California's signature climate effort is up for renewal — and it's a fight

Los Angeles Times

4 days ago

As California pushes toward its ambitious goals for addressing climate change, the fate of its signature program is hanging in the balance. For months, lawmakers, industry groups and environmental advocates have been mired in negotiations over whether and how to extend the cap-and-trade program, which limits planet-warming emissions, beyond its 2030 expiration date.
The cap-and-trade program was nation-leading when it was authorized by state law in 2006. It requires major polluters such as power plants, oil refineries and other industrial facilities to purchase allowances, or credits, for each ton of carbon dioxide they emit, and lets those companies buy or sell their unused allowances at quarterly auctions. Each year fewer credits are created, lowering the total annual climate pollution in the state.
Gov. Gavin Newsom is advocating for the program to be extended to 2045, and hopes to see it reauthorized before the end of the legislative session on September 12. Cap-and-trade currently covers about two-thirds of California's greenhouse gas emissions, and its auctions generate billions of dollars for the state each year.
Most experts agree the program must continue in order for California to reach its goal of carbon neutrality by 2045. But while Newsom is pushing for it to be reauthorized largely in its current form, critics say considerable reforms are needed to address concerns about how cap-and-trade is run and where the money is spent. The California Air Resources Board, which administers the program, is involved in a halting rulemaking process to evaluate changes, including how the program is structured.
'It is hugely consequential — it is a decadal decision,' said Barry Vesser, chief program officer at nonprofit The Climate Center. 'Californians overwhelmingly support doing something about climate change. We need the program, and it needs to be strengthened.'
Among critics' biggest concerns are that the cap is too weak and there are too many credits for polluting companies.
While the program has been instrumental in helping California meet its greenhouse gas reduction goals — including a 14% decline in overall emissions since the first cap went into effect in 2013 — the progress has slowed in recent years. California is not on pace to meet its more aggressive future targets, which include a 40% reduction in greenhouse gas emissions by 2030 and at least 85% by 2045.
At the current rate of about 2.5% reductions per year, the state is not on track to meet its 2030 goal, according to an analysis from the nonprofit Next 10, which examines the state's climate progress each year. What's more, emissions would need to fall at about 3.5 times that rate — 8.8% per year — to reach the 2045 goal.
These goals are intended to make sure the fourth-largest economy in the world does its part to maintain a recognizable climate in the future.
'It's incredibly important that the cap be ambitious enough that it aligns with our 2045 greenhouse gas reduction target, and we want to make sure that that is clear in the reauthorizing legislation,' said Katelyn Roedner Sutter, California state director with the nonprofit Environmental Defense Fund. 'Frankly, there isn't wiggle room in our ambition. Cap-and-trade is the most cost-effective climate policy that California has.'
The stakes are so high, in fact, that a recent report from the nonpartisan Legislative Analyst's Office urges the legislature to 'take the time it needs to weigh its policy choices before deciding on whether and how to reauthorize the program,' as any decision around cap-and-trade will have significant environmental, economic and political ramifications.
Indeed, there's no world in which California could meet its climate goals without cap-and-trade, Roedner Sutter said, noting that 'without a limit on pollution, pollution would be unlimited.' She said delaying the program's extension would also lead to lost revenue, jobs and economic growth for California, among other consequences.
'Climate change is costing Californians money right now with wildfires and insurance and extreme heat and all of this, and so we have to keep up the climate ambition,' she said.
But while cap-and-trade is a climate program at heart, the revenue it generates often garners the most attention. The auctions have brought in roughly $31 billion since the program's inception, and are projected to bring in anywhere from $70 billion to $260 billion more if it is extended to 2045
The money, which is deposited into the state's Greenhouse Gas Reduction Fund, is used to support a wide range of environmental projects, including electric vehicle infrastructure, energy efficiency programs and the California Climate Credit, which provides direct savings on residents' utilities bills across the state.
But revenue has been tumbling as lawmakers and regulators drag their feet on extending the program. The state missed out on an estimated $3 billion in cap-in-trade revenue over the last year — an amount equal to roughly a quarter of California's budget deficit — and the most recent auction in May ended with about 20% of the credits unsold.
Critics also argue that some of the fund's biggest expenditures are politically driven and don't offer immediate carbon benefits as intended. Newsom has proposed setting aside nearly half of the program's average annual revenue to support the high-speed rail project and wildfire operations at the California Department of Forestry and Fire Protection, which would result in about $1 billion each.
'In just the last decade, cap-and-trade has invested billions of dollars in projects by holding polluters accountable — helping clean our air, protect public health and propel new careers,' the governor said in a joint statement with Senate President Pro Tempore Mike McGuire and Assembly Speaker Robert Rivas when they announced their intention to reauthorize the program in April. 'Cap-and-trade is a huge success and, working together, we'll demonstrate real climate leadership that will attract investment and innovation to deliver the technologies of tomorrow, right here in California.'
But California also gives away about half of the program's credits or allowances for free. Most go to oil refineries and industrial facilities in the hope of keeping them in California. Others go to electric utilities and natural gas suppliers to keep them from passing compliance costs onto customers.
As a result, opponents say, the cap-and-trade program amounts to a get-out-of-jail-free card for polluters, allowing them to continue business as usual without really eliminating harmful emissions in the state — particularly in the low-income and disadvantaged communities that tend to live closest to polluting facilities.
'It's absurd for our climate policy to include billions in giveaways for Big Oil so it can claim to reduce climate-altering emissions on paper instead of having to do it in real life,' said Asha Sharma, state policy manager at the nonprofit Leadership Counsel for Justice and Accountability, in a statement. 'If our state leaders don't make serious changes to the cap-and-trade program, polluters will continue to skate, while low-income communities of color neighboring polluters pay the price.'
Vesser, of the Climate Center, said he would like to see free allowances phased out. Oil and gas companies are 'fighting tooth and nail for what they see as their interests ... but it shouldn't be the driver of our policy,' he said.
He also wants to see the program expand the California Climate Credit for low- and middle-income ratepayers and invest in projects that address equitability.
'There is a revenue-generating side of this, and there is a carbon reduction side of this, and when it's managed well, those things can work and be mutually self-reinforcing,' he said.
For its part, the oil and gas industry is also pushing for reforms — but in the opposite direction. Eliminating free credits and strengthening the program's cap run the real risk of driving refineries and other large emitters out of the state, industry officials said. (Chevron executive Andy Walz recently told Politico he'd like to see cap-and-trade paused for up to 20 years). Two major companies, Valero and Phillips 66, have already announced plans to close refineries in California soon, and additional closures would drive gas prices even higher for consumers, they say.
'The reality is that consumers will pay the price through lost jobs, higher prices, and a slower economy if politicians get it wrong on cap-and-trade,' said Catherine Reheis-Boyd, president and chief executive of the Western States Petroleum Assn., in a statement to The Times. 'Updates to the program need to bring down costs to ensure California's oil and gas industry can compete in a global market while protecting workers, lowering emissions, and producing the unique fuel we rely on. If policymakers fail to get cap-and-trade's costs under control, it will send a clear message to those considering whether or not to remain in California. A well-designed market-based system is the best way to achieve our climate goals, but affordability must be a priority.'
Experts say the uncertainty around the program's future is largely why its revenue is continuing to fall. The most recent auction in May was not only undersold, but left an estimated $961 million of credits on the table, according to a report from the nonprofit Clean and Prosperous California. They expect similar losses from future auctions, including the next one on August 20, 'until California leadership intervenes.'
The governor's office this week said it is still hoping to finalize the extension by mid-September.
The California Air Resources Board said removing uncertainty around the program's future is one of its priorities — especially as the Trump administration takes steps to loosen emissions regulations at the federal level.
'In the current atmosphere of federal confusion and uncertainty, it is more important than ever to show political support for California's efforts on climate action,' CARB spokeman Dave Clegern said. 'Legislative extension will send the investment signal for the private sector to keep moving forward on clean energy and technology in the state.'
For the most part, experts agree.
'The evidence shows that California's cap-and-trade program has worked well so far to significantly reduce emissions and invest in communities,' said Clayton Munnings, executive director of Clean and Prosperous California.
But the present moment represents an opportunity for state leadership to build a foundation for the next 20 years, Munnings said. He urged them to finalize cap-and-trade's extension and ensure that its allowances are cut enough to align with the state's ambitious climate targets.
'Such a program,' he added, 'would be emulated by climate leaders around the world.'