Hal Harvey’s Insights And Updates – Cap-And-Trade Extension Locks In California’s Climate Leadership

On Monday night California extended its world-leading carbon cap-and-trade program with a two-thirds majority in the state legislature.  No carbon pricing policy has ever amassed such a margin of approval through a vote, either legislative or direct ballot.  This is a terrific moment, and it reflects the labor of many—environmental groups large and small, environmental justice organizations, progressive businesses, analysts, scientists, and more.

Above all, one must credit Governor Jerry Brown, his team of experts, and legislative leaders Senate President pro Tempore Kevin de León and Assembly Speaker Anthony Rendon.  While California is a blue state, it is worth noting the bipartisanship necessary for securing this deal: Of the 81 votes needed between the two legislative chambers, nine Republicans voted for the package, including the Republican Assembly leader.

Prior to the vote, Energy Innovation’s Director of Research Chris Busch penned a Forbes guest article highlighting important features of the cap-and-trade legislation, including about $1 billion in additional carbon allowance auction revenue between now and 2020 for the Greenhouse Gas Reduction Fund (GGRF), and more than $26 billion in new revenue for the GGRF from 2021 to 2030.  Earlier work explained why, despite uneven auction results over the past two years, California’s program is the best designed program in the world.

In order to ensure that the reduced greenhouse gas emissions are accompanied by reductions in conventional pollutants, the package included AB 617, a measure specifically targeting air quality that will develop community-level air pollution monitoring and require retrofits of the oldest, dirtiest industrial units in heavily-polluted neighborhoods.  As well, the cap-and-trade bill, AB 398, will devote at least 35 percent ($9 billion) of new auction revenue to clean energy investments in disadvantaged and low-income communities, the same share that supports these communities under the existing approach.

Addressing environmental justice concerns head-on through separate legislation is just one of the attractive features of this compromise.  Some of the other laudable aspects specific to cap-and-trade design include:

  1. Provides authority for the California Air Resources Board (CARB) to set the price ceiling.  This is much better than the outcome oil lobbyists—wanting to lock in a specific, low $50 per ton limit on allowance prices—had sought.
  2. More generally, the legislation largely retains authority for CARB to adapt the program based on its performance and their best judgment, instead of setting specific values and requirements as part of the legislation itself. Follow-on debates and decision-making in the regulatory sphere are likely a more rational and effective approach.
  3. It builds on the program’s current architecture, which will help to retain existing and planned program linkages with the Canadian provinces of Quebec and Ontario.

Surpassing the two-thirds hurdle to extend California’s cap-and-trade program required compromise, but the alternative was no cap-and-trade program at all, and we see the deal as a huge victory.

Extending this world-leading program boosts our state’s green economic engine.  Cap-and-trade has already generated $3.4 billion in new clean energy investment across the state and helped create 500,000 green jobs – with just 12 percent of America’s population, California has created 25 percent of our nation’s total economic growth since 2012.

We consider this to be a mighty victory for climate here in California, and a moment that will set the tone for the world.

Hal Harvey’s Insights and Updates offers monthly thoughts and analysis on current energy and climate topics. These newsletters are written by Energy Innovation’s CEO Hal Harvey. Sign up here to receive Insights and Updates straight to your inbox.