In late 2006, the California Legislature passed AB 32, a law to reduce the emission of greenhouse gases. Now codified in California Health & Safety Code sections 38500, et seq., the "California Global Warming Solutions Act of 2006" will affect owners of commercial real estate throughout the state.Under AB 32, the California Air Resources Board (CARB) has been empowered to develop regulations and market mechanisms to reduce California greenhouse gas emissions 25% by 2025. CARB is required to adopt a plan to accomplish this by 1/1/09 and a set of regulations that will be enforceable on 1/1/10. Battle lines are already being drawn over the plan by electric utilities that rely on the production of electricity by burning coal (example, the L.A. Dept. of Water & Power).
As AB 32 goes into effect, owners of real property such as office buildings, automobile dealerships, hotels and farms may be required to commission a study commonly referred to as a "carbon footprint" to determine the level of greenhouse gas emissions from their property. If the emissions are in excess of the acceptable limit for the property set by CARB, the owner will either have to reduce the emissions or buy "carbon credits" to offset the violation. This will be a big business.
Let's take the case of a dairy farmer in Southern California. Cow manure emits methane which is a greenhouse gas that is 23 more times harmful to the atmosphere than CO2. If the farmer can make the methane go away, he may turn manure into money. This will be done by constructing a biodigester that can turn the methane in electricity and the manure into fertilizer. If you think this is futuristic, it is already happening in Oregon and the Third World. Biodigesters will be sold at a cost millions of dollars to large dairy farmers with electric utilities and their customers picking up part of the tab. The dairy farmers will sell the electricity and fertilizer produced by the biodigesters and the carbon credits created by the reduction of emissions. Investment bankers are already getting into the business of brokering carbon credits; let's hope they do better than they did with the sale of pools of subprime mortgages.
