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

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We all make mistakes. That’s why pencils have erasers and renters have insurance.


Not all mistakes, however, are created equal.


We can fix a scrawl of bad handwriting by erasing and starting over, but we can’t “un-burn” the apartment house we inadvertently torched after building a campfire to save on energy costs.


It may have been an accident, but we still have to offset our damages by paying to re-create what we destroyed.


Likewise, the 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 after failing to replace a safety valve it removed a few decades back.


It may have been an accident, but they still have to offset their damages by paying to keep an equal amount of methane from escaping into the atmosphere – perhaps by sucking cow farts out dairy barns, or rebuilding waterlogged rice paddies, or saving endangered peat forests.


That’s what they’d have to do by law if they were covered by California’s cap-and-trade system, which expanded to cover the oil-and-gas sector last year (scroll down for details).


But SoCal Gas is under no such obligation, 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. They are, from a cap-and-trade perspective, “un-spewed” – “erased” – like an awkward “S” that you rewrote instead of a massive, made-made disaster that’s trapping heat and accelerating climate change.


This doesn’t mean California lawmakers aren’t sitting idle. Last week, they took steps to make sure SoCal Gas cleans up its mess, and Governor Jerry Brown says he’ll force the company to offset its emissions by support projects that reduce emissions elsewhere – essentially prodding them to do in an ad hoc way what they would have have been forced to do automatically under cap-and-trade.


But that’s a dirty and murky political solution for a problem that could be handled with clarity, transparency, and accountability – and it would be, if we had a universal, market-driven price on carbon.


[Ghost Of Milton Friedman Materializes In Chicago, Endorses A Price On Carbon]


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 allowances, 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 or buy offsets, which are similar to allowances, but different.


While allowances are issued by the government, offsets are created by green entrepreneurs who proactively save endangered forest 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 on the hook for “reversals” if something goes wrong.


[More About California’s Rice Offsets]


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. A price on carbon would send a clear signal to other companies thinking of saving a few bucks on a safety valve or two: with a price on carbon, cheap is expensive.


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 Market Says: $70 Million Minimum, and Counting


Methane is roughly 84-times worse than carbon dioxide in the short (20-year) term, so EDF’s counter translates methane emission to carbon-dioxide equivalent (CO2e), which is the standard measure of greenhouse gases. As you can see, 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 poop.


Under 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.


[Six Heads of State Call for Carbon Pricing]


In the long term, we need a universal price on carbon – regardless of whether that carbon is discharged by accident or intent. Until then, we’ve got a local price in California, and we’ve got a slew of carbon-offset projects that sprouted in its wake. If the governor gets SoCal Gas to offset its mess by supporting real projects that deliver the kind of emission-reductions that stand up to market scrutiny, then we can thank the carbon markets for delivering those projects to us.


But markets are just a tool, and if the governor ends up erasing SoCal Gas’s mistake instead of offsetting it, then the workman is to blame.

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