Brown Proposes Legislation to Ratify Cap-and-Trade Post-2020

In his FY17-18 budget proposal released today, Governor Jerry Brown included proposed legislation that would cement the state’s authority to both extend its economy-wide cap on greenhouse gas emissions beyond 2020 and auction allowances to ensure polluters pay for their emissions. If the legislation passes, the budget also includes a $2.2 billion expenditure plan for the proceeds from those auctions to be used to expand investments in clean energy and disadvantaged communities.

As California’s climate leadership takes on unprecedented importance in the face of a hostile Trump administration, the proposal is a welcome sign of the governor’s commitment to work with the legislature and leave no loose ends hanging before he leaves office in 2018.

No time to waste

The proposed legislation is marked as an “urgency statute,” which means it would take effect immediately upon passage, but only after winning approval by two-thirds of the Senate and Assembly. While no easy feat, securing a supermajority would put to rest swirling legal uncertainty at a time when California can ill afford to stumble.

The source of that uncertainty is twofold. First, California’s cap-and- trade program currently runs only through 2020, as it was originally developed to ensure the state meets its 2020 target of returning to 1990 emissions levels as required under the the Global Warming Solutions Act (AB 32). Although the Air Resources Board is in the process of writing rules to extend the program to help achieve the aggressive 40 percent reduction target below 1990 levels by 2030 that the Legislature affirmed last year in Senate Bill 32, the absence of explicit statutory direction has left the program’s long-term footing vulnerable.

Second, ongoing litigation spearheaded by the California Chamber of Commerce contends that selling pollution allowances at auction constitutes an illegal tax (hint: it does not). The Court of Appeal will hear oral arguments in the case on January 24, but the cloud hanging over the program from the lawsuit has contributed to lackluster demand at recent auctions for the pollution allowances that are used to demonstrate compliance with the declining cap on emissions. As the budget summary notes, after several consecutive quarterly auctions cleared over $500 million in proceeds, the May and August auctions last year generated only $10 million and $8 million, respectively.

Fluctuating demand for allowances by itself is no cause for alarm, as it has no impact on the emission reductions that the statewide cap ensures. But safeguarding California’s climate investments and enforceable emissions limit beyond 2020 will be of vital importance to achieve the aggressive climate and equity goals that the Legislature has embraced.