California Extends Cap-and-Trade Program to Reduce Greenhouse Gas Emissions
California has extended its cap-and-trade program to 2030, a critical action needed to meet its ambitious greenhouse gas reduction (GHG) goals. Last year, California increased its GHG reduction goal to 40% below 1990 levels by 2030 under SB 32. The cap-and-trade program is anticipated to result in almost 33% of the 2030 reduction goal. The program was set to expire in 2020 and has been subject to various legal challenges. In order to secure its passage with a two-thirds supermajority vote, the cap-and-trade extension (AB 398) includes changes to the existing program, and was passed along with companion measures to address both local air pollution and restrictions on use of cap-and-trade funds (AB 617 and a proposed Constitutional amendment-ACA 1). The decision to require a two-thirds majority to pass AB 398 was in response to legal challenges to the original cap-and-trade legislation claiming that it was a “tax” that required a two-thirds vote for passage. (California Chamber of Commerce v. State Air Resources Board (2017) 10 Cal.App.5th 604 (ruling cap-and-trade program not a tax))
AB 398 Changes
AB 398 extends the cap-and-trade program to 2030, and changes some elements of the existing program. Key changes include: setting a stricter price “ceiling” for allocations; keeping free allowances, but eliminating over 40% of free allowances by 2030; and setting stricter limits on using offsets to meet GHG reductions by requiring half of a company’s offsets to provide direct environmental benefits to California. In addition, and subject to some controversy, AB 398 prohibits local air districts from regulating carbon dioxide emissions from stationary sources subject to the cap-and-trade program. Instead, the California Air Resources Board (CARB), a state agency, will have the exclusive power to enact these types of regulations. The bill also requires CARB to complete the Scoping Plan Update by January 1, 2018. The Scoping Plan Update identifies strategies and measures to meet the State’s 2030 GHG reduction goal. Cap-and-trade is a critical GHG reduction measure under the draft Scoping Plan Update.
AB 617 Changes
AB 617 was enacted to address regulation of the localized effects of air pollutants. The bill authorizes regulations to reduce localized pollution impacts that cause public health problems in addition to reducing GHGs to address the global issue of climate change. This issue is related to the growing environmental justice movement in California. Under AB 617, CARB will develop programs to address pollutants from industrial facilities. The bill also requires annual emission reporting and the development of an air quality monitoring plan to identify communities most impacted by pollution. CARB is directed to prepare a statewide strategy to reduce pollutants in high-impacted communities. AB 617 also imposes stricter penalties for noncompliance with emissions regulations.
ACA 1 Changes
ACA 1, a proposed constitutional amendment, addresses the use of cap-and-trade funds. This issue has been an ongoing source of contention resulting in several legal challenges, with particular attention on use of funds for California’s high speed rail project. ACA 1 requires voter approval to become effective. It will be on the ballot in June 2018. If passed, any allocation of cap-and-trade funds after 2024 will require a two-thirds vote by the Legislature. This future vote means that the issue of the use of cap-and-trade funds will be debated again.
The extension of the cap-and-trade program is a major milestone for the State’s GHG reduction program. However, it leaves some important issues unresolved. Two of the main open issues are: (1) the types of programs that may be funded by cap-and-trade revenue; and (2) how CARB will regulate industrial emissions to address health impacts on adjacent communities. The focus will now turn to the actions by CARB to implement the specifics of the cap-and-trade program and its companion measures. We will closely monitor and keep you informed of these important implementation actions.