Cap-and-Trade Extension: Saving Face and Maybe the State’s Economy Too

By Leanna Sweha

Yesterday, Governor Brown signed AB 398, the bill that extends Cap-and-Trade to 2030.  Earlier this month, he made an impassioned plea to legislators to pass the bill, calling their vote “the most important vote in your lives.”

To translate, what it appears the governor meant was that the vote was the most important in his life.

First, losing the Cap-and-Trade  extension would have been an embarrassment for the Governor.

Since President Trump decided to withdraw from the Paris Agreement, the Governor has stepped forward as what the LA Times calls “America’s unofficial ambassador on climate change.” In June, he travelled to China to promote the Under 2 Coalition and to sign a cooperation agreement with the Chinese government.  He has announced a 2018 global climate summit in San Francisco.  He is a special advisor for this year’s United Nations Climate Change Conference.

Second, losing the Cap-and-Trade extension would have meant more expensive command and control regulation of the state economy.  This could have resulted in significant cost-of-living increases and job losses, causing voters to turn against the state’s climate policies.

Brown said it himself at that same hearing: “The ARB will regulate the food processing, the oil industry, the cement industry in a way that is not efficient, that will be three to five times more costly. Yes, that will be noticed by your constituents.”

Cap-and-Trade is the most cost-effective tool to reduce greenhouse gases, and it provides a backstop to other programs to ensure the state meets the SB 32 mandate – to reduce state greenhouse gas emissions to 40 percent below those measured in 1990.

The state’s plan to meet SB 32 – called the 2030 Scoping Plan – has been under consideration by the Air Resources Board for more than a year. Without Cap-and-Trade, the Air Resources Board would have to adopt more direct regulations.

Third, losing Cap-and-Trade would have been a huge blow to the governor’s High Speed Rail legacy. A full 25 percent of Cap-and-Trade auction revenues are continuously appropriated to High Speed Rail.  Without it, the state funding dries up.

So, it’s no surprise that the Governor’s office worked furiously to get support from both democrats and republicans to meet the two-thirds vote threshold to allow the law to go into effect immediately and to protect it from tax challenges.

For democrats concerned about environmental justice, there were some new limits on free allowances and the requirement that half of all offset projects must have environmental benefits for the state. There was also the companion bill AB 617 to address local air quality.

For republicans concerned about costs to industry, there was a concession for agriculture and the oil industry. There was also an extension of the sales and use tax exemptions to manufacturers and for research and development.  For rural legislators, there was suspension of the fire prevention fee.

In addition, there was Assembly Constitutional Amendment 1, which will go on the 2018 ballot. Voters will decide if the legislature should get one-time, two-thirds majority approval authority for an appropriation of Cap-and-Trade auction revenues.

Brown was confident about his legacy at today’s signing ceremony, where he said, “We are a nation-state in a globalizing world and we’re having an impact and you’re here witnessing one of the key milestones in turning around this carbonized world into a decarbonized, sustainable future.”

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  1. Keith O

    Cap-and-Trade Extension: Saving Face and Maybe the State’s Economy Too

    Boy, how politicians have a way of twisting things.  I guess the best defense is to go on offense.  Cap and Trade will hurt California’s economy with higher costs for everything, from industry to people’s cost of living.

        1. Richard McCann

          Keith O, the California program is about developing leadership for the U.S. and the rest of the world. Due to California’s efforts over the last decade, the U.S. has now adopted stronger CAFE standards, renewable power incentives that have now made solar and wind cheaper than coal, and driven a proposal from some Republicans to adopt a national carbon tax. The cap & trade program has accelerated retirement of coal plants in the western U.S. as out of state utilities and generators strive to meet standards for sales into California.

          I will agree that California should not strive to get every last ton of GHG in-state if that detracts from the effort to gain wider adoption of these types of measures across the U.S. and the world.

        2. Alan Miller

          Keith O, the California program is about developing leadership for the U.S. and the rest of the world.

          The C&T program is about collecting an obscene amount of taxes, and hiding the collection method.

  2. Alan Miller

    Cap-and-Trade Extension: Saving Face and Maybe the State’s Economy Too

    Yes because taxing the F— out of everyone is great for the economy.

    and the affordable housing (#hack hack#) subsidized by this is a great way to stop global warming.

    No to mention all the pollutants, and businesses, simply moved to another state — the earth knows no state boundaries.

    1. Richard McCann

      Alan, the state has declared that it has a property right in the existing atmospheric conditions, to be exercised on behalf of the citizens of the state. The state is then auctioning the rights to use those atmospheric conditions to dispose of excess greenhouse gases. Those allowance prices (which are not taxes) are what a market charges for exercising those rights. This is no different than setting up a state park and charging an entry fee, or charging a tipping fee at a public landfill.

      If you’re against charging people for what they use, then you are against markets. And the state has set up a market to solve this problem of overusing a resource.

      1. Leanna Sweha

        Appreciate your comments Richard. I’m wondering if you think the “price containment points” on allowances included in AB 398 will prevent allowance prices from spiking. What is your forecast for allowances prices?

      2. Alan Miller

        Alan, the state has declared that it has a property right in the existing atmospheric conditions,

        China declared it has territorial rights to vast swaths of the China Sea because it built new “islands”.

        I declared both of the above to be BS.

      3. Keith O

        I declared both of the above to be BS.

        Come on Alan, the state owns that air you breathe.  Pretty soon we’ll all be paying an oxygen tax.  25% of the proceeds will go to the Bullet Train to Nowhere.

    1. Richard McCann

      The study that Lomberg cites about the electricity market impacts has not been reproduced since such extensive “contract reshuffling” can’t occur in the Western Electricity Coordinating Council (WECC) region or in the CAISO market. That’s just a simplistic modeling exercise not tied to reality. The fact is that thousands of megawatts of coal plants are retiring across the WECC at least in part in response to the cap & trade and renewables portfolio standards (RPS) adopted by California.

      And then Lomberg writes “A smarter approach to climate policy — and one befitting California’s role as one of the most innovative states in the country — would be to focus on making green energy cheaper. ” Has Lomberg noticed that new solar and wind installations are now cheaper than new fossil-fueled plants? Contracts are being signed for less than 5 cents per kilowatt-hour–PG&E’s average cost for existing generation is close to 9 cents.

      It’s as though Lomberg hasn’t updated his understanding of the energy industry since 2009 when the Copenhagen climate accord was signed.

  3. Richard McCann

    I think the Governor and Legislature came up with a reasonable compromise. I posted links to economic and legal analyses on my blog at:

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