Dan Walters

California has new carbon reduction goal, but details of impacts still fluid

A few weeks ago, Gov. Jerry Brown and his predecessor, Arnold Schwarzenegger, jointly celebrated the 10th anniversary of Assembly Bill 32, the legislation that launched California’s war on greenhouse gases.

“This is a big idea, and it takes a big mind to get around it,” Brown said – a not-so-subtle dig at those who question California’s crusade.

“It’s not the stuff of normal politics,” Brown said later, adding, “This is not about the Republican Party or the Democratic Party. This is about human existence. It’s about survival.”

The ceremony was staged just a month after Brown signed Senate Bill 32. While he heralded passage of the measure that was AB 32’s successor, the new bill didn’t include an extension of “cap-and-trade,” the state’s program of issuing and trading carbon emission allowances, that the Democratic governor wanted.

AB 32’s goal was to reduce California’s carbon footprint to the 1990 level by 2020, and it scheduled cap-and-trade to end that year. It appears the state will meet the target, largely due to a mandate on electric utilities to shift from coal and natural gas generation to wind, solar and other renewable sources.

SB 32 extends California’s commitment at least to 2030, with a very ambitious new goal of a 40 percent reduction from the 1990 level.

The Air Resources Board and other agencies are drafting strategies to reach that goal. And while cap-and-trade may be one of those strategies, officials also see other ways to get there, especially if cap-and-trade expires. They include a more intensive shift by utilities, persuading motorists to buy millions of low- or no-emission cars, forcing oil companies to produce fuel that uses much less petroleum, and cracking down on specific industrial emissions.

A companion bill to SB 32 prioritizes direct emission-reduction controls, and Brown is telling business groups that if they don’t embrace an extension of cap-and-trade, they’ll feel the pressure of direct orders.

“This is a real commitment backed up by real power,” Brown said after the two bills were approved, adding that business is “going to get commands to do things and they’re going to plead for a market system called cap-and-trade so they can respond in a way that’s more beneficial to their bottom line.”

Although cap-and-trade has played a relatively minor role in carbon reductions to date and would not be the major factor in achieving the 2030 goal, it is the highest-visibility piece of the program, the one that’s sparked the most resistance, and the one that politicians value because it’s supposed to generate money – including funds for Brown’s pet bullet train project.

Four times each year, the state conducts auctions of emission allowances, not only those the state owns, but those held by utilities and, somewhat oddly, those offered by the Canadian province of Quebec.

For several years, the auctions sold out and generated several billion dollars for the state, a quarter of which is committed to the financially strapped bullet train.

However, February’s auction fell short of a sellout, the May auction provided very little for the state and the August auction fell even shorter.

Suddenly, a mechanism that was supposed to produce $2.4 billion a year was producing almost nothing, throwing a monkey wrench into spending plans.

What happened?

Market analysts agreed that the success of other carbon-reduction strategies reduced the demand for allowances being offered for $12.73 a metric ton, and that a huge oversupply allowed emitters to buy all they needed in the secondary market. Meanwhile, a business-backed lawsuit that challenges cap-and-trade, contending that it’s an illegal tax, cast a legal cloud on the program. Uncertainty about whether cap-and-trade will continue also eroded the value of allowances.

Another auction is scheduled in November, and analysts believe that the state will see a stronger demand, largely because the floor price will automatically increase in 2017, but thereafter, auctions will likely revert to near-zero levels because of the glut.

That could change were its legal clouds removed through reauthorization by the Legislature. But it would probably require a two-thirds legislative vote because of a 2010 ballot measure that redefines fees more narrowly.

Democrats lost their two-thirds legislative supermajorities in 2014 but may regain them this year. However, with significant blocs of business-backed moderate Democrats in both legislative houses, it’s uncertain that Brown and legislative leaders could get enough votes for what would be a multibillion-dollar carbon tax that would ultimately fall on consumers.

If business is skeptical of cap-and-trade – especially if they must buy emission allowances – those on the political left, especially environmental groups, are just as leery. They see cap-and-trade as a market-based concession to business and prefer direct controls on carbon emissions.

If Brown is unable to win legislative approval for extending cap-and-trade, he may turn to the ballot in 2018 as he exits his governorship, sponsoring an initiative to lock it and other elements of his anti-carbon crusade into law that couldn’t be changed by the Legislature – and perhaps extending it to 2050 or even beyond.

Such an extension might also provide the steady stream of revenue that bullet train advocates hope could be used to service a massive construction bond for the project.

Cap-and-trade may be the most visible and controversial of the strategies to meet the new 2030 goal, but others face equally daunting hurdles.

Brown, for instance, has issued an executive order seeking to have 1.5 million “zero-emission vehicles” on California’s roads by 2025 – five times their current proportion – but ZEV sales have slowed to a crawl, thanks in part to low gasoline prices, and automakers complain that they can’t sell cars that motorists don’t want.

Some of the cap-and-trade money collected before the auctions tanked has been committed to renewing the state’s subsidies for ZEV sales, but coming even close to the goal could be a minor miracle. The Natural Resources Defense Council sees it falling more than 50 percent short.

Last year, Brown tried to persuade the Legislature to include a 50 percent reduction in the petroleum content in automotive fuel by 2030, but the oil industry fought back and moderate Democrats in the Assembly refused to vote for it.

It’s still a goal and the ARB may be able to do it on its own, without explicit legislative authorization, under SB 32, but chances are slim.

The easiest strategy would be further shifts by utilities to renewable resources because they can recover their costs for transition from their customers, both residential and commercial.

However, that’s not enough, by itself, to reach the goal, especially since California will be losing huge output from two nuclear power plants, perhaps increasing, at least in the short run, reliance on carbon-based generation. And California’s power rates are already among the nation’s highest.

That fact illustrates another unknown. Even if California can approach the new 2030 goal, no one knows whether the state’s economy can absorb its costs without suffering.

“We’ve proven that we don’t have to choose between a healthy environment and a strong economy,” Senate President Pro Tem Kevin de León, D-Los Angeles, said during that 10th anniversary celebration for AB 32.

In fact, however, the anti-carbon program really didn’t get cranked up until a few years ago, so its economic effects, positive or negative, are not yet known. The impacts of the 2030 reduction goal are a complete mystery.

Reports by emission reduction advocates have claimed big increases in jobs and other economic activity from shifting to a low-carbon economy, but they have, in the main, been merely shifts rather than expansions, and some job claims are entirely bogus.

It’s a green version of the fanciful economic benefits that sponsors habitually attribute to other splashy political “investments,” from sports arenas to the bullet train.

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