Amid Opposition, California Regulators Approve Major Changes To Cap-And-Trade Program

“California’s nation-leading cap-and-invest program has proven that we can cut pollution, create jobs, and invest in a cleaner future at the same time,” he wrote. “These are real results that Californians can see and feel.”

Regulators said they were doing their best to strike a balance that also keeps oil and gas companies viable.

“There is no direction to us, as an agency, to maximize one trade-off versus another,” said Rajinder Sahota, deputy executive officer for climate change and research at CARB. “What we’re trying to do is balance all of the pieces that we’re getting.”

The vote comes months after the board faced pressure from the oil and gas industry, which warned that compliance with current rules would drive them out of California and increase energy prices. The war in Iran has sent gas prices soaring to over $6 a gallon in California and in the past six months, two refineries have closed.

Meanwhile, climate, housing and transit advocates argued they also face an uncertain future with cuts from the federal government and tightening state budgets.

Adam Smith, with Southern California Edison, told regulators the proposal was the “most direct and substantial affordability action for electric customers this year and likely for years to come.”

“We think the overall proposal strikes the right balance between affordability and stringency to keep us on track for our shared climate goals,” he said.

California’s cap-and-invest program currently works similar to a carbon tax: It sets a cap on the amount of greenhouse gases oil refineries, steel and paper factories, cement plants and other big polluters are allowed to emit. Every year, the cap lowers, helping the state meet its ambitious goal to reduce greenhouse gas emissions by 40% below 1990 levels by 2030 and 85% below 1990 levels by 2045.

Regulators issue credits, or allowances, to companies for every ton of greenhouse gases they emit. Allowances are then sold to companies at auctions held four times a year.

The revenue generated from those auctions goes into California’s Greenhouse Gas Reduction Fund (GGRF), which has collected more than $31 billion since its first auction in 2013.

In January, CARB proposed dramatically lowering the number of allowances so the state could stay on track to meet its climate goals by 2030. Fewer allowances would have theoretically resulted in higher prices at auctions and potentially more money for the GGRF.

But leaders from the oil and gas industry pushed back on that proposal, warning that cutting too much, too quickly would lead to higher prices for consumers, especially at a time of market volatility.

In April, regulators returned with a new proposal to create a first-of-its kind program called the Manufacturing Decarbonization Incentive (MDI), which would offer back those allowances if the polluting companies invest in decarbonization projects, such as replacing fossil-fuel powered equipment with clean alternatives, working on carbon sequestration, methane reduction, and other projects.

But climate, affordable housing and transit advocates are skeptical as to whether those projects will truly materialize. They also worry that this new program could lower the value of allowances at auction, potentially resulting in less money for GGRF programs.

While the state’s high-speed rail program is the largest recipient of the current GGRF funds, 20% goes towards the Affordable Housing and Sustainable Communities (AHSC) program, which provides grants and loans for affordable housing projects near public transit.

During Thursday’s public comment period, which lasted eight hours, Natalie Spivak, an advocate with nonprofit Housing California, pointed out that the program is the state’s largest ongoing source of funding for affordable housing.

“AHSC has an incredible track record of producing over 22,000 affordable homes, creating jobs, and reducing greenhouse gas emissions,” she said. “Increasing allowances to oil and gas companies without any guarantee that consumer prices will fall is not the way to create affordability.”

Transit agencies voiced concerns, too. Fifteen percent of the GGRF goes towards a variety of public transit programs and agencies. According to officials from the San Francisco Municipal Transit Agency, it has received more than $600 million in cap-and-invest funding since 2015. That has gone into replacing light rail vehicles and improving transit service.

Beverly Greene, chief government affairs officer for the Santa Clara Valley Transportation Authority said the change could eliminate funding to support construction of the BART Silicon Valley extension project.

“We respectfully urge you to oppose the proposed program changes and instead protect the Greenhouse Gas Reduction Fund programs,” she said at the meeting.

But regulators pushed back, arguing that the new decarbonization program might not dramatically lower funds for the GGRF. They also argued that the legislature controls where those GGRF funds go, not them.

“Nothing that we’re doing here is setting the priority for how the legislature may decide to appropriate funds,” Sahota said.

Before voting on the measure, CARB members agreed to include an amendment requiring a vote to review the decarbonization projects before the allowances are issued to companies. Another amendment directed CARB staff to talk to the governor’s office about the importance of sustained funding for public transit and affordable housing programs.

Still, many are concerned about what the vote could mean for the future of funding for affordable housing, climate programs and transportation. Following the vote, San Francisco Mayor Daniel Lurie urged the board to reconsider.

“This decision puts our efforts to save transit, build affordable housing and drive our economic recovery at risk,” he said in an emailed statement. “Since that work helps achieve our emissions goals, those goals will be jeopardized too.”