California’s New Cap-and-Trade Plan Heads for a Vote—with Tradeoffs

California lawmakers are expected to vote Monday on legislation to extend the state’s landmark cap-and-trade program, the country’s most progressive, statewide attempt to cut greenhouse gas emissions.

The program, launched in 2013, created the world’s second-largest carbon market after the European Union’s. A potentially powerful tool for controlling greenhouse gas emissions in the world’s sixth-largest economy, its fate has been keenly watched by environmental advocates and by fossil fuel producers alike.

The new legislation would extend that tool for another decade, to 2030, but it comes with compromises.

Some environmental groups say those compromises would give the oil industry handouts worth billions of dollars, and other critics say the proposal would weaken elements of the existing program and ease regulations on polluters too much.

“This is a bill that has been crafted by the industry, for the industry,” said Danny Cullenward, a researcher with Near Zero, a climate consultancy based at the Carnegie Institution for Science at Stanford University.

Still, many supporters are applauding the possible extension of the central component of California’s sustained efforts to cut its emissions.

Gov. Jerry Brown pitched the legislation as “a way to curb climate change and protect vulnerable communities from industrial poisons,” while lawmakers sponsoring the proposals said they would protect consumers and businesses from high energy costs while efficiently lowering emissions. The vote was originally planned for Thursday but was pushed back to Monday. Brown told the Sacramento Bee that he was concerned about getting enough votes to meet a two-thirds threshold.

The vote carries special significance as a marker of action at the state level in light of the pro-industry regulatory rollbacks emerging from the Trump administration.

“It’s a critical and hopeful message that California is sending,” said Erica Morehouse, an attorney with the Environmental Defense Fund. “With any proposal of this complexity, there are going to be compromises involved. But it’s important to keep an eye on the whole package—and this is a strong package that will maintain California’s climate leadership and improve air quality.”

California wields enormous economic and political power, and other states often follow its lead. Gov. Brown has become the country’s most visible advocate for climate action, striving to fill the vacuum in U.S. climate leadership. Just this week, a group of 227 cities and towns, 9 states and 1,650 companies, led by Brown and former New York City Mayor Michael Bloomberg, committed to measuring their greenhouse gas emissions as part of a pledge to meet the Paris climate agreement goals—despite Trump’s announcement in June to withdraw from the historic pact.

Four key objections

Without this renewal, California’s existing cap-and-trade law would expire in 2020. With time running out in the legislative session, Brown on Monday announced the compromise plan.

It follows on a vote last year, when lawmakers raised the state’s target for cutting greenhouse gas emissions to at least 40 percent of 1990 levels by 2030, up from a goal of reaching 1990 levels by 2020. At the time, they did not specify a mechanism for achieving the new target. The legislation shows how to get there—although not to everyone’s satisfaction.

Under California’s cap-and-trade program, state regulators set a statewide limit on emissions that ratchets down over the years. Individual polluters are each allowed an emissions quota. To comply, they can either cut their emissions or obtain allowances from others. The market-based trades are designed to drive overall costs down by encouraging innovation and efficiency.

But the rules are complex, and the latest revisions have raised objections on several points. Among them are several gimmicks often used in cap-and-trade systems to lighten their burdens: free allowances, ceiling prices and pollution offsets.

Free allowances

California hands out some free allowances to polluters in an attempt to rein in costs to consumers and the industry, and to induce businesses to remain in the state. Under the old program, those free allowances were to be phased out over time. But the new proposal, critics say, would phase them out more slowly, and lets some big industries, including the oil industry, continue to use allowances at 100 percent of their current level.  

Price ceilings

The proposal would let state regulators set a price ceiling on carbon allowances—another measure designed to control costs. If the trading price of carbon allowances hits that ceiling, the proposal directs the board to release additional allowances into the marketplace at the ceiling price. Critics see this as another giveaway to the industry.

Offsets

Under the existing cap-and-trade program, polluters can buy offsets, which are credits for emission reductions that occur outside the system. Examples include forestry projects that capture or store carbon, or farm practices that control methane from manure and grazing.

Proponents say this can encourage green projects, either in California or in developing countries. But not everyone is enthusiastic. “We have always thought that we should reduce emissions here, rather than in some other location,” said Bill Magavern, policy director for the California Coalition for Clean Air.

The new proposal limits how much of its pollution a company could offset, but not by enough to satisfy climate hawks. The new proposal says half the permissible offsets must have “direct environmental benefits in the state.”

Blocking future regulations

Another twist in the legislation restricts future regulation of large sources of emissions, including refineries. It would also prevent local regulators from imposing technology or other emissions controls beyond the cap-and-trade limits.

Environmental advocates says this can lead to harmful local pollution—collateral damage to the global carbon problem—as smokestack industries trade their way into compliance.

Magavern called these provisions “special favors” to the industry. Some groups, including the Natural Resources Defense Council, are calling them “bitter pills” considered necessary to get Republicans on board.

Seeking a Supermajority

It was unclear, as recently as a year ago, whether California’s regulators had the authority to extend the cap-and-trade program without legislative approval. But Brown has pushed for the proposed legislation, which under California law needs to pass by a two-thirds margin to guard against legal challenges.  

While Democrats have a super-majority in both of the state’s chambers, some in the party are expected to vote against the proposal on the grounds that it fails to adequately rein in industry pollution.

“The governor believes, and we agree, that the greenhouse gas bill needs to be passed with a two-thirds vote to clarify any legal ambiguity about the program, and getting a two-thirds vote is always tricky in any legislative body,” said Louis Blumberg, director of the climate change program for the California chapter of The Nature Conservancy.  

“Every stakeholder in this debate has changes they would like to see, but it’s really important that this go forward,” Blumberg said. “This sends a signal to the world that climate regulation is important and it’s successful for both the atmosphere and the economy.”