a technology issue as well. We have not yet cracked the nut and many of our companies are looking at this as well as others of how to make cellulosic at scale and at the volumes that we really need to make it a viable alternative to blending and gasoline. So it's not just a cost issue. It's a technology advancement issue and we haven't quite cracked that nut yet. Maybe we will, maybe we will sooner than we think. But at least the forecast for now do not think it's between even necessarily now in 2020 where we thought it would be in very large volumes today. So I do think it's still a viable option and I think everyone will continue to pursue it. I just don't think it's gonna be as, it's not gonna be that silver bullet we had hoped for in this time period. So I do think it's still on the table. Virgil, did you want to add or can we take another question? No, please. The gentleman that I pointed out to be the third question and then we have one here in the front we'll take is the next question. I think that may have to be it. We have to keep these short. Hi, Karim Farhad. I'm a PhD student in Management Science and Engineering. Welcome. Did you walk here or did you drive? I walked. Good. I guess my question is, and this might be a little bit long, but I'm really interested to know about the level of coordination and integration of the efforts of the Air Resources Board and all other agencies in California that are looking at transportation because it looks to me that some of the players now in the transportation sector who might have the problems don't necessarily have the solutions. So while we are looking at emissions from transportation in 2015, are we only looking and focusing on the carbon emissions or are we also looking at making the public transportation more reliable? So if I am in Los Angeles at 2015, do I have to worry about being stuck in traffic for three hours and paying more for my fuel rather than taking a good train or like, you know, a good subway from point A to point B? So are all of these big picture coordination strategic questions taken into account as you make the legislation about the carbon specifically? So is there a central clearinghouse for state policy? Great question. And I think embedded in your question was a point which is also a great point and the answer is yes. And there's a number of venues that that's occurring in. I'll give you a couple examples but there's more in the interest of time. I won't go too far. The bill AB32 requires this thing called the Scoping Plan be developed every five years and the Scoping Plan is sort of this high-er level document that says here's California's strategies for reducing emissions. We're in the process right now of revising the Scoping Plan and we're looking at a bunch of sectors including the transportation sector. So as part of that we're working very closely with our sister state agencies but also a lot of the local agencies, the Metropolitan Planning Organizations, etc. Another example is actually a piece of what we refer to as AB32 broadly, although it's a separate legislation and that is Senate Bill 375 that was authored by the President Pro Tim Steinberg and that bill actually requires at regional levels Metropolitan Planning Organizations to develop plans that essentially are consistent with what you're describing and those plans actually come to my agency for review and they're assigned an actual greenhouse gas emission reduction target number as well. And then in addition to that the only other example I will mention and Jeff alluded to this as part of the cap and trade program we are going to be investing proceeds from the auction of allowances in a variety of purposes deferred to the goals of AB32 and while this year the decision was made to use the proceeds to support the effort to balance state budget going forward we're going to be investing those proceeds in a variety of forms and transportation being won so we will be looking at how do you do integrated transportation planning so that you've got the right transit located in the right places so that you've got the design and implementation of development and more compact development and these kind of things so there's a lot of work actually going on that front. I guess just the one thing I would add to that is and Virgil and I try to step away once in a while and put our heads together on innovative creative ways to solve some of these problems. Does that involve alcoholic beverages? I'm not going to say but I do think that one of the things we've tossed around is when you look at some of these climate change policies and how do you marry up not only just the agencies working together but the agencies in the business working together and in particular our industry from the fuel side what could we be doing to deliver the kinds of results we thought the low carbon fuel standard would deliver but frankly I think we're falling short of for lots of reasons not because everyone's not trying it's just that things didn't develop the way we had thought but what would a partnership look like that could still deliver fuel diversity technology innovation you know partnerships to spur alternative renewables at a rate that the low carbon fuel standard frankly doesn't look like it's going to do and you know what would that look like and how would we accomplish it and that's to me that's the kind of conversation that we really want to get in I mean because that's the only way frankly that I think will actually succeed on this California climate change pathway and be able to sustain it beyond 2020 and into the future so the more of a we're looking for more of a real collaboration and creativity on how we might reach the goals of the AB 32 and low carbon fuel standard because the way it's structured now and knowing what we now now that we didn't know then I think is driving us to maybe a different conversation about that so I apologize I have to cut off the questions I want to keep us on time so you all can get to lunch let me do this let me ask each of our panelists to just take one minute to just close with whatever they think they we may have missed or something important they'd like to say Virgil why don't you take a minute and just give us a close here on the panel sure well thanks again I guess we talked about it a little bit but the issue of cost is obviously it's something that we we talk a lot about and you know for some for all of us it's a concern and I guess I would just know a couple of examples and I think there's there's others where we're seeing a really significant progress being made in terms of the cost of technologies getting to a point where they're they're accessible not just for you know folks who have a environmental bent or enough disposable income to go out and get the coolest new gadget and you know one example is the latest statistics in California for distributed generation of solar so rooftop solar is that there's actually more DG solar being installed on on people with with median incomes sort of in the fifty to sixty thousand dollar range these are not rich people these are these are sort of middle-class folks who can now go out and access programs that allow them the cost effectively put this stuff on their house not because they're environmentalists but because it makes economic sense and another example is right now we're seeing electric vehicles being offered at rates that actually make them more affordable to own in many instances than even quite efficient hybrid gasoline power I drove my electric car here today and so I think these are really really encouraging things that you know we can all take credit for in California and it's at the root of what we're really trying to do with what they'd be thirty two it is to drive innovation in these kinds of technologies that we know will help our climate goals but we also know that will give consumers what they're looking for it causes that they're willing to pay and I think we're on a pretty good trajectory good Kathy you're between you're the last before lunch go right ahead you pressures on so for me what I get excited about in in what I do is to try to figure out a way to accomplish the vision without the consequence and if we can do that and we can do it collaboratively we've got some really good examples about the results that can happen for the environment if we can actually accomplish that and I'll just point to one this is very recent it's yesterday senator Pavley's SP 11 this is a bill that has the broadest coalition I've ever seen in the history of California supporting it it's every environmental group it's the oil industry it's the automobile industry it's the energy commission it's the resources board is the governor's the center the senator probably with the highest hot environmental credentials in in in the legislature and it's job was to bring and continue to bring dollars to the energy commission and their resources board for innovation on alternative and renewable fuels 118 program and car more of the two programs that bring significant dollars to California that are then used for projects early deployment of new technologies in anything that's not petroleum why in the world would I be involved in that because it was the vision and it got get rid of the consequence the consequence was it was envisioned that it would be the responsibility of the oil industry to put five hundred hydrogen stations at retail we don't particularly want to be in that business uh... and so it doesn't quite fit into our our business models for the future does that mean we don't like hydrogen absolutely not does that mean we don't want to collaborate with everyone to figure out how to do that absolutely not evidence we supported this bill we worked in very hard with the coalition and it passed with fifty four votes i mean it's i've never seen it so my answer to that is you can do vision and not have the consequence if you get the right people together to figure out how to make that happen and you leave your agendas at the door and you focus on the results you want i'm hoping that we can figure out how to do that in the climate change space