Calif. Cap-And-Trade Deal Hasn't Wooed The Groups It Intended

Jul 12, 2017

Update 2:06 p.m. – Democratic leaders in the Legislature have postponed a vote on the cap-and-trade measure, originally planned for Thursday. In a statement, Senate leader Kevin de León and Assembly Speaker Anthony Rendon said the vote will instead occur Monday. Interest groups and lawmakers have not coalesced behind the bill, despite changes to the program designed to attract them.

Rendon and de León say the delay “will also allow our discussion on long-term housing affordability solutions in California to catch up to the climate effort.” That likely signals the leaders will attempt to tie housing policy changes and funding—a priority for progressive lawmakers—directly to the cap-and-trade vote.

California Governor Jerry Brown and Democratic leaders in the Legislature may have struck a deal to the extend the state’s signature climate change-fighting program, cap-and-trade, but they’re still working to secure support from lawmakers.

The measure, which two-thirds of both the Assembly and Senate would have to approve, extends the program 10 years past its 2020 expiration date, but also contains changes designed to appeal to both industry and community environmental groups—and the lawmakers sympathetic to each. It’s not clear if it has successfully wooed either constituency.

Democrats in the Senate and Assembly, particularly those representing low-income communities, have grown disenchanted with the current cap-and-trade system. The have sided more and more with environmental justice groups, which argue that reductions in greenhouse gases and conventional air pollution should occur in tandem.

Meanwhile, the oil industry and business groups, which have opposed cap-and-trade—including in court—find themselves facing new, stricter climate change targets. So, these groups have argued that cap-and-trade’s market-based approach allows more flexibility to achieve those goals than if the state were simply to create regulations.

Obtaining a two-thirds majority to approve the program’s extension, requires either all Democrats in both the Assembly and Senate to vote for it or for Republicans to also support it.

Something for enviros

A companion bill, which would have to pass along with the cap-and-trade extension, seeks to appeal to environmental justice groups and the Democratic lawmakers aligned with them. It requires air regulators to conduct new, more hyper-local monitoring to determine where the state’s worst pockets of air pollution are located. It would provide local air quality management districts more authority to demand businesses retrofit their factories and plants with cleaner technology and to issue harsher penalties.

The extended cap-and-trade program, too, would undergo some changes. Businesses currently can meet some of their requirements without cutting emissions, but instead investing in out-of-state projects that offset them. The bill reduces the percent of emissions businesses can offset.

These changes have won the support of at least two Democratic lawmakers (Assemblymembers Eduardo Garcia and Cristina Garcia who wrote the companion legislation) of 15 who had previously signed onto a letter that expressed concern about cap-and-trade. Others contacted by Capital Public Radio have not yet taken a public position on the bill.

Major environmental groups, including the Natural Resources Defense Council, and clean energy businesses have also endorsed the measures.

But environmental justice groups, as well as the Sierra Club, remain opposed, even with more focus on local air quality and less offsets. They cite as the reason other changes made for business interests and the oil industry.

Something for industry

“I want to underscore how unusual it is for the Legislature to tell a regulatory agency that you can’t regulate the kinds of things that you’re trying to regulate,” says Kathryn Phillips of the Sierra Club.

She’s talking about a relatively obscure provision in the cap-and-trade measure. It prevents local air regulators from adding their own regulation of carbon dioxide to those businesses already must make under cap-and-trade.

Phillips and other groups say the provision would not just affect carbon dioxide. They argue industry inserted the language, so it could threaten to sue local air quality districts over other regulations, if they would even require ancillary cuts to carbon.

The Governor’s Office acknowledges that industry groups insisted on the provision, but calls it a narrow preemption. Air Resources Board executive director Richard Corey also wrote a letter to that effect to local air districts.

“Districts maintain their full power and responsibility to regulate criteria and toxic air pollutants and must adopt new rules and enforce existing rules to do so,” he wrote. “Even if their rules have the incidental effect of reducing carbon dioxide emissions.”

The cap-and-trade system would have other changes favored by industry. The state credits that companies must purchase to allow their emissions would continue to fluctuate in price based on market demand, but the state Air Resources Board would impose a price ceiling, which credits could not exceed, as well as other, earlier price points where the state could push additional credits into the market to lower the price.

Opponents say they are giveaways to industry that artificially deflate the cost of credits. The Governor’s Office calls them necessary safety valves—not intended for use—to prevent price spikes as the state requires companies to meet more drastic targets, which are already expected to increase fuel costs at the gas pump.

The bill also includes removal of a fee on rural property owners for fire prevention, which Republicans have opposed, and it exempts power generators from a sales and use tax.

Despite the incentives for businesses and the oil industry, the California Chamber of Commerce and the Western States Petroleum Association have not yet taken a public position on the bill.

A refresher on cap-and-trade—and why this matters

Under the cap-and-trade system, a company must obtain a state credit for each ton of greenhouse gases it emits. Credits are largely tradeable and some industries receive some for free, but the number available dwindles over time, as California’s greenhouse gas targets tighten—presumably raising the price through rules of supply and demand.

While the California Air Resources Board says cap-and-trade will account for 15 percent of state greenhouse gas emission reductions by 2020, the program’s success has larger importance to Governor Jerry Brown. It’s one of the world’s few examples of a market-based system to fight climate change, and the Brown administration has consulted for Mexico and China as they consider their own cap-and-trade systems. Funds generated from the California program also pay for not only clean energy projects, but the state high-speed rail project.

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