Researchers Press California to Strengthen Landmark Climate Law

California’s cornerstone climate law for reducing planet warming emissions is coming under fire from a group of high-profile researchers.

The legal and policy experts are challenging California’s top regulators to strengthen oversight of the state’s cap-and-trade law and to adopt changes to ensure that the state’s marketplace is reducing greenhouse gas pollution at the rate it claims.

Authors from Stanford Law School, UC Berkeley, UC Santa Barbara, among other institutions released a paper today pressing the California Air Resources Board to strengthen accounting reviews and ensure the state’s landmark climate change law is achieving its goals.

The board monitors the cap-and-trade program, and agency leadership are vigorously defending it.

The researchers — many of whom have been active in the program’s rule making and have challenged the agency before — argue in the working paper that the emissions reductions in California’s offset program are inherently uncertain. In some cases, they wrote, the rules create “perverse incentives” toward increasing planet-warming gases.

The California law is at the center of the state’s plans to fight climate change and the state is counting on the initiative to reduce its total emissions by 40% by 2030.

“So far, cap-and-trade programs have relied heavily on carbon offsets, as a way to meet the cap,” said lead author Barbara Haya, a UC Berkeley research fellow. “But carbon offsets have not worked very well.”

In May, Haya examined the board’s assumptions around its offset program for forests in the U.S. (the agency refers to it as the U.S. Forest Projects protocol). She estimates landowners earn millions for reductions in planet warming emissions that might not be real.

She argues that California overestimated carbon dioxide emissions reductions by 80 million tons, and the program may only have accomplished 18% of the emission reductions it claims to have made.

When you consider that U.S. forests comprise the vast majority of the credits the agency has issued to date, that’s a big discrepancy. The analysis raises questions about how well the state’s landmark climate program — a model for other states and even countries — is working.

But the agency is aggressively defending its cap-and-trade program saying it’s a model for the international community and the forest initiative is the product of years of policy making, hearings, and stakeholder input.

Mary Nichols, the Air Resource Board’s chair and top official, said in a letter to members of the Legislature that the agency reviewed Haya’s forest study and strongly disagreed with her analysis because it “contains errors and misunderstandings of the Forest Protocol.”

Beyond the letter, the agency released a detailed rebuttal, to which Haya responded.

Rajinder Sahota, who manages the cap-and-trade program for the agency, said she’s fully confident that the program is working. “We categorically disagree with these assertions,” she said.

She vigorously defended the forest program calling it the “global gold standard” and saying  that it was designed over many years, thousands of review comments, and dozens of public meetings.

Also, Sahota categorized Haya’s studies as representing “old arguments” and pointed to the fact that in 2015 the First District Court of Appeals rejected a lawsuit from environmental groups that charged the offset program could not be ensured.

“They brought the assertion that the offset program didn’t meet the requirements for being real, quantifiable emissions reductions,” Sahota said. “We litigated that and we prevailed in the lawsuit.”

Strengthening the Program

California cap-and-trade works in two ways. It places a limit on industrial emissions — a “cap” that is lowered over time — and it creates a marketplace for companies to buy emissions offset credits from forest managers, dairy farmers, or others who are taking steps to remove carbon from the atmosphere or prevent its release.

Carbon offsets are central to California’s landmark climate change policy, and are organized into different areas the agency calls “protocols.”

Rather than reduce its own pollution, for example, an oil refinery can buy an offset that represents a ton of carbon emissions reductions from sustainable practices in another industry.

“Our goal was to explore how can an offset program be designed,” Haya said, “so that we can trust that the credits generated represent real emissions reductions and don’t undermine the effectiveness of our cap-and-trade programs.”

The key issue, she added, has to do with California’s marketplace for “trading” emissions. State law requires that all of the offset credits be “real, permanent, quantifiable, verifiable, and enforceable.” Haya’s research found something different.

“What we saw really clearly looking at California’s program is that the reductions from offsets are inherently uncertain,” she said. “We know how to measure emissions under a cap, but it is much harder to measure emissions reductions.”

Danny Cullenward, an energy economist and co-author of the paper, said that California doesn’t maintain an ongoing, formal structure to monitor how well the program is working.

“People think that these protocols can be used and used well, and we rely heavily on them, and invoke the idea that they’re high quality,” he said, adding that the California approach to ensuring quality with its offsets is “ad hoc.”

Sahota disagrees, saying that all of the emissions offsets are verified by a third party; if any fraud is detected, the offsets are invalidated; and all of the underlying reports are made available to the public. Also, since the forest program was first adopted, the agency has updated its rules on different occasions after a review of the latest science.

‘Perverse Incentives’

When researchers examined California’s recent initiatives that allow regulated industries to trade emissions, they found that, in some cases, they create what Haya calls “perverse incentives” that can lead to more  emissions.

For example, with one of its new initiatives, coal mines can make money by burning off the methane gas that leaks during production. While burning methane releases carbon dioxide — the main greenhouse gas driving climate change — methane gas is 84 times more potent in terms of global warming over the first 20 years it is released.

Burning the methane, even though it increases the carbon wafting in the air, is a net positive.

But the researchers identified a problem. By destroying methane, the gassiest mines in the U.S. could earn enough money to remain open for longer than they would have at a moment when coal and natural gas are competing and mines closing. “Those profits can be substantial for those mines,” Haya said.

Also, California’s marketplace for emissions can deter governments from instituting other climate change regulations. Once an agency requires coal mines to flare their leaky gas, for example, the mines can no longer sell methane offsets.

“Someone can’t pay someone else to reduce emissions because they are already required by law,” Haya said.

Sahota disagrees, and points to the fact that before California adopted the coal mine program in 2014, agency staff estimated its potential impacts and found the potential revenue for the industry was minimal, a half a percent of the value of overall domestic coal production. “The protocol does not make any financial impact on bottom line decisions,” she said.

Also, Sahota pushed back on the notion that the cap-and-trade program could deter other agencies away from regulations calling it “another falsehood.”

She pointed to the fact that after the board adopted a market for capturing methane from dairy farms, California passed a bill regulating heat-trapping gases from livestock operations and landfills (when cows belch, pass gas and make manure they release methane).

But, she acknowledged that other agencies might use California’s cap-and-trade law as an excuse not to pass regulations that they don’t want.

“Regulation is the best way to achieve these emissions reductions because it guarantees action,” she said. “But until such time that regulations can be formulated, offset protocols incentivize early action and actually get people doing something.”

Basically, it’s a carrot rather than the stick way to produce emissions reductions.

U.S. Forests and Amazon Fires

One reason that the quality of the program is so important is because California is a testing ground for climate policy, and the state exports its  ideas  to other countries, and also states like Oregon, which was poised to pass a similar law this year (until 11 Republican senators revolted, fled the state in protest, and killed the bill).

The quality of the state’s landmark climate law is all the more important because the board will meet next month to consider framework rules for a new tropical forest program.

While the agency is not yet considering adopting a program for international rainforest — that would require years of environmental review and public comment — the board will consider a methodology for what such a program might look like, a precursor to adoption.

This is important because fires are ripping across the Brazilian Amazon after a surge in deforestation, and supporters of expanding California’s market argue that the state can fight climate change while saving tropical forests throughout the globe.

If California approved a new program, forest managers in Brazil could earn money by sustainably managing their forests.

But ensuring the quality of the program in other countries with different types of governments is a difficult challenge, Cullenward said.

“If California will be overseeing the program, who’s going to do that?” he said. “If you think it’s challenging to manage a forest protocol in the continental United States and Alaska, how about operating in Acre, Brazil, right now?”

Germany, Norway, and other governments invested in a fund to support sustainable forestry in this part of Brazil. But recently, they withdrew their investment because Brazil’s right-of-center president, Jair Bolsonaro, encourages deforestation.

NPR reporting has Bolsonaro on the record saying he wants the Amazon open to development and describing rainforest protection measures as “obstacles” to the economy.

Early Pushback

California’s cap-and-trade law is a second generation carbon offset program. European leaders promoted the first generation program following the 1997 Kyoto Protocol, when an international coalition of countries promised to reduce emissions.

The Kyoto’s offsets didn’t work very well. One study found that only 2% of the projects have a “high likelihood” of ensuring that emission reductions were additional and not over-estimated.

Reporting in ProPublica revealed that the program subsidized thousands of projects, including coal plants, that claimed credits for being more efficient than they would have been. The European Union stopped accepting the credits after the program became mired in technical and human rights scandals.

California’s market is meant to respond to some of the criticisms of the dysfunctional first generation program created under the United Nations climate trading regime and is different in a few key ways.

Kyoto’s initiative was voluntary and underfunded. But California’s program allows companies to offset a small percentage of their carbon output and only recognizes forests in the U.S., where the state can presumably have more oversight.

“The offset program is one of the most transparent parts of the cap-and-trade program,”  Sahota said. “We were sensitive to the concerns about distrust of offsets when we were designing it.”

But from the get-go, environmental justice groups  like the Asian Pacific Environmental Network and Leadership Counsel for Justice and Accountability debated whether California’s cap-and-trade offsets would improve on the old model.

They argue it allows industry to pay to pollute in areas already suffering from toxic pollution.

Even so, they’ve recently eased back on their protests as long as the revenue from the market be used to meet the needs of neighborhoods most prone to  dirty air; as, they hope, will be the case with California’s plan to use cap-and-trade money to clean dirty drinking water.