As you have probably heard by now, the California state Legislature passed AB 398 and AB 617 on Monday night by a two-thirds majority in each house to extend the authority of the California Air Resources Board (CARB) to include cap-and-trade (C&T) in its suite of policy tools for achieving a 40% reduction in state GHGs from 1990 levels by 2030. Some see this as an important step forward in California’s climate policy, but others see it as a step back. In reality, this is a case of the glass being both half-full and half-empty at the same time.
A two-thirds vote was necessary to avoid legal challenges that the C&T auctions constitute an unconstitutional tax. (The California Supreme Court recently rejected a challenge to the existing C&T program on that basis, but state law has changed since AB 32 was passed in 2006—so any extension of C&T beyond 2020 would have been vulnerable to a similar challenge). The Governor and Democrats also wanted bipartisan support for political cover in the wake of the recent gasoline tax that passed along party lines, which may come back to haunt them at election time—so gaining the eight Republic votes was critical politically in order to show that this was a bipartisan effort. The result was a compromise bill that did not meet all of anybody’s goals. The oil and gas industry achieved several key concessions, though, causing environmentalists to split in their support. In particular, environmental justice (EJ) advocates opposed the bill while most mainstream groups supported it. AB 617 was structured as a companion measure in an attempt to quell the EJ opposition by requiring local air districts to address non-GHG air pollution causing health effects in “fenceline” communities. However, AB 617 prioritizes projects that have not had any permits issued since 2007 so it may also insulate some large refineries and power plants.
AB 398 extends CARB authority for C&T, prohibits local air districts from regulating any facility’s GHG emissions if it is covered by CARB’s C&T program, eliminates a rural fire risk reduction program fee (with the lost fees backfilled by Greenhouse Gas Reduction Fund [GGRF] proceeds from allowance auctions), extends a business tax deduction and expands its applicability to some utility purchases, establishes a price cap on allowances (with authority for CARB to sell more allowances at that price cap but only with a one-to-one reduction in GHG emissions from other sources), and reduces the role of offsets (while establishing requirements to increase the role of offsets that are located in California).
Future spending of the GGRF auction revenues after 2023 will also face an additional constraint: the Republicans insisted on passage of Assembly Constitutional Amendment 1 (ACA 1) as the price of their support for AB 398 and AB 617. ACA 1 requires a June 2018 public vote on a Constitutional Amendment that requires that all auction revenues, beginning in 2024, be placed into a Greenhouse Gas Reduction Reserve Fund (GGRRF) that could then not be appropriated without a new two-thirds vote by both the Assembly and Senate. This contrasts with the current system for allocating GGRF revenues, which are appropriated in accordance with a three-year plan developed by the Department of Finance (DOF). Approximately $3.8 Billion has been spent from the GGRF to date with a simple majority vote as part of the regular budget process. ACA 1 would increase the likelihood of a few legislators being able to extract some policy or budget concessions in exchange for their votes to release the auction revenues. The result will likely be a shift in how the funds are spent—which increases uncertainty for the high-speed rail project in particular, because it currently gets 25% of all funds. I drove past the first stages of the project in the Central Valley last week, and that construction could become a monument to fiscal folly.
One of the most striking things about this legislative package is this: it involved complex negotiations that involved all parties, direct involvement by a chief executive who engaged in the policy details (and even testified knowledgeably for five hours before a Senate committee), and stayed focused on the state’s overall interest rather than the interests of particular interest groups. Nobody got everything they wanted. That may strike partisans as a failure, but Congress and the President could learn a lot from how this was achieved.
In fact, it could be a model fo how we might reform health care or tackle climate change on a national level. The current model of closed-door meetings and trying to ignore the legitimate interests and concerns of all Americans is clearly failing to improve our lives. California’s Governor and Legislature showed this week how to solve problems together.