“California is headed in a very different direction than the rest of the country,” said Gabriel Metcalf, president of San Francisco-based think tank SPUR. “The importance of California’s climate strategy is not just that it’s a big state with a big population. It’s also that it will be something that the rest of the country is paying attention to.”
Although it’s just a few years old, California operates the world’s second biggest cap-and-trade program (the European Union’s is bigger). Permits that are needed to pollute the atmosphere with greenhouse gases are called allowances. They’re purchased by Californian power plants, oil refineries and factories and traded by financial speculators, raising hundreds of millions of dollars yearly for green projects while capping pollution.
Similar cap-and-trade programs are operated by China, South Korea, New Zealand, a coalition of East Coast states and elsewhere. Instead of operating cap-and-trade programs, British Columbia and some other governments impose taxes on greenhouse gas pollution.
Pollution from fossil fuels, farms and deforestation has increased temperatures nearly 2°F (about 1°C) and raised sea levels more than half a foot in the past two centuries. Americans overall have caused about one sixth of that pollution — about the same as China.
Global warming has worsened California’s drought and it’s fueling wildfires throughout the West. Climate change made deadly late summer flooding in Louisiana more intense and it routinely triggers coastal floods during high tides along the East Coast.
States have less influence in the fight against global warming than the federal government, but California’s cap-and-trade program is pioneering and could continue to serve as a model for other governments. Other states can join the program — Quebec joined in 2014, saving it the time and expense of creating and running a new program.
And legal experts say the only way California lawmakers could extend cap-and-trade after 2020 would be with supermajority votes. Although state officials and some environmentalists have argued that’s not necessary, they acknowledge that supermajority votes would protect the program from lawsuits. Those votes proved unattainable this year, leading to speculation the program will perish. A ballot measure may be introduced if lawmaker approval remains elusive.
As elsewhere, prices paid for pollution allowances in California have been so low as to be nearly negligible. Prices in California may quickly spike, however, if the program gets extended beyond 2020. That would put California’s cap-and-trade program to a globally unprecedented test.
With Democrats in Sacramento generally supporting aggressive climate action and their opponents generally opposing it, the November boost to the party’s legislative domination made it more likely that cap-and-trade will continue operating beyond 2020. But it’s not guaranteed.
Gov. Jerry Brown this week told reporters that it can be “very challenging” to take advantage of supermajorities. That could be particularly true in California, which is a diverse and deeply blue state in which Democrats representing some regions are far more conservative or liberal than others.
And not all Democrats in California support cap-and trade. Some have opposed it, skeptical of its economic impacts. Other Democratic lawmakers represent low-income neighborhoods where industrial air pollution could get worse if the current program isn’t substantially tweaked.
“There are many difficult policy tradeoffs that we face, and lots of disagreements within the Democratic party,” Metcalf said. “At least we all agree that climate change is an urgent problem that needs solving.”
Rising temperatures and seas and falling prices for clean solar and wind energy have spurred a global consensus on the urgency of climate action, culminating in Paris in December with finalization of a United Nations climate treaty. Global carbon dioxide emissions may have leveled off in recent years, but they must fall sharply in the years ahead if the treaty’s goals of limiting warming to well below 3.6°F (2°C) can be achieved.
President Obama championed the Paris climate agreement, pledging that America would reduce its climate impacts by about a quarter by 2025 compared with 2005. He joined with China in urging other countries to ambitiously tackle their own emissions.
The global consensus on climate that Obama helped to build was shattered last month by the election of Trump, a businessman who campaigned on his opposition to climate action and the Paris agreement. Trump is moving quickly to assemble a cabinet and a White House dominated by climate science deniers and opponents of environmental regulations.
America’s looming U-turn on climate policy has experts looking hopefully to states and other national governments for leadership.
“California is in a good position, in that a large majority of the public is very supportive of climate action,” said Erica Morehouse, a senior attorney at the nonprofit Environmental Defense Fund. “We’re going to be looking to all of the members of the legislature to meet that need.”
The challenges for cap-and-trade in California aren’t just political. A lawsuit against the program was filed by the California Chamber of Commerce, which argues that the program imposes illegal taxes. Oral arguments have been scheduled by an appeals court for late January.
Large corporations, Republicans and conservative-leaning Democrats haven’t been the only groups in California speaking out against the cap-and-trade program. Groups representing low-income communities of color who live near power plants and other industrial facilities are also worried by some of the utility-friendly rules of the program.
“There are a lot of shortcomings with the current system,” said Alvaro Sanchez, environmental equity director at the nonprofit Greenlining Institute.
Sanchez said he hopes Democrats take advantage of their supermajorities to extend cap-and-trade, but that concerns about the program must be addressed before his group could support legislation.
The current cap-and-trade program has allowed air pollution to worsen in some poor neighborhoods, sickening residents. It’s also difficult for those communities to navigate the paperwork needed to secure funding for local clean energy, workforce development and transportation projects using cap-and-trade funds.
“I’m excited, I feel like we have the tools at our disposal to be able to advance something that would take advantage of that supermajority,” Sanchez said. “If an extension is proposed that does nothing to address those concerns, it would be really difficult to support.”
California’s cap-and-trade program has had little impact on the state’s greenhouse gas emissions so far. That’s because other state programs and rules, such as rules requiring utilities to sell certain amounts of green energy, have done most of the work in helping the state achieve its goals of reducing climate pollution.
Despite the cap-and-trade program, some Californian power plants have actually been increasing the amount of pollution they release in recent years, partly because utilities have been importing clean energy from other states to meet targets.
That may change after 2020, when California begins pursuing more aggressive pollution reduction goals than nearly any other state or nation worldwide. Lawmakers in August approved a law requiring the state to pursue a 40 percent reduction in greenhouse gas emissions by 2030, compared with 1990 levels. Emissions in 2020 are required to return to 1990 levels.
“An effective cap-and-trade program in California is more important than ever,” said Harvard economics professor Robert Stavins, who directs the Harvard Project on Climate Agreements. “It’s crucial that California increases its reliance on its cap-and-trade system, rather than relying on conventional regulatory approaches, which are much more costly.”
The new rules will make it more difficult for utilities and other polluters to stay under the state’s carbon cap, which could cause demand for dwindling supplies of pollution allowances available each year to spike. That may push Californian cap-and-trade prices to levels never seen anywhere in the world. If that risks causing an economic shock, the governor has the power to suspend cap-and-trade.
“It’s reasonable to expect very high carbon prices in the near term once there is legal certainty about what’s going to happen in California,” said Stanford energy and environmental law expert Michael Wara.
Wara said such high carbon prices would be felt by consumers, such as through higher electricity bills and more expensive gas prices. That could reduce lawmaker and public support for cap-and-trade.
Easing those financial impacts may require finding new ways of reimbursing consumers. Revenues from cap-and-trade are currently used to reduce electricity bills and to fund high-speed rail and other green projects.
“There’s a general belief that’s about to be tested in California that people won’t tolerate high carbon prices,” Wara said. “You’d better have some way of putting money in people’s hands to offset that change — and it has to be a way that people feel and notice.”