The Case Of The Flatulent Fugitive: How California's Methane Monster Escaped The Carbon Cap (And How To Nab It)

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Southern California Gas Company can't "un-spew" the 83,000 metric tons of climate-changing methane that it passed into the wind above Porter Ranch, Los Angeles these past few months, but California Governor Jerry Brown says they still have to "mitigate" the emissions they've released to-date, as well as through the end of March - perhaps by paying to suck cow gas out of dairy barns, or rebuilding waterlogged rice paddies, or sealing leaky mines.

The big question, however, isn't just how they'll manage that, but: why did the governor have to step in? After all, California's cap-and-trade system expanded to cover the oil-and-gas sector last year (scroll down for details). Shouldn't this be mandatory?

No, because the Porter Ranch plume is comprised of "fugitive emissions", which are "unintentional and could not reasonably pass through a stack, chimney, vent, or other functionally-equivalent opening," according to the California Air Resources Board (CARB), which oversees the state's cap-and-trade system.

Accidental discharges, in other words, aren't covered by the cap, and it's not clear how they'll be factored into the oil-and-gas sector's total emissions, either.

California's Cap-and-Trade: How it Works

In California's system, the CARB puts an inviolable cap on each sector, clearly defining which activities are covered and which aren't. Then it lowers the cap by 3% per year through 2020. Companies operating under the cap aren't allowed to emit unless they get
, which the government either distributes or sells quarterly, using the proceeds to support environmental activities or poor communities. A company that slashes emissions can sell allowances to a competitor, and a company that fails to slash can either buy allowances from other companies
, which are similar to allowances, but different.

While allowances are issued by the government, offsets are created by green entrepreneurs who proactively plant trees or invest in equipment to suck the methane out of dairy barns or restructure rice paddies so they don't get waterlogged. Project developers take on massive amounts of risk, and they go through a rigorous validation period to make sure their projects are well-designed, followed by verification inspections to make sure they're doing what they said they'd do. Then, after all this, they face market risk, and they're often on the hook for "reversals" if something goes wrong.

A debacle like Porter Ranch should be an automatic windfall for those who've put their butts on the line to create environmental assets and a bane to those who've created environmental liabilities. Maybe it will be. We still don't know.

Escaped Fugitives

CARB isn't the only regulator to give fugitives a break. Plenty of the world's 50 or so other emerging cap-and-trade systems do the same - and for reasons that kind of make sense, but also kind of don't.

"Fugitives are too difficult to quantify with accuracy to be subject to a carbon price," says Rajinder Sahota, who heads the CARB team that evaluates industrial activities. "We can't set caps for unpredictable and hard-to-quantify fugitive emissions," she adds. "As such, the cap-and-trade program covers predictable and quantifiable emissions from combustion and process sources."

Basically, fugitives are always leaking, in little bits here and there, and no one really knows how many there are, so you can't put a price on them. What's more, the argument goes, cap-and-trade isn't about punishing outliers who run amok, but rather about prodding the corporate herd towards long-term emission-reduction strategies. It should, in other words, reward good behavior, and that wouldn't happen if SoCal Gas's mistake drove up prices for all.

I don't completely buy that - at least not in the long term - because greenhouse gasses are greenhouse gasses no matter where they come from, and their "price" should reflect their impact on the environment. If you get that part right, human behavior will follow.

I do get the accuracy part, and I can understand why we'd overlook an accidental discharge here and there, but this isn't a little squeaker. It's a rip-roaring, thunderous disaster - a bona fide blast of emissions that may be a direct result of the company's own negligence, and it's quite quantifiable, too, as the Environmental Defense Fund showed with this nifty little counter.

The Variable Cost of Offsetting

Methane is roughly 84-times worse than carbon dioxide in the short (20-year) term, but it also doesn't stay in the atmosphere as long. Over a 100-year period, it's only 28-times worse. That's the timeframe that the Intergovernmental Panel on Climate Change (IPCC) uses, and it's also the one that California currently uses when translating methane emission to carbon-dioxide equivalent (CO
e), which is the standard measure of greenhouse gases.

The Climate Trust, however, sees regulators shifting to the shorter-term horizon over the coming year, a development that could drastically

"Offset protocols currently use the outdated 1995 100-year global warming potential for methane: 21," they wrote. "Updating protocols to use the current 20-year GWP, 84, would immediately quadruple the number of offset credits livestock digesters generate every year."

The Environmental Defense Fund also uses the short-term frame, because that's what really matters to us here and now. As you can see, EDF says Porter Ranch has spewed about 7 million tons of CO2e to date, which translates into 7 million offsets. The latest Ecosystem Marketplace survey shows that California offsets are currently trading at about $10 each, SoCalGas should have to pump at least $70 million into projects that seal mines, restructure rice paddies, and store fermenting cow dung. By law, however, they'd only be required to offset 2 million tons of CO2e in the carbon markets to offset their emissions to-date. It's anyone's guess what the total will be come March.

If fugitive emissions were included in cap-and-trade, this would be automatic and indisputable - the absolute, undeniable, rock-bottom down payment on restitution. In fact, markets being what they are, the company might even have to pay a hefty and unintentionally punitive premium to get so many offsets so quickly, and that would by no means let them off the hook for the damages inflicted on those 2,300 families or anything else they may be liable for.

NOTE: This story was edited after publication to remove redundancies and clarify the different time frames.