The sound of applause has scarcely died down in the Capitol after last week’s vote to significantly expand California’s requirements to reduce greenhouse gas emissions. Proponents who steered the groundbreaking legislation are still basking in the afterglow of an effort that—after seeming on the brink of defeat—deftly mustered unexpected support and reaffirmed the state’s international leadership on climate change.
But such is the unsentimentality of politics: Someone has to pop the pretty balloons and sweep up the confetti.
For all that was achieved by the passage of SB 32—extending the original 2006 law and setting a new target of reducing statewide emissions to 40 percent below 1990 levels by 2030—the titanic legislative struggle could not fully mask some warning signs about the ultimate prospects of achieving the state’s lofty ambitions.
For starters, it went down to the wire, after appearing earlier in August as if the Legislature might retreat from California’s climate change goals. It did not resolve the lingering uncertainty surround the future of the state’s cap and trade program. And it exposed a profound disintegration of trust between the legislature and the regulatory California Air Resources Board, as evidenced by the passage of a companion bill, AB 197, through which a wary Legislature demanded greater oversight of the agency.
Only hours after the key votes last week, Gov. Jerry Brown acknowledged as much, girding for the inevitable climate battles to come. “It’s a big day, there are big struggles ahead. It isn’t finished at all,” said Brown, who vowed to sign the legislation. “Bring it on. We’ll have more battles and more victories. It takes months, sometimes years. It takes trying, failing, amending, trying again.
Much of Brown’s policy response to climate change relies on reductions that come from California’s cap and trade program, which sets a statewide greenhouse gas emissions ceiling on several industries. Businesses that come in under their compliance obligations receive allowances or permits, which they may sell at auction to other entities that exceed their emissions targets
Last week’s bills were the “necessary precondition” for the Legislature and advocates to discuss cap and trade, said Adrienne Alvord, Western states director of the Union of Concerned Scientists. She was the staff environmental advisor to Democratic Sen. Fran Pavley of Agoura Hills, who wrote the landmark Global Warming Solutions Act of 2006.
That cap and trade system is intended to provide flexibility to polluters: By setting a price on carbon, companies may choose to either reduce emissions by operating more efficiently, or they may prefer to offset their carbon footprint by buying allowances at auction.
Many large industry groups have been wishy-washy in their support of cap and trade, bridling at the regulatory mandates but embracing the market-based trading system.
Now is the time, Alvord said, for business interests to get off the fence, lest cap and trade be replaced by even more onerous requirements. “Now we have the statutory authority to reduce emissions, if they want to get a better deal, they are going to have to come to the negotiating table,” Alvord said. “If the industry now wants to come back and talk about cap and trade it’s kind of up to them.
Facing a future with more “command and control” emissions rules and fewer business-based options, California companies may conclude that cap and trade is the devil they know.
“Despite today’s symbolic victory for some, we will continue to do the real work required to make the appropriate fixes to cap-and-trade that can send the market real certainty,” said Catherine Reheis-Boyd, president of the Western States Petroleum Association, in a statement after the vote. “The reality remains that SB 32 fails to address fixes to cap-and-trade, which sends the wrong signals to the market. Today’s miserable auction result reflects the market’s lack of certainty.”
The oil group has, at various times, been supportive and sharply critical of a cap and trade system. And, while its members met this week to consider the implications of the new climate bills, a spokesman was unable to make anyone available for an interview.
That lack of certainty is reflected in a legal battle brought by the California Chamber of Commerce over one key aspect of the cap and trade program: its state-run auctions. The suit argues that auction revenues amount to a tax, which to be levied would have required a two-thirds vote of the Legislature.
The recent political win notwithstanding, it’s no sure thing that the Legislature would ever produce such a supermajority for a cap and trade bill, complete with an auction.
Nonetheless, the governor maintains that the Air Resources Board has existing statutory authority to run the cap and trade program and the carbon auction. In fact, the board is in a rulemaking process that spells out how it intends to do that, and has produced a 349-page document that proposes to expand the carbon market to include the province of Ontario in Canada.
Still, uncertainty has roiled the carbon market. The state auctions have raised more than $4 billion, while some $1.4 billion remain in the fund—monies that must be used for projects that reduce emissions or assist low-income communities.
On the closing day of this legislative session, the governor and the Legislature agreed to allocate $900 million of cap and trade proceeds, addressing a longstanding gripe from lawmakers who complained that the funds were not being used.
The Air Board received the largest appropriation, $368 million, which includes $133 million to continue the Clean Vehicle Rebate Program. About $140 million was set aside for grants to low-income communities for energy upgrades and other work, and the state Transportation Agency is to receive $135 million for transit and rail projects.
Results from the last two auctions have been disappointing. Only 1 percent of the state’s allowances were sold in the August auction; 2 percent were sold in May. And the anticipated revenue has likewise been subpar. The most recent auction yielded $8 million, while nearly all previous sales of credits have generated more than $500 million per auction
Some analysts suggest the auction results point to lack of certainty about the program’s future.
An Air Board spokesman declined comment and referred questions to the governor’s office. The governor’s top aide, Nancy McFadden, issued a statement acknowledging that the latest auction results “show that the markets need certainty. Shoring up the cap-and-trade program—either through the Legislature or by the voters—will provide that certainty and will continue billions in funding for vital programs, especially in disadvantaged communities with the dirtiest air.”
The wrangling has highlighted a widening schism among California Democrats. Pro-business Democrats—many of whom receive campaign contributions from oil interests—frame the climate debate as pitting wealthy coastal communities against low-income districts, primarily in the Central Valley: Tesla-driving San Franciscans versus the oilfield workers of Bakersfield.
That plays into the Legislature’s mounting annoyance with the Air Board, particularly as the myriad regulations impact small businesses and lower-income Californians.
Climate legislation passed only after the Assembly crafted companion bill AB 197, which bluntly signaled lawmakers’ frustration with the Air Board. Numerous board officials have worn a path to appear before various legislative committees, absorbing withering and relentless questions about whether cap and trade is working and asked to provide evidence that shows it.
AB 197 puts the Air Board on notice—requiring, for instance, two legislators join the board and calls for regular consultations with the Senate and Assembly. But even those caveats are insufficient for some legislators, who say they don’t trust the board to self-report.
“They make a mockery of the Legislature, they don’t respond, they don’t provide the information we are requesting. The result? Californians are hurting,” said Assembly member Kristin Olsen (R-Riverbank). The former minority leader, she suggested the Legislature needs to assume oversight of the board, and that any regulations it develops should have to be ratified by the Legislature.
It’s clear that Brown does not intend to let his climate change legacy fail. He said “all options are available” to enshrine cap and trade into law, including the possibility of a ballot measure—adding “I’m definitely engrossed in this task.”