By Julie Cart
CALmatters
State authorities this week delivered on a controversial deal struck last year that handed oil companies and other major polluters a multimillion-dollar windfall.
Critics pounced on what they characterized as a giveaway to industry.
"It sends the wrong message at the exact time climate leaders are in Poland trying to increase global ambition to curb emissions," said state Sen. Bob Wieckowski, a Fremont Democrat. He had said last year, after the specifics of the deal were disclosed by CALmatters, that he would block the benefit.
"This decision moves us backwards and reduces future revenue to curb emissions,” Wieckowski said in an emailed statement after this week’s action. He was in Poland attending a climate conference.
The 2017 deal, for subsidies worth as much as $350 million, rescued a cliffhanger vote in the Legislature that extended the state's cap-and-trade program to 2030.
Under cap and trade, industries may pay to pollute by buying allowances in a carbon-trading market. In addition, some receive free allowances from the state. The state Air Resources Board’s staff originally recommended a reduction in free allowances, as called for in the program’s design.
But on Thursday, as the board set its plan for implementing the cap-and-trade extension, it voted to maintain a full supply of free carbon credits to some companies. That vote adopted recommendations from a later staff report.
The move assures industry the maximum state assistance through 2020. The cap-and-trade extension guarantees that level of help from 2021 to 2030.
At the same time, officials acknowledged that the cap-and-trade system for cutting greenhouse gases is in danger of not delivering the state’s required emissions reductions—a possibility many experts have warned about as companies have banked their pollution credits for later use.
“We know we are not on a line to meet the 2030 target,” Mary Nichols, the board’s long-serving chairwoman, said during the board’s meeting Thursday. She cautioned, as she has at other times, that achieving the state’s next set of climate goals will be challenging and encouraged the board to “think bigger and more broadly” to find emissions reductions.
(The board later issued a press release that quoted Nichols saying its latest actions "keep California's highly successful cap-and-trade program on track to meet our post-2020 emission reduction targets.")
The board affirmed its view that there is no excess supply of allowances and other credits in the cap-and-trade market. But the nonpartisan Legislative Analyst’s Office, academics and market experts have concluded that companies are holding too many credits and could use them to cover future emissions rather than reduce their pollution.
A months-long debate over the issue has exposed a vulnerability in the system’s design, its critics say. In its early incarnation, the cap-and-trade system was not considered a main factor in reducing state emissions; rather, it was intended to backstop other programs aimed at cutting climate-warming pollution.
But the air board now expects the program to provide as much as half of those reductions, amplifying cap and trade’s expected benefits and putting pressure on the program to work as designed in order to meet the state’s ambitious climate goals.
An oversupply could impede that. The Legislative Analyst foresees a reckoning, estimating that because of excess allowances, actual emissions could be as much as 30 percent over the statewide target by 2030.
The board previously dismissed concerns about the number of allowances on the market as mistaken and misguided. But the criticism has intensified. Most recently the Independent Emissions Market Advisory Committee, established by the state Environmental Protection Agency to advise on the cap-and-trade program, concluded that the system’s design “needs to be addressed” by the air board.
Danny Cullenward, an economist with the climate-change think tank Near Zero and a member of the advisory committee, said the air board’s position is based on a math error.
“The analytical integrity of what the staff has put forward does not meet the standard set by state law,” Cullenward said.
Nichols acknowledged Thursday that the issue “sticks in the craw” of those who continue to question whether the board has sufficiently addressed it.
“It hasn’t been put to rest; let’s put it that way,” she said.
Even the smallest acknowledgement of a shortcoming in the board’s carefully designed cap-and-trade program offered an I-told-you so moment for critics.
“Until we crack down on oversupply, (few) emissions will occur,” air board member Dean Florez said by text message, after voting with the rest of the board to adopt the new implementation rules.
He added that the justification for not reducing the free allowances is that emissions caps put California companies at a competitive disadvantage and they’re leaving the state. That’s “bogus,” he said. “Oil companies aren’t going anywhere, nor are most polluters.”
Florez said one benefit of the contentious supply debate is that the air board and staff appear willing to re-examine the issue.
While California has generally exceeded its own goals for cutting greenhouse-gas emissions, lowering them further—and more steeply—will be a challenge. The deadline for reducing emissions to 1990 levels by 2020 has already been met. What lies ahead are reductions to 40 percent of 1990 levels by 2030 and 80 percent by 2050.
Given that difficulty, there is renewed focus on ensuring the system doesn’t let polluters off the hook. Assemblyman Eduardo Garcia, a Democratic from Coachella who authored the cap-and-trade extension law and is a non-voting member of the board, said at Thursday’s meeting that the number of available allowances should be monitored continually.
Some of the issues dogging the board today stem from the deal, brokered by California’s powerful oil and gas interests, that crafted business-friendly language in the cap-and-trade extension law in return for its support. Among the concessions were to remove the ability of local air districts to regulate industrial emissions, and to guarantee to industry that allowances would remain at the highest possible level.
“It was part of the deal to make sure we could get a vote to extend the cap and trade program,” Garcia told CALmatters last year. “Without a doubt, it’s a compromise in order to reach the greater goal.”
CALmatters.org is a nonprofit, nonpartisan media venture explaining California’s policies and politics.
