Reducing greenhouse gas emissions that cause climate change is the greatest environmental challenge of our time. And California, as it has done so often in the past, is leading the nation and the world in developing policies to address a multifaceted ecological threat. To that end, California has put together a stable of programs to reduce carbon.
You might think this notion – using multiple means to address a complex problem like greenhouse gas emissions – would make common sense. But not everyone has this view.
I am a native Californian who has studied the state’s energy and environmental policies for more than 40 years. I know when certain sources of chatter in Sacramento merit attention. The talk I’m picking up presently is that some believe it would make sense to do away with several key California carbon-reduction programs in favor of putting all eggs exclusively in one basket – the state’s cap-and-trade program. Because the greater simplicity of a stripped-down approach might be attractive, it cannot be dismissed entirely. However, I believe just the opposite.
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Here is how that breaks down: The cap-and-trade program is a centerpiece of California’s carbon reduction efforts. It caps total emissions from across the entire economy, which is great, and establishes market-based incentives to make compliance easier for companies – as opposed to a program where all affected companies have to meet strict command-and-control regulations.
Under cap and trade, companies have to pay to pollute – something they could do for free if the state relied only on regulations. This approach has been tested in the real world when, several years ago, it successfully was used to control acid rain.
But for all its virtues, cap and trade cannot do the job alone. As a leader, California is out front in pricing carbon. Other states and Canadian provinces are getting on board, but nonetheless partial participation in putting a price on carbon pollution invites leakage of emissions and economic activity to places where emissions are not yet regulated.
California cannot set high carbon prices unilaterally without suffering such leakage. Carbon prices are likely to indefinitely remain below the U.S. government’s estimate of the social cost of carbon pollution and a price that most economists think is necessary to spark a transformation of the economy. Other companion policy approaches are necessary to achieve climate goals. Perhaps knowingly, the public consistently expresses a preference for regulatory approaches over emissions pricing.
The other components of the state’s overall strategy include a program that successfully encourages the use of renewable energy sources like wind and solar. As a consequence, conventional thinking in the electricity sector has moved from the view, dated 15 years ago, that the overnight cost of renewables might make even a 5 percent penetration into the electricity market difficult, to the current worry about how to integrate 50 percent or more penetration – a nice problem to have.
Another encourages cleaner transportation, introducing cleaner vehicle performance standards that have propagated to the national level. Another encourages cleaner fuels, providing an economic justification for research and deployment of electric vehicles and alternative liquid fuels. Yet another program includes big-picture land-use planning to guide all of these necessary pieces in productive harmony. These efforts complement the cap-and-trade program. They do not replicate or even overlap upon cap and trade’s territory. They merely allow more carbon pollution to be controlled than cap and trade alone.
Most recently, we observe that not all of the emissions allowances were sold in the most recent auction. That caused some observers to worry this means the sky is falling on cap and trade. Just the opposite, this means emissions are falling even faster than anticipated. Indeed, the program is self-correcting because the cap-and-trade program has a minimum price for emissions allowances. When emissions fall, rather than making pollution less expensive, the gains are captured for the environment by issuing even fewer allowances to pollute.
I experienced the degradation in air quality in the 1950s and 1960s and the substantial improvement the state has achieved since. Most recently, I have been involved as an adviser on climate policies. Climate change is even more complex than general air quality. Reducing carbon emissions is akin to a doctor battling a disease that has multiple pathways of causation and is most effectively treated by more than one medicine.
A fee on carbon emissions under the state’s cap-and-trade program is imperative because it provides a disincentive for the profligate use of fossil fuels and is the most systemic approach for reducing greenhouse gas emissions. However, it is not by itself an entirely sufficient remedy. Each of California’s carbon-reduction policies acts as separate pillars of an overall program. Each deserves rigorous evaluation, but each has compelling justification and an important role to play in the battle to reduce carbon emissions.
California has identified a fertile middle ground where both carbon pricing and companion measures contribute to the climate solution, and protect and benefit the state’s economy. It is a total package, one that will assure California remains a model of environmental and energy policy to the world.
We need to remain vigilant about going forward with a model overall suite of coordinated programs that addresses the battle for carbon reduction in the only way that will produce optimal results – on many fronts. The world can learn from and be greatly helped by California’s example if we get this right.
Dallas Burtraw is a senior fellow at Resources for the Future, an independent, nonpartisan organization in Washington, D.C. Burtraw is a longtime observer of and analyst for California’s efforts to reduce carbon emissions. Contact Burtraw at Burtraw@rff.org.