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California’s Cap & Trade program extended: What this means for supporters of climate dividends

by Mike Sandler, Co-founder, Center for Climate Protection

The Center for Climate Protection (CCP), a long-time champion of Cap and Dividend policy, was an enthusiastic supporter of SB 775, a Cap & Dividend bill sponsored by State Senator Bob Wieckowski (D-Fremont) and Senate Pro Tem Kevin De León (D-Los Angeles). CCP Board members Larry Robinson and Jane Bender wrote an op ed in support of SB 775 in the Press Democrat. The Sonoma County Regional Climate Protection Authority passed a resolution in support of it, too.

Then on July 10 Governor Brown and his allies released another bill to extend the existing Cap & Trade system, AB 398. The bill was a product of behind the scenes negotiations with stakeholders including legislators and others including the Western States Petroleum Association (one of the major critics of Cap & Trade over the past 10 years). AB 398 passed the State Assembly and Senate on July 17, 2017, and the Governor signed the bill on July 25. 

On the plus side:

  • The passage of AB 398 shows that Jerry Brown is an impressive negotiator. It passed with a remarkable 2/3rds majority in both houses, and included 8 Republicans voting for it. This provides an argument that climate action is “bipartisan,” and is perhaps a chink in the armor of the national party known as one of the last bastions for climate denial. The 2/3rds passage will remove some legal uncertainty regarding the authority of CARB to auction permits to companies.
  • AB 398 extends the current system, providing market stability to the current participants.
  • The new cap, enshrined in law last year by bill SB 32, is 40% below 1990 levels by 2030. This is the most ambitious multi-sector GHG cap in the country. 

 

On the down side:

  • AB 398 will continue to give free allowances to industry. In 2016, the Petroleum Refining, Natural Gas Extraction, and Cement sectors received over 49 million free allowances. At $12.73 per allowance, that subsidy is worth over $629 million per year, money that could have been returned to households as dividends.
  • AB 398 still includes problematic offsets that allow polluters to buy reductions from others instead of reducing emissions on site. However, the bill reduces them from 8% to 4% for a few years, before allowing up to 6% later in the decade.
  • AB 398 creates a price ceiling that would allow CARB to issue infinite permits if the auction price rises above a certain level. This was meant to reassure industry of price stability, but potentially reduces the environmental certainty of the cap on emissions.
  • AB 398 did not include any mention of dividends, and sets up a most likely scenario where the majority of auction proceeds will continue to flow towards funding high speed rail and urban infill development. Dividends advocates may not see this as a model for others to emulate. As Senator Wieckowski, the author of the dividends bill, SB 775, wrote:

“My top priority is extending Cap and Trade beyond 2020 to ensure California continues its role as a global leader in fighting climate change. Although I would prefer a much more robust Cap and Trade program as spelled out in SB 775, the Governor’s proposal attempts to move us forward to 2030.

“The proposal ensures that California will continue to make needed investments into energy efficiency for homes, public transit, electric transit buses, charging stations and disadvantaged communities. It also provides for a mid-decade report to the Legislature to include recommendations to ensure the state maintains its ability to reach its targets.

“Climate dividends were a cornerstone of my bill. It is my hope and commitment that California’s Cap and Trade program continues to evolve towards a dividend to our residents most in need.  

“Passing Cap and Trade by a two-thirds vote will put the program on a sound legal foundation and eliminate some of the uncertainty that has plagued the system in the past.”  

To end on a positive note, the brief campaign for SB 775 brought together a broad coalition of climate dividends supporters, and was a milestone for the movement in terms of support from the Environmental Justice community. CCP partnered closely with Californians for a Carbon Tax, an offshoot of Citizen’s Climate Lobby whose network was invaluable to reach state legislators.

The California Environmental Justice Alliance showed real leadership on the issue, and may be a great ally for CCP going forward.

In a strange coincidence, just the week before AB 398 became law, Exxon Mobil and a variety of business leader and others, including renowned physicist Stephen Hawking, attached their names to a national group advocating for climate dividends called the Climate Leadership Council. This means the climate dividends coalition going forward now ranges from California’s environmental justice community to ExxonMobil.

 

In terms of next steps, opportunities may exist to influence the California Air Resources Board in its rulemaking for AB 398 to include more dividends. Another opportunity comes in 2018 when California voters will consider a ballot measure on whether a 2/3 vote of the legislature should be required to spend cap and trade auction revenues. This constitutional amendment, ACA-1, became part of the package negotiated during the wheeling and dealing for AB 398. The amendment complicates the cap and trade legislation, and could derail the Governor’s bullet train.

 

The Assembly Republican Leader, who voted for AB 398, thinks ACA-1 will give Republicans a greater say in how funds are spent. This may give the spending more of a “bi-partisan” flavor, and may change priorities away from high speed rail and urban infill housing. But would the need for a 2/3rds vote give legislators a reason to look more closely at dividends, or would funds go to other uses? Regardless, the Amendment vote will provide a good opportunity to talk to the public about dividends. Cap & Trade isn’t going away, and neither will dividends advocates! Stay tuned!

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