Nearly 20 years ago, I co-authored and cast my vote in favor of Assembly Bill 32, the Global Warming Solutions Act, which authorized California’s cap-and-trade program. At that time, many of my colleagues in the Legislature were skeptical of markets and, given the 2000-01 energy crisis, their role in reducing greenhouse gas emissions.
Today, after years of results, the evidence clearly shows that cap and trade works. Lawmakers should extend the program.
Cap and trade significantly reduced greenhouse gas and local air emissions since its launch in 2013. A recent analysis found that California’s cap-and-trade program reduced emissions an estimated 15% in its early years, more so than any other system in the world and in line with its envisioned role from the Air Resource Board’s scoping plan. Other studies concluded that cap and trade has significantly reduced local air pollution, including cumulative exposure from air toxins and particulate matter and nitrous oxides emissions.
In the middle of an affordability crisis, it is also critical to point out that these reductions have been achieved cost-effectively. Cap and trade reduces greenhouse gas emissions at a much lower cost than other approaches, which typically cost many times more per ton of emissions reduced.
Cap and trade is also politically popular and defensible, as evidenced by voters in 2010 resoundingly rejecting attempts to freeze the provisions of AB 32. Cap and trade may not be perfect, but consider the alternatives.
A carbon tax has a higher per-ton cost and is politically impossible. Regarding expanded subsidies for electric vehicles or rooftop solar technologies: Absent cap and trade revenues, those costs would fall on taxpayers. In addition to higher costs, recent actions from Washington and the state’s long-term budget outlook make these less likely to succeed. If these policies underperform, the cap-and-trade program can pick up the slack by continuing to achieve reductions.
Cap and trade, through the auctioning of allowances, is also now an important source of state revenue, delivering $3 billion to $4 billion annually, a sizable number given the relatively small amount of discretionary spending in the budget. These revenues accelerate decarbonization efforts, from satellites that monitor methane leaks to expanded local transit operations.
Despite all its virtues, there remains uncertainty over whether the Legislature, particularly the state Senate, will extend the cap-and-trade program. This uncertainty over extension has contributed to caution in the state’s carbon market, with allowance prices falling from $42 to $26 per ton in the last year. This decline has resulted in a $3 billion reduction in state revenues, according to a recent report by Clean & Prosperous California.
Further delay in reauthorizing cap and trade will amplify uncertainty about the state’s commitment to climate policy and raise concerns about California’s climate leadership. That leadership’s impact goes well beyond our state’s borders. California represents less than 1% of global greenhouse gas emissions. But it has encouraged and served as a model for dozens of countries, in large part because of the absence of federal leadership.
Consider the case of China, with an estimated one-third of global greenhouse gas emissions. The success of California’s cap-and-trade system clearly led to China’s decision to launch its own emissions trading system, which is expected to contribute more than half of its total reductions. Similarly, Brazil, which has perhaps the most potential of any country to achieve carbon neutrality, is basing its recently approved system on California’s success.
With this debate in particular, timing matters. Market signals matter. Without quick action, investors, who have spent billions on decarbonization projects to reduce millions of tons of greenhouse gases, will move their funds to treasury bonds, pork bellies and other investments, jeopardizing the odds of meeting the state’s climate goals.
The Assembly and Gov. Gavin Newsom seem to be in agreement on the urgency and details of reauthorization. While the Senate seems to be moving more slowly, North Bay residents should be confident that Senate Pro Tem Mike McGuire, who has consistently voiced support for cap and trade, will push hard for reauthorization.
With many in the U.S. and abroad watching, McGuire and his colleagues in both houses of the Legislature can reaffirm California’s global climate leadership.
Joe Nation represented Marin and Sonoma counties in the state Assembly. He is now Professor of the Practice of Public Policy at Stanford University.