When Democratic lawmakers and Gov. Jerry Brown launched California last year toward a new goal of reducing greenhouse gases, they did so without addressing one of the state's key mechanisms for reaching the goal: the cap-and-trade program.
By taking that first step of setting climate change reduction benchmarks, Democrats pushing for tougher environmental regulations now have leverage over businesses in determining how the state will reach its ambitious goals.
"I’m sort of working backwards," said Sen. Bob Wieckowski (D-Fremont), who is carrying SB 775, a cap-and-trade extension bill. "We said here are our targets. But now we really have to figure what to do on a year-to-year basis to make sure we meet that goal that we set. And the world is watching us."
California's current cap-and-trade program -- a market-based system in which companies purchase permits that allow them to pollute -- expires in 2020.
Experts contend that cap and trade wasn't the most vital initiative in helping California achieve its current greenhouse gas targets, which mandate the state reduce emissions to 1990 levels by the year 2020. Instead, slow economic growth and new fuel and energy standards largely helped the state meet that goal. Questions remain as to whether cap and trade can assume such a supporting role going forward.
"The state’s goal for 2030 is really bold and ambitious," said Michael Wara, an associate professor at Stanford Law School who is advising legislators on cap and trade. "Emissions reductions are going to be a little bit harder to achieve, because we can’t rely on unemployment and reduced income driving reductions."
The new goals outlined in last year's landmark climate change law, SB 32, are pushing lawmakers to make the cap-and-trade system tougher on emissions. Having those goals set in place also gives environmentalists the upper hand. If lawmakers can't agree on a way to extend the market-based system, the state could place costly mandates on companies to cut emissions, even if it results in the closure of factories or refineries.
That alternative is called command and control, and is vehemently opposed by business groups like the California Chamber of Commerce and the Western States Petroleum Association.
"Command and control is the ultimate hammer. It’s a threat but there has to be some reality to the discussion," said Loren Kaye, president of the California Foundation for Commerce and Education, a think tank affiliated with the California Chamber of Commerce. "Does it mean there’s going to be no more open-grill cooking in California?"
Lawmakers acknowledge the high cost that command and control could place on businesses and consumers. But they're using the possibility as cover to propose significant changes to the current cap-and-trade program after 2020.
"You have to realize that if nothing happens, it’s command and control," said Assemblywoman Cristina Garcia (D-Downey), who is pushing her own cap-and-trade bill in the Assembly. "It is something [business groups] forget but I haven’t forgot when I’m in the room negotiating."
Wieckowski's bill in the Senate would raise the minimum price, or floor, of emission allowances that companies must buy to $20 per metric ton, up from the current price of around $13.50. The hope is that the higher prices push companies to reduce the amount of greenhouse gases they emit.
The bill would also end the business-friendly practice of offsets, in which companies can fund environmental projects around the country in exchange for the ability to pollute in California.
"There has been some concern from the environmental justice community that these are not helping out the neighborhood," said Wieckowski.
Garcia is pushing for a greater focus on addressing local clean air goals through cap and trade. One provision of her bill, AB 378, would penalize businesses if they don't reduce particulate matter in the air.
"I think where cap and trade has failed is we’ve done a great job of being global leaders, but we’ve done a poor job of helping our backyard," Garcia said.
Business groups have come out against the bill, arguing its focus on clean air will prove costly. Kaye, who represents business interests, says it treats an actual cap-and-trade extension as an "afterthought."
Garcia's environmental justice focus on cap and trade is resonating. This week, Gov. Jerry Brown joined Garcia for a tour of her district, which includes cities along Interstate 5 southeast of Los Angeles like Downey, Bell Gardens and Commerce.
"I live five blocks from the freeway, one of the heaviest corridors that we have in California," Garcia said. "Bell Gardens and Commerce are among the 5 percent most polluted cities in the state, so it’s personal now."
The governor still disagrees with Garcia and Assembly Democrats over how many votes will be necessary to extend the cap-and-trade program. Brown's administration has been adamant that an extension should be approved on a two-thirds vote, to end an ongoing legal debate about how cap-and-trade revenues are raised and spent.
Garcia said "the courts are telling us it can" proceed with a simple majority vote, referring to a recent state appeals court decision protecting the current cap-and-trade program. It's a sticking point that would have to be resolved in short order to meet the governor's desire to get a cap-and-trade deal in place next month.
"There is a deadline that he would like, but it’s a self-imposed deadline," said Garcia. "He’s not the king of California. We have different groups, including the Legislature, that get to decide whether or not the deadline is necessary. And in reality it’s not necessary."