July 18, 2017

Cap-and-Trade Lives in California



There are many ways to characterize AB 398, California’s re-authorization of its cap & trade system. It is everything from the greatest thing since sliced bread to a series of necessary compromises to complete surrender to Big Oil… and those are just opinions from the environmental groups.

We want to make just two observations about AB 398: One good, one bad.  

The good news is that state Republicans—seven in the Assembly and one in the Senate—got engaged and actually voted for a climate measure. In fact, the bill would have failed to get the necessary 2/3 majority in the Assembly without those votes as several D’s voted against it (or abstained or were absent).This is real progress. Back in 2006, only one Republican voted for AB 398’s predecessor, which set California’s first greenhouse gas emissions reduction target and set up the state’s cap & trade system. For their votes, it appears that the Republicans were able to make a trade-off,  getting refineries exempted from CARB’s preferred regulatory approach and curbing local air boards’ authority to regulate CO2. Kudos to Chad Mayes, the Assembly Republican leader, who led the Republican jailbreak; may this be an example to Republicans in Washington.

Now the bad news: AB 398 is the poster child for legislative abdication of responsibility.  Aside from a few tweaks at the margins, everything about the cap & trade system is expressly left up to the California Air Resources Board (CARB). What sectors are covered by the system? CARB. Allowance floor price? CARB. Auction reserve price? CARB. Allowance ceiling price? CARB. Number of allowances? CARB. Allocation of free allowances? CARB.

Compounding this is the Legislature’s “guidance” as to the factors CARB must take into account, such as “the full social cost associated with emitting a metric ton of greenhouse gases,” right along with “the need to avoid adverse impacts on resident households, business, and the state economy”.

The purpose of AB 398 is to help meet the astonishingly aggressive emissions reduction target that California set last year: reducing emissions by 40 percent between 2020 and 2030 (and doing this in one of the most decarbonized economies around).  This is going to be a very, very heavy lift that no society has ever tried before. We would have hoped that the Legislature would have taken its responsibility a little more seriously, rather than shuffling the whole thing off on the bureaucracy.    

One last note: while cap & trade gets all the press, it is the least important part of California’s emissions reduction system. Old-fashioned command and control regulation is responsible for most of California’s reductions to date. And CARB has said that it intends to achieve the 2030 target the same way: regulation first, then using cap & trade to clean up any loose ends. In other words, rather than take responsibility for how the state will meet its 2030 target, the California Legislature has consigned nearly all of the responsibility – and all of the authority – for this unprecedented economic experiment to the proverbial unelected bureaucrats at CARB.

The Soviet Party Congress could not have done it any better.