California Lawmakers Reach Last-Minute Deals on Climate, Energy

Late-night negotiations between Gov. Gavin Newsom and Democratic leaders in the state Legislature produced a flurry of agreements on Wednesday on pivotal climate and energy programs.

“After months of hard work with the Legislature, we have agreed to historic reforms that will save money on your electric bills, stabilize gas supply, and slash toxic air pollution — all while fast-tracking California’s transition to a clean, green job-creating economy,” Newsom said in a statement.

On their own, each of the deals to extend the state’s cap-and-trade climate program, ease regulations on oil and gas production, reform utility spending and advance regional energy sharing is a controversial and complex endeavor. Taken together, they present lawmakers with a series of monumental choices over California’s energy transition with just a few days left in the legislative year.

“We’re at this point where we are paying for the effects of climate change, while we’re also trying to transition to the new future we want to see,” said Merrian Borgeson, a policy expert from the Natural Resources Defense Council. “But I think we’re standing up to the challenge.”

While many environmentalists praised the agreements for advancing the state’s climate goals with an eye on affordability, environmental justice and consumer advocates slammed many of the provisions as a sellout to the oil and gas industry. Numerous participants in the negotiations agreed they had rarely seen a collection of high-stakes climate policies come together in such a whirlwind of last-minute negotiations.

“This was a wretched process,” said Katie Valenzuela, a consultant for environmental justice groups. “This was the most closed-door, hardest-to-influence process from a community perspective that I’ve ever seen.”

The state Senate and Assembly will not be able to vote on the bills until Saturday morning, due to a state rule requiring all bills to be in print for 72 hours before a final vote. Lawmakers will need to extend the session, currently set to recess on Friday at midnight.

Cap-and-trade extension

After months of talks, lawmakers reached an agreement on an extension of cap-and-trade — the landmark program designed to reduce greenhouse gas emissions in California.

The initiative, renamed cap-and-invest, sets a limit on the planet-warming pollution that refineries, power plants and other factories can release — a cap that is lowered every year. Companies can either reduce their emissions or bid on allowances that give them permission to pollute. The auctions for those allowances raise billions of dollars for the state every year.

Assembly Bill 1207 would extend cap-and-invest through 2045, sending a signal of stability to the carbon markets that supporters hope will increase auction returns.

“It is extended in a manner that will help ensure we actually meet our 2045 [greenhouse gas reduction] goals,” said Katelyn Roedner Sutter, California state director for the Environmental Defense Fund. “It addresses affordability concerns, and it maintains California as a climate leader.”

AB 1207 shifts the California Climate Credit to summer months, when higher air conditioning use causes electricity bills to spike. A companion measure, Senate Bill 840, detailed how the revenues from carbon auctions will be spent — including setting aside $1 billion a year for the state’s high-speed rail system.

Environmental justice advocates said capping statewide emissions does little for residents living near refineries and other pollution hotspots. A program created during the last cap-and-trade reauthorization in 2017 was supposed to reduce local air pollution through community-designed plans, but has been criticized for having little teeth.

Valenzuela said a proposal to give the local pollution reduction plans more staying power was left out of the final agreement.

“Disappointing doesn’t honestly feel like it describes it,” she said. “This is a terrible outcome for our communities, and we are incredibly frustrated.”

New incentives for the oil industry

Environmental justice groups were further incensed by Senate Bill 237.

The bill aims to loosen some of California’s environmental regulations to hedge against rising gasoline prices and respond to the planned closure of two oil refineries in the state.

California is the only state in the nation that requires motorists to shift to a lower-emissions fuel in the summer. The state’s fuel standard has reduced smog and improved air quality for decades, but consumers continue to pay higher prices for it.

The bill, if passed, would require the Governor to suspend the higher fuel standard whenever prices spike for more than 30 days, or appear likely to do so.

Jamie Court, president of Consumer Watchdog, called it a “deregulation bonanza.”

“It’s all about retreating on the things that have worked in this state,” he said.

The bill would also remove regulatory and legal obstacles for thousands of oil wells in Kern County by exempting them from a final review under the California Environmental Quality Act.

Oil companies and environmentalists have clashed for more than a decade over challenges that have effectively stalled the permitting process for drilling new oil wells in Kern County.

“The politics of this are that everyone’s really worried,” said Deborah A. Sivas, director of the Environmental and Natural Resources Law & Policy Program at Stanford Law School. “We’re seeing affordability issues all over the place in the energy sector … so that’s the hook for the industry to say, ‘oh, you need to let us drill more because then we’ll feed more crude oil to the refineries.’”

Sivas worried that more drilling would lead to more abandoned wells that threaten to taint water supplies and create other environmental hazards, because she said drilling for oil in California is just not sustainable.

“The future is not in oil production in California,” she said.“That was the past.”

Utility reform and wildfire fund

Senate Bill 254, authored by state Sen. Josh Becker, D-San Mateo, and Assemblymember Cottie Petrie-Norris, D-Irvine, tackles several angles of climate and energy.

Among them is a proposal to have the state fund some power-grid investments with revenue bonds.

The state’s three large investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, typically pay for grid improvements with capital expenditures, which allow them to earn a guaranteed profit for shareholders. Proponents of the bills say financing these improvements publicly, through bonds, would bring down costs to ratepayers.

Mark Toney, executive director of The Utility Reform Network, said the bill could save Californians billions of dollars over the next decade and was “a small step in the right direction for ratepayer affordability.”

Utilities initially opposed the bill and said public financing threatened their ability to attract private investors, and pushed back with a public relations campaign criticizing the proposal. But they praised the addition of new money for the state’s wildfire fund, which was nearly depleted by the January blazes in Los Angeles.

Utilities can draw on this money to cover liability if their electrical equipment starts a damaging wildfire.

The legislation proposes that utilities and ratepayers would each cover half of the nearly $18 billion fund.

PG&E, SCE and SDG&E issued a joint statement saying the wildfire fund would “help victims and communities recover and rebuild, without raising customer rates. While this legislation represents progress, more work is needed to create comprehensive and permanent solutions to address wildfire risk in California.”

A final bill, Assembly Bill 825, would enable California to join a new, Western electricity market. Supporters touted the plan as a way to ensure the reliability of California’s grid by letting the state buy and sell power across the region. At the same time, opponents warned California’s participation in an interstate grid would loosen state control over energy supply and cost.