CALIFORNIA, USA — As the coronavirus pandemic and recession hits California, the governor’s top environmental official has launched a comprehensive review of the cap and trade program that has been the cornerstone of the state’s strategy to fight climate change.
California has been relying on its carbon trading program for nearly half of the greenhouse gas reductions it has promised by 2030. Now, in a letter obtained by CalMatters, California EPA Secretary Jared Blumenfeld laid out plans for re-examining the program and whether it’s likely to meet its goals.
“The advent of the COVID 19 Crisis, the collapse of the world oil market, and the results of [the California Air Resources Board’s] May 2020 Auction are all factors that deserve careful consideration,” Blumenfeld said in the letter addressed to state Sen. Bob Wieckowski, a Democrat from Fremont.
Blumenfeld said in the letter that he would work with air board leadership to weigh “the extent to which the state’s climate strategy should rely on the cap-and-trade program reductions relative to other approaches.”
The letter could reflect a shift for Gov. Gavin Newsom’s administration when it comes to California’s cap and trade, a landmark program that was the first in the nation to create a carbon market for all segments of the economy and now is one of the largest pollution markets in the world.
“It’s the first formal acknowledgment from the administration that they’re willing to look at a different mix,” Wieckowski said. “They’re not conceding that it’s not working, but they’re willing to look at it. Therein lies victory, I guess.”
But critics of the program are concerned that it isn’t stringent enough to meet California’s ambitious goals to reduce emissions of planet-warming gases by 2030 to 40 percent below 1990 levels. Major polluters include oil refineries, power plants, transportation and manufacturers.
Assemblymember Cristina Garcia, a Democrat from Bell Gardens and chair of the Joint Legislative Committee on Climate Change Policies, said it’s time for California to be more aggressive because the climate is continuing to warm.
Re-examining the cap and trade program creates an opportunity, she said. “The legislature, the nonprofits, the activists now need to figure out how to take advantage of this opportunity,” she said. “It’s up to all of us to figure out how to make it more than lip service.”
Launched in 2013, California’s cap and trade program sets an overall cap on greenhouse gas emissions each year but offers flexibility in how companies achieve it by allowing them to buy and sell pollution credits in auctions.
“Nobody’s talking about getting rid of this program. It’s just if it’s not doing enough as it’s currently designed, you can’t count on it to do all the work,” said Danny Cullenward, an energy attorney and economist who lectures at Stanford Law School. Cullenward serves on the Independent Emissions Market Advisory Committee, which is tasked with evaluating cap and trade, but he said he was not speaking on behalf of the committee.
Quarterly auctions for pollution permits have been a major revenue generator for the state, raking in more than $600 million per auction over the past two years. The money pays for a wide range of climate projects, such as clean vehicle rebates, high speed rail and dairy digesters.
But with the economy thrown into turmoil by the coronavirus, the most recent auction in May made only about $25 million.
California’s nonpartisan Legislative Analyst’s Office said that its possible this could become a trend: Future auctions might continue to flatline because of the recession and too many pollution credits floating around the market.
The Independent Emissions Market Advisory Committee, made up of researchers and academics appointed by the governor and leaders in the Legislature, has proposed metrics for tracking that bank of extra credits. The Legislative Analyst’s Office warns too many credits might interfere with reaching California’s 2030 climate goals.
While Blumenfeld could not be reached for comment, his letter proposed evaluating “potential changes to the cap-and-trade program that may be necessary to address the long-term economic and emission projections.” He said the air board should work with the market advisory committee and the Legislative Analyst on “an agreeable set of technical metrics.”
A think-tank analysis published in January suggested altering the minimum price at which cap-and-trade credits are sold, recommending that the price rise and fall in response to rising and falling emissions.
Wieckowski proposed including $200,000 in the budget and instructions for the Air Resources Board, which operates cap and trade, to use the money to consider changes to the program.
“I think of it as the 10,000-mile checkup on the car. Not saying anything’s wrong with the car — I am — but look at everything, and see if things are running the way it’s supposed to,” Wieckowski said.
California’s businesses, manufacturers and oil companies pushed back, saying that changes to cap and trade could increase the price of gasoline and consumer goods, and that the program was not designed to raise revenue. The California Manufacturers & Technology Association launched an advertising campaign saying “Hands off Cap and Trade.”
As California’s leadership haggled over the budget, Wieckowski’s proposal was scrapped. Blumenfeld said in his letter that California needs more time to understand the long-term consequences of the pandemic.
Catherine Reheis-Boyd, president of the Western States Petroleum Association, said “it’s appropriate to evaluate what’s happening, but it must be done holistically and inclusively.”
She said the program was already scheduled to be reviewed as part of an update to the state’s climate roadmap, called the scoping plan, which is due to be completed by fall 2022.
“Because climate change is a shared challenge,” she said, it’s essential to include the petroleum industry and other stakeholders in reviewing the program.
Blumenfeld wrote in his letter that the review must clarify how much California can rely on cap and trade. The state’s latest climate roadmap “designates cap-and-trade as responsible for almost half of the reductions required to achieve California’s 2030 climate target, making it the single largest driver of planned climate policy outcomes.”
Focusing on reaching the 2030 target is critical because the state is not on track to meet it, Cullenward said. Independent analyses agree. While California met its 2020 goals to cut greenhouse gas pollution early, its 2030 targets are much more ambitious.
“It’s a pretty significant thing to have a public statement from the administration on this,” Cullenward said. “They’ve not spoken to this before, and it’s a significant commitment.”
CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.