California’s cap-and-trade program is working. Since it was launched in 2013, the system has helped drive down greenhouse gas emissions, while the state’s economy has flourished. The billions of dollars the program generates have funded “climate credit” payments to electric utility customers, low-carbon transit projects, and home weatherization improvements in low-income communities.
But the future of the program is in jeopardy. Its authorization will expire in 2020. Without action by the Legislature to extend cap-and-trade, California’s powerful engine for combatting climate change will grind to a halt.
Extending – not ending – California’s cap-and-trade program beyond 2020 is the right next step.
That would be a decidedly bad outcome, both here and worldwide. Such a high-profile development risks disrupting and frustrating so many positive clean energy and climate initiatives that are good for the state’s economy and everyone’s environment.
Right now, the state is on track to meet its target of cutting greenhouse gas (GHG) emissions to 1990 levels by 2020. Just last year, California committed to the further goal of reducing statewide emissions 40 percent below 1990 levels by 2030.
Extending – not ending – California’s cap-and-trade program beyond 2020 is the right next step. It will offer needed certainty for the state’s long-term GHG emission targets and for the private sector to continue investing in low-GHG solutions. Doing so will help to create jobs in California as it continues to lead in clean-energy innovations.
“Cap and trade” uses market forces to limit and reduce GHG emissions. The program requires companies across the economy to “cap” their emissions at a certain level, or buy permits to exceed that limit. The California Legislative Analyst’s Office issued a report recommending that the Legislature authorize cap-and-trade beyond 2020 “because it is likely the most cost-effective approach to achieving the state’s 2030 GHG emissions target.”
With the Trump Administration walking back from global climate commitments, the importance of California’s leadership has only become all the more crucial.
Over time, lowering the allowable amount of GHG ‘permits’ pushes total emissions down, while sales of permits generate funds the state can direct to keep program costs affordable and promote carbon pollution cuts elsewhere in the economy.
That cap-and-trade program revenue is used, among other things, to manage program costs, drive innovation and the deployment of clean energy technologies, and improve air quality for the state’s most vulnerable populations.
According to the California Climate Investments Annual report, in 2016, proceeds from the sale of GHG permits supported 27,000 energy efficiency projects and 47,000 rebates for buyers of zero-emission and plug-in hybrid vehicles. They also preserved 1,100 acres of land and built 1,100 affordable housing units.
As the Legislature considers extending California’s successful cap-and-trade program, policy makers can – and should – maintain many of its key features, including provisions that ensure GHG allowances are distributed in ways that seek to minimize costs for energy consumers and assist low-income communities, along with investing in cost-effective emissions reductions through GHG offsets from sources outside the cap-and-trade program.
Doing so will enable the Legislature to provide valuable planning and investment certainty. At the same time establishing an upper limit on the price of purchasing GHG permits in the future, coupled with measures to ensure the environmental integrity of the program, can provide pragmatic ways to balance the need for real progress on climate objectives with important cost protections.
Taking this approach will maintain California’s pragmatic leadership on a policy that is good for the state’s economy – and help bring others along on the journey.
With the Trump Administration walking back from global climate commitments, the importance of California’s leadership has only become all the more crucial. Policymakers, companies and responsible members of civil society here and abroad are all watching what happens in the Golden State. By preserving its history-making cap-and-trade program, California can once again show the world how progress is made possible.
Ed’s Note: Susan Tierney, a former assistant secretary for policy at the U.S. Department of Energy, is a senior adviser at the Analysis Group. Heather Zichal, a former climate adviser to President Obama, is president of Zichal, Inc. Mindy S. Lubber is the CEO and president of Ceres.