The state of California in August became nearly a billion dollars richer. Its latest auction of permits for its cap-and-trade program, giving businesses the right to pollute, is the state’s most successful ever.
The record-breaking sale came on the heels of a vote by state lawmakers to extend the cap-and-trade program another 10 years, through 2030. Along with its strict vehicle emissions laws, aggressive efforts to deploy renewable sources of energy, and other carbon-cutting measures, California is on its way to achieving its goal of reducing greenhouse gas emissions to 40 percent below 1990 levels by 2030.
Under the cap-and-trade program, polluters must buy permits, also known as allowances, for each ton of carbon they release into the atmosphere. Each year the number of available allowances goes down, effectively increasing the cost of those allowances and therefore of polluting over time…and lowering the total amount of emissions. The scheme – part government regulation, part free-market – is beginning to take hold in economies around the world.
With the 10-year extension approved by the legislature, California’s cap-and-trade market now has become much more stable. The state’s program is linked to a cap-and-trade system in Quebec, Canada, and Ontario is scheduled to join the group next year.
Importance of policy program certainty
“The policy-certainty is critical,” said Katie Sullivan, managing director of International Emissions Trading Association (IETA), during a recent webinar on the California cap-and-trade program. (The non-profit business organization was created in 1999 to establish an international framework for trading in GHG emissions reductions.)
“In business, we’re about dealing with risks and managing risks,” Sullivan said. “There are a lot of risks that can be managed. But the policy-certainty piece of knowing that a program is going to be around, and knowing that [allowances] … actually have value down the line – that policy program certainty is so important.”
Other regions are following suit. Representatives from nine northeast and mid-Atlantic states recently met to discuss steps to cut GHG emissions independent of what the federal government does or doesn’t do. The nine-state Regional Greenhouse Gas Initiative (RGGI) has announced that it will extend its own cap-and-trade program through 2030. And, the group proposes to cut carbon emissions another 30 percent between 2020 and 2030. Already since 2008, the RGGI has led to a collective 40-percent reduction in carbon emissions. That movement has come about despite New Jersey Governor Chris Christie’s having pulled the “garden state” out of RGGI in 2011, citing costs and questioning its environmental impact.”California’s Click To Tweet
But in a recent editorial, The New York Times argued that Christie’s views have become increasingly irrelevant. “Mr. Christie’s tenure will soon be history, and the Republican and Democratic candidates to replace him say they want New Jersey to rejoin the initiative. Virginia may also decide to participate if the Democratic candidate for governor wins this November.” Admittedly, as the Times pointed out, the RGGI cap-and-trade program will go only so far because it targets just power plants. To achieve more aggressive targets – like the 80 percent cut below 1990 levels that many scientists say is needed to avoid the worst consequences of climate change – states will have to tackle cutting emissions from the transportation sector while also more aggressively embracing the shift toward renewable energy.
California’s bipartisan effort … sort of
Back in California, the vote to extend the cap-and-trade program was a bipartisan effort – sort of.
Seven Republicans broke ranks with their party to vote for extending the program, but they’ve come under withering criticism from their “base” and from Republican Party leaders in the state. Former Assembly Republican Leader Chad Mayes (R-San Bernardino), for instance, was ousted from his leadership position after supporting the extension.
But there are signs that Republican politicians in the state may be out of step with the times. “Some of the deep-pocketed organizations that usually fund opposition to environmental policies, such as the Western States Petroleum Assn., supported this year’s legislation,” the Los Angeles Times reported in August 14.
The same story reported on a poll by the nonpartisan Public Policy Institute of California. The group’s poll found that more than half of Californians polled hadn’t even heard of the cap-and-trade program. But when the program was described to them, 56 percent of respondents overall said they favor it – as did 32 percent of Republicans.
Flush with cash from the latest cap-and-trade auction, California must now figure out how to spend the money – and a lot of people have their own ideas. Local officials, activists and lobbyists have descended on Sacramento in recent weeks arguing for cash for more electric vehicles, more green spaces in cities, and programs to help the needy adapt to climate change – among other initiatives. State law says that any cap-and-trade proceeds must be used only for initiatives that reduce global warming.
Since 2013, the state’s cap-and-trade program has provided almost $5 billion to California’s Greenhouse Gas Reduction Fund. Of that total, about 40 percent is considered discretionary, with the other 60 percent already allocated to big-budget items such as the state’s high-speed rail project.
In a September 12 editorial, the Los Angeles Times argued that at least some of the $1.5 billion available now (which includes proceeds from the auction in August and unallocated money already in the fund) should go to dramatically reducing diesel emissions.
“Cleaning up diesel exhaust would help cut black carbon, a potent climate change pollutant, and reduce soot and toxic air contamination in the state’s most polluted communities,” the Times editorialized. “This dual approach – attack climate change and clean up local air pollution – was at the heart of this year’s compromise to extend the state’s cap-and-trade program.”
It may add up to one more way California can help set the pace for the rest of the country and the world, whether the Trump administration and policy makers in Washington like the approach or not.