California Looks Ahead, Aims to Bolster Climate Policy

By: LOUIS SPANIAS, Sustainability Program Manager

In the first 100 days of his presidency, Donald Trump has shown little to no inclination to maintain or advance the United States’ efforts to address climate change and other environmental issues. It did not take long after the federal election in November 2016 for California leadership to emerge with an assertive response, stating that California would continue to move forward on a number of key issues, including climate change, even if the newly incoming federal government would not. Only days after the election, Governor Jerry Brown stated that California “will protect the precious rights of [its] people and continue to confront the existential threat of our time – devastating climate change.”

State leadership has appeared poised to follow through on those promises, as newly proposed legislation over the past couple of months could seriously advance the state’s climate change policy.

California emerged as the country’s marked leader on climate policy over a decade ago, when the state passed AB 32 in 2006 under then-Governor Arnold Schwarzenegger. The California Global Warming Solutions Act of 2006 required a reduction of the state’s greenhouse gas (GHG) emissions to 1990 levels by 2020, tasking the California Air Resources Board (CARB) to adopt the necessarily regulations to achieve the goal. And last year, the state passed SB 32, which mandated an additional reduction of 40% by 2030.

Two new bills have since been introduced to the state legislature. The first is SB 775, which aims to revise California’s cap-and-trade system that was introduced as part of AB 32. While most of the state’s progress on emissions reductions have come from regulatory measures, cap-and-trade uses the market as an arm to reduce industrial GHG emissions. Fundamentally, cap-and-trade works by auctioning off a limited number of permits to pollute – meaning that companies who cannot afford to make steep emissions reductions can pay a price for permits to continue their operations, while companies that can afford to cut their emissions can do so. However, due to the success of California’s regulatory approaches, the price of carbon in California has stayed low, sitting at around $12/ton since 2014 – which is not a particularly hefty price to pay if you’re a large polluter. It means that the biggest culprits aren’t reducing their emissions, and the state isn’t getting a whole lot of revenue for it either.

That’s not the only problem with California’s cap-and-trade system as it stands. In recent months, it has been challenged in the courts, and because of existing state regulations requiring a two-thirds vote in the state legislature to raise revenue in almost anyway, the cap-and-trade system would have to come under a vote in 2020 when it expires to continue. Its underwhelming success makes it unlikely to pass as is.

What SB 775 does is present a new and revamped version of the cap-and-trade system, moving the floor price for permits up to $20 ton and setting a price ceiling at $30, which will both slowly rise in perpetuity. The bill as proposed does not set an expiration date for this new system, which puts the onus on the legislature to act on it and make revisions accordingly. The bill also includes a border-adjustment tax (essentially a carbon tariff on imports) in the case that companies move their operations out of California but ship products back to the state to avoid having to buy permits. While the legislature will have to decide where the revenue from the auction permits will go specifically, it offers a few preliminary designations: into the state’s Climate Dividend Program, towards public infrastructure and disadvantaged communities, and towards climate and clean energy research and development. And lastly, it eliminates credit allowances and offsets, which are considered controversial components of the current cap-and-trade system.

There is optimism surrounding the bill’s appeal to both democrats and republicans, but deliberations will have to address some key issues. First, amendments to the bill will have to more specifically designate where the revenue from the auctioned permits will go. Second, and more importantly, the legislature will have to address concerns from environmental justice groups, who assert that cap-and-trade as is has done little to prevent big polluters from continuing their operations which disproportionately affect low-income and/or minority communities (where their facilities are often located). Either way, the bill will have to pass with a 2/3rds majority, meaning that its success depends on bipartisan support and confidence that it will advance California’s climate policy agenda.

The second proposed bill, SB 100, aims to put the state on the path to 100 percent renewable energy portfolio by 2045. The bill, put forth by Senate President pro Tempore Kevin de León, will essentially move up currently existing energy benchmarks. More specifically, the state will have to achieve 50 percent renewable energy by 2026 (instead of 2030, as established previously in SB 350), and 60 percent renewable energy by 2030. The bill also tasks energy companies with capturing methane emissions and replace natural gas with renewable energy, and allows investor owned utilities to transition to cleaner fuel sources for their transportation fleets where possible.

Senator Kevin de León explained that the bill was proposed as a revision to SB 350 (passed in 2015), acknowledging that he underestimated how quickly the industry would transition to renewable energy sources. “I realized that the investor-owned utilities are going to hit 50 percent by the early-to-mid 2020s without breaking a sweat. So, we should accelerate this process and demonstrate to the entire world that we can actually generate 100 percent of our electricity with clean energy and put people to work.”

It’s uncertain yet what opposition the bill will face in the legislature, but naturally there should be some skepticism when pressing the foot on the gas towards renewable energy. Ambitious renewable energy targets have the potential to place strain on industry, and it is uncertain how much more efficient renewable energy technologies will become.

Whether the bills pass or not, it is clear that California’s leadership won’t back down on meetings it climate goals – and seems intent on going full steam ahead despite the actions of the Trump administration. We can only hope that other states will follow California’s lead and take the initiative to address climate change on their own.