California Democrats Seek Support to Extend Trading Program

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By Carolyn Whetzel

July 18 — California's Democratic leadership is rallying climate policy supporters to press lawmakers for legislation extending the state's carbon trading program beyond 2020.

At a recent event in Sacramento, State Senate President Pro Tem Kevin De León (D) urged clean energy businesses and workers to help push for a bill that ensures the cap-and-trade program and other key climate policies become permanent.

“We're going to push, push and push to make sure we can make these policies permanent and codify them into law,” De Leon said at a recent event highlighting the employment benefits of California's renewable portfolio standard.

“There are very strong, powerful special interests who are hard at work in the courts, in our legislature, in the political arena buying influence to bankroll candidates to avoid changes that improve their method of doing business and to halt implementation of our clean air policies,” he said.

“If, in fact, we want to continue down a path to a more prosperous, a more equitable and sustainable economy, we need to redouble our efforts with long term greenhouse gas reduction targets. California's ground-breaking cap-and-trade system, which limits emissions of carbon and other global warming gases, is set to expire in four years, 2020. Employers as well as investors need the certainty to build, to hire and to invest in the burgeoning clean energy sector if we truly want to expand and diversify our energy sources and, quite simply, create more jobs.”

Assembly Member Eduardo Garcia (D), one of the authors of a bill package (A.B. 197 and S.B. 32) that seeks to set a 2030 target for greenhouse gas emissions reductions, said extending climate policies is important to spur jobs in his district's desert communities.

“Senate leadership and other key members of the Legislature are committed to an approach that businesses support and we look forward to helping push this strategy to the finish line,” Susan Frank, director of the California Business Alliance for a Clean Economy, told Bloomberg BNA. “The business community needs certainty to plan for the future. So it's of paramount importance that California move forward to codify its post 2020 climate strategy.”

Administrative Rule Not Enough

The lawmakers' call for support comes as the California Air Resources Board (CARB) readies a rulemaking proposal designed to establish a new statewide emissions target for 2030 and update and continue the economywide greenhouse gas emissions cap-and-trade program past 2020.

The Western States Petroleum Association (WSPA), a group that represents Chevron and other oil companies, said in a written statement that the Global Warming Solutions Act of 2006 (A.B. 32) “does not authorize the Governor or the CARB to establish a greenhouse gas emissions limit below the 1990 level and nor does it grant the extension of authority after 2020.”

CARB's administrative proposal would set a total statewide emissions target for 2030 of 258.6 million metric tons, consistent with the governor's directive to cut carbon emissions to a level 40 percent below 1990 emissions. The Global Warming Solutions Act of 2006 (A.B. 32) mandates the state reduce emissions only to the 1990 level, or 431 million metric tons.

Legislation would help avoid legal challenges to the CARB rules if they are adopted in March as planned, attorneys told Bloomberg BNA.

In the works since late 2015, the draft rules focus largely on changes to the carbon trading program. Along with setting a statewide emissions target, they would establish annual emissions allowance caps, from 2021 through 2030, for entities regulated under the cap-and-trade program.

Other proposed changes to the program would facilitate linkage with other carbon markets, provide provisions to demonstrate compliance with the federal Clean Power Plan and streamline administrative procedures, including the issuance of offsets.

CARB plans on submitting its proposal to the Office of Administrative Law July 19.

Rules Signal Governor's Determination

The proposed draft rules signal Gov. Jerry Brown's (D) determination to continue the trading program, but the proposal does little to lift a cloud of uncertainty about the future of the cap-and-trade program.

CARB's proposal is a “strong offering” that demonstrates what the program would look like after 2020, but the legal issues are creating uncertainty about the future of the program, Derek Walker, associate vice president of the Environmental Defense Fund's global climate initiatives, told Bloomberg BNA.

“It's a great sign that” California's leadership is pushing for legislation to statutorily extend the trading program, Walker said. “The legislature should act.”

Pending litigation alleging the program's auction is an illegal tax, and a recent letter from the Legislative Counsel saying neither the governor nor CARB has authority under A.B. 32 contributed to the poor results of the last auction of allowances in May, Walker said.

“Uncertainty of the litigation is giving skeptics a tool to attack the program and a reason market participants are reticent to invest in credits,” he said.

A two-thirds vote by the legislature that extending the program would likely address the threat posed by the litigation, Natural Resources Defense Council attorney Alex Jackson told Bloomberg BNA July 13.

Cap-and-Trade Not Doomed

“We certainly don't view the current state of affairs as any indicator that the cap-and-trade system is doomed,” Sean Penrith, executive director of The Climate Trust, told Bloomberg BNA “Far from it. We see the concerns about the viability of trading market as a classic case of not seeing the forest for the trees. Allowances prices did dip in the early half of the year and this leads to a woefully under-subscribed auction in May, but allowances on the secondary market are currently trading at 99.7 percent of the price floor.”

The Climate Trust has filed a brief supporting CARB in the case legal action.

If the business groups prevail in the lawsuit, “it would not end the market, but it may eliminate the price floor, which is so vital in sending price signal to the market to incentivize genuine emissions reductions,” Penrith said.

Should the auction disappear, the state would still be required to meet emissions reductions required under A.B. 32, Environmental Defense Fund's Walker said.

To contact the reporter on this story: Carolyn Whetzel in Los Angeles at cwhetzel@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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