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California just got bipartisan support to extend its cap and trade program to 2030

Republicans helped pass a key set of bills to deal with climate change and pollution.

jerry brown
Gov. Jerry Brown, center, flanked by lawmakers from both parties, speaks of the passage of key climate change measures, Monday, July 17, 2017, in Sacramento, CA.
(AP Images)

In a stunning bipartisan victory, the California legislature on Monday evening passed AB 398, a bill to extend the state’s centerpiece cap-and-trade program to 2030, after several weeks of intense negotiations and pleas led by Gov. Jerry Brown.

The passage of the bill ensures that California will maintain its position as the state with the most ambitious and serious commitment in the US to reducing greenhouse gas emissions, just as the federal government’s commitment is weakening.

While many businesses and environmental organizations supported the legislation, some environmental justice organizations and Republicans opposed it.

But after weeks of negotiations and a dramatic standoff Monday night, the bill and two companion bills passed, thanks to a mostly unified Democratic supermajority and some unexpected “yes” votes from a few Republicans. In addition to the cap-and-trade program extension, the package included AB 617, meant to address the local air quality concerns, and ACA 1, which puts a measure on the 2018 ballot regarding control of the cap-and-trade program’s revenue spending.

Ultimately, Brown’s impassioned statements (“This is the most important vote of your life,” he told lawmakers last week) and backroom deals managed to bring together a broad coalition of progressives, moderates, and conservatives to achieve a supermajority in both the Senate and the Assembly. Veteran California politics columnist George Skelton wrote in the LA Times that the governor’s efforts show that Brown is “the most effective politician Sacramento has seen in a long time.”

In September, Brown signed SB 32, a bill committing the state to far more drastic emission cuts to prevent severe global warming than any other state in the country. After President Donald Trump announced in early June that he was pulling the US out of the Paris climate accord, Brown became the unofficial climate ambassador, meeting with Chinese leaders to talk emissions reductions and alternative energy.

For months, Brown, legislators, and a wide range of stakeholders have been tussling over the cap-and-trade program, which originally passed with a simple majority in 2006. In 2012, the Chamber of Commerce tried to allege its carbon pricing mechanism was an illegal tax. (New taxes in California require a two-thirds majority vote.) The Supreme Court recently knocked down that challenge.

The cap-and-trade program makes polluters pay for carbon pollution

Let’s step back a bit to the original policy that the new bill amends and extends. The Global Warming Act of 2006 (AB 32) authorized the California Air Resources Board to adopt a market-based mechanism to reduce greenhouse gas emissions in the state to 1990 levels by 2020.

The board then designed and implemented a multi-sector cap-and-trade program, the first of its kind in North America, which went into effect in 2013.

The basic premise of cap and trade is that each year a certain amount of allowances, or permits to pollute, are made available by a mix of free allocation and quarterly auctions. At the end of each compliance period (two years for the first period, three years for the next two), polluters must then submit a number of allowances equal to the number of tons of carbon (or the equivalent to a ton of carbon dioxide for other greenhouse gases) that they emitted.

The “cap,” the number of allowances made available, would decrease each year, forcing polluters to either reduce their emissions or pay for more allowances from those who have them, the “trade.” The trading mechanism is designed to allow reductions to be made the most cost-effectively — allowances would be sold to those willing to pay the most to not have to actually cut their emissions.

Offsets, independently verified projects that are paid for or implemented to reduce carbon emissions elsewhere, such as planting trees, can account for up to 8 percent of a polluter’s allowance obligation.

So what’s so controversial about the proposed extension?

The compromise bill, AB 398, was seen by many environmental justice and climate groups as worse for the environment than the status quo. They said it won’t lead to the emission reductions necessary to meet the 2030 goals and that too many concessions were granted to oil and gas interests.

Miya Yoshitani, executive director of the Oakland-based Asian Pacific Environmental Network, told me, “It's kind of Jerry Brown acting like Santa Claus, the Tooth Fairy, and the Easter Bunny, all in one for big oil.”

Probably the biggest grievance environmental justice advocates had with AB 398, according to Bill Magavern, policy director of the Coalition for Clean Air, is a specific provision that prohibits California’s Air Resources Board and local air districts from directly regulating carbon emissions by sources that are also subject to the state’s cap-and-trade program.

This preemption was one of the top asks of the Western States Petroleum Association, a massive trade group for oil companies that lobbied the legislature hard. Oil companies, as well as other businesses, favor the policy certainty that the preemption provision provides because cap and trade on its own allows for better planning of long-term strategies and investments, while the fear of new regulations does not.

Environmental justice advocates, meanwhile, were more concerned that the policy limits the ability to protect the neighborhoods that are home to big emitters and whose residents disproportionately bear the burden of pollution. With the bill, local regulators will no longer be able to, for example, force an oil refinery “to clean up its own operations at the source, in the community where it operates,” Magavern explains. Instead, under only the cap-and-trade program a big polluter could, he says, “buy its way to compliance by purchasing allowances and/or offsets from elsewhere.”

Residential homes in Wilmington, CA, adjacent to oil refineries.
A major concern of environmental justice advocates is the effects of pollution on local communities in places like Wilmington, California, which is home to several oil refineries.
(Getty)

Another giveaway to industry is the continuation of free allowances. Proponents of the free allowances, including officials in the governor’s office, argue that they are designed to keep businesses from leaving the state and that over 40 percent of free allowances would be phased down by 2030. Opponents counter that they essentially give big polluters a free pass to cut emissions more slowly.

Environmental groups also wanted a high floor on the price of carbon and were wary of a ceiling that, if met, would result in more allowances than the agreed cap to be added to the market. In the end, AB 398 includes both a low price floor and a low price ceiling.

And with Democratic supermajorities in both the Senate and Assembly, a bone was thrown to Republicans, whose votes would be necessary should even one Democrat defect. AB 398 includes big tax breaks for a number of industries including manufacturing and agricultural businesses. It also repeals the fire prevention fee, which Republicans have long opposed on the grounds that it disproportionately hurts rural residents.

But to environmental advocates, the price ceiling and the two sweeteners for Republicans are not insignificant. To make up for the missed revenue from the taxes and fire prevention fees, as well as to pay for offsets to counteract additional allowances put on the market if the carbon price hits its upper bound, money will be taken from the cap-and-trade program’s revenue, effectively decreasing the amount of discretionary funds remaining for local environmental investments and other greenhouse gas reduction projects.

Despite the many objections, there are also certain parts of the legislative package that even the most ardent environmental justice activists supported. The companion bill to AB 398, AB 617, attempts to address some concerns about local polluters by increasing monitoring, mandating upgrades of outdated equipment and technology, and imposing stricter penalties for noncompliance with regulations.

Nevertheless, Yoshitani maintains that these benefits are “not enough by any stretch of the imagination to account for what's being given away.”

Other environmentalists think AB 398 is good enough

In an interview, Erica Morehouse, a senior attorney at the Environmental Defense Fund, framed the influence of the oil and gas lobby in a more positive light. That oil companies “are at the table negotiating over how — not whether — they are going to be regulated,” she says, “would feel like a fairy tale in most of the rest of the country.”

In a statement, the Natural Resources Defense Council described the concessions to industry as “bitter pills” but pointed to the companion air quality bill as an important gain for environmental justice. Morehouse stressed that California’s cap-and-trade program serves as a model for other states in the US and across the world, and “continuing that model is critical for the global action that we need to see on climate change.”

The legislation also found support in various industry leaders across the state. In an op-ed in the Sacramento Bee on Wednesday, the CEOs of energy companies PG&E Corp and Edison International endorsed the proposed legislation, praising the free allowances in particular.

The Silicon Valley Leadership Group — which represents more than 400 tech companies including Apple, Facebook, and Google, employs hundreds of thousands of Californians in total, and contributes more than $3 trillion to the worldwide economy — also approves of the legislation. Its statement emphasizes the importance of “market certainty” and “stable and long-term price signals” that an extension of cap and trade would maintain.

The Western State Petroleum Association, a key player in the shaping of the cap-and-trade bill, has not made a statement and did not respond to multiple requests for comment.

In the runup to the vote, no Republican expressed intention to vote for the bill, and Republican Congress members in Washington as well as the Wall Street Journal’s editorial board urged the state’s GOP lawmakers to stay that way. As for the Democrats, there was a split between the centrists, several of whom accepted gifts from the oil and gas industry in 2016, and the progressive wing that’s more sympathetic to social and environmental justice. The question was whether they would come together to support the bills.

California Gov. Jerry Brown testifies in support of two bills to extend state's cap and trade program during a hearing of the Senate Environmental Quality committee, Thursday, July 13, 2017, in Sacramento, CA.
California Gov. Jerry Brown testifies in support of two bills to extend state's cap-and-trade program during a hearing of the Senate Environmental Quality committee, Thursday, July 13, 2017, in Sacramento. During the testimony, Brown describes climate change as “a threat to organized human existence.”
(AP Photo)

In an interview last Tuesday with the Sacramento Bee, Brown intimated that the compromise bill was the best that could be passed given the different stakeholders. “If somebody can point out, specifically, where I blew it and how they could have done it better, they should tell me,” he said.

Brown warned last Thursday that he believed an alternative regulatory framework would be more costly and burdensome.

In the end, the legislative package passed with the help of progressive Democrats and Republicans.

Former California Gov. Arnold Schwarzenegger, who signed the state’s original cap-and-trade legislation in 2006, congratulated Brown for his success and thanked GOP Assembly leader Chad Mayes for supporting the bills.

“I hope Republicans around the country can learn from the example of Assemblyman Mayes and his fellow Republicans,” Schwarzenegger wrote on Facebook, “that we can fight for free market policies to clean up our environment for our children at the same time we fight for a booming economy. Thanks to this courageous vote, California will remain the Golden Dream by the Sea for generations to come.”

Not everyone is as happy with the result.

Foreseeing defeat, Republican Sen. Ted Gaines commented before the vote, “Mark my words. Today is the start of the next great California recession. This is the day of stunning legislative hubris.”

And environmental justice organizations restated their disappointment with the legislation’s concessions to the oil and gas lobby after the vote concluded.

“With this vote, Californian elected officials have covered themselves in an oily sheen while doing little to address California’s emissions,” Michelle Chan, Friends of the Earth’s vice president of programs, wrote in a statement.

Ultimately, the passing of the bill package is a landmark moment for California and will clinch Brown’s legacy as one of the most effective leaders on climate policy in the US.