What you need to know about Jerry Brown's cap and trade bill

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The California legislature voted Monday on two important bills: one that would extend the state’s signature cap and trade program to reduce climate warming pollution and one that would clean up the air in the most contaminated communities in the state.

Here’s what you need to know about the bills.

What is cap and trade again, exactly?

Cap and trade is the best-known of a number of climate policies in California. Its goal is to reduce carbon dioxide emissions from the major industries in the state, including oil refineries, manufacturers, power generators and natural gas distributor. In total, 80 percent of the state’s carbon dioxide emissions are regulated under cap and trade.

The way it works is that the California Air Resources Board sets a statewide limit for how much carbon dioxide can be emitted. Every year, the ARB lowers the cap by approximately three percent, until 2020, when the state’s carbon dioxide emissions should be at 1990 levels.

Companies that emit carbon dioxide have to buy permits at quarterly auctions for every ton of carbon dioxide they emit. As the cap comes down, companies have to start cutting their emissions. They can to decide the cheapest way to do so, by a) simply emitting less, b) buying more carbon permits, or c) offsetting their emissions by doing something that absorbs carbon dioxide elsewhere, like planting a tree farm.

Is it working?

California’s carbon dioxide emissions have fallen almost 10 percent since 2004. But cap and trade has played a minor role, in part because it has only been in effect since 2013. In addition, statewide emissions are below where the cap has been set, meaning the program hasn’t forced companies to cut back yet.

One of the largest factors in driving down emissions since 2004 was the Great Recession, which slowed the economy. The state’s requirement to derive a third of electricity from renewable sources by 2020, which Governor Brown just upped to 50 percent by 2030, also played a role.

However, cap and trade will likely play a much larger role in the future, because California will have to cut its emissions six to ten times faster than current rates in order to meet a new target of reducing emissions 40 percent below 1990 levels by 2030. 

So if cap and trade is already in effect, why is the legislature voting on it right now?

Because the current program only run through December 2020, and it’s unclear whether the ARB has the authority to carry out cap and trade beyond that date.

Also, Gov. Jerry Brown wants to insulate the program from lawsuits like the one filed by the California Chamber of Commerce and tomato processor Morning Star alleging it is an illegal tax The current program wasn’t passed by a two-thirds vote of the legislature, the threshold necessary for any new statewide tax. A state appeals court ruled against the chamber earlier this year. The business group has not yet said whether  it plans to appeal to the state supreme court. 

Still, Brown wants the legislature to pass AB 398, as the cap and trade bill is known, to pass it by a two-thirds majority.

What’s in the bill?

The bill basically extends the existing cap and trade program through 2031. But in order to get that two-thirds margin, the bill contains a number of provisions designed to win over business-friendly Democrats and maybe even a few Republicans.

  • It prevents local air quality management districts from regulating carbon dioxide emissions from polluters within their jurisdiction. The ideas here is to protect them from being doubly regulated by both the statewide cap and trade program and a local air district. This provision appears to be designed to subvert an effort by the Bay Area Air Quality Management District to limit carbon dioxide emissions from area refineries.
  • It shifts the burden of paying for fire prevention in rural areas from property owners. Instead, the so-called “SRA fee”  -- now paid by homeowners who live in the area of the state managed by CalFire -- will be covered by proceeds from the sale of carbon permits. The SRA fee was wildly unpopular (there's a lawsuit pending), and dropping it was designed to appeal to Republican lawmakers.
  • There are new tax breaks for manufacturers, electricity generators, and other industries, which would also be paid from revenue from the sale of carbon permits.
  • Companies would continue to get a certain amount of free carbon permits, although the amount will decrease over time.
  • Companies could also continue using offsets, but there would be limits -- companies could only offset four percent of their emissions before 2025 and six percent afterwards. The bill also creates a task force to oversee offsets and try to makes sure more projects have direct benefits in California. 

What’s with this other bill, AB 617?

That bill is designed to help get to the two-thirds majority needed to pass cap and trade. Currently in Sacramento, it’s politically untenable to pass a policy addressing global climate change without an accompanying law that will help clean up the air in some of the most polluted places in the state. That's because lawmakers from places with chronic air pollution like Los Angeles and the San Joaquin Valley say they wouldn't support it otherwise.

In recent years, many local environmentalists have been critical of Jerry Brown for positioning the state as an international climate leader while overlooking the fact that California has the worst air pollution in the country.

This concern showed up in the legislature last session when lawmakers were considering SB 32, which deepened the state’s carbon reduction goals to 40 percent below 1990 levels by 2030. Assemblyman Eduardo Garcia, who represents the Coachella Valley -- an area with terrible air pollution, wanted to make sure future climate policies benefitted areas like his. So he introduced AB 197, which prioritized carbon emissions reductions in disadvantaged communities.

When carbon dioxide comes out of the smokestack, it doesn’t come out alone. It is emitted along with smog-forming pollutants like nitrogen oxides and volatile organic chemicals. So reducing carbon emissions can also reduce other pollutants. Garcia wanted to make sure that the state’s climate policies would target carbon cuts in places like the Coachella Valley to get the co-benefit of cleaner air.

This year, we saw the influence of lawmakers like Garcia, and their constituents in AB 617, which would install community air monitors, increase fines for air violations and require large polluters to upgrade their equipment.

Who supports this package of bills?

Gov. Brown, for one. He gave a podium-pounding speech in front of a packed house at the state Senate Committee on Environmental Quality last Thursday.

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Both of the leaders of the Senate and the Assembly are in support, as are a majority of Democrats.

Most mainstream environmental organizations, like the Natural Resources Defense Council and the Environmental Defense Fund, also support the bills.

Former EPA Administrator Gina McCarty wrote an op-ed in the LA Times urging the legislature to pass the bills in light of inaction from the Trump Administration on climate change.

Even the California Chamber of Commerce, which once sued to have cap and trade repealed, now supports its extension. President Allan Zaremberg wrote in a statement, “AB 398 will provide the least costly path to achieving our climate goals by extending cap and trade to 2030.” 

Who opposes it?

A lot of environmental justice groups, such as Communities for a Better Environment, but also some national groups like Sierra Club and 350.org

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Their main concern is that taking away the ability of local air districts to regulate carbon dioxide will impede regulation of other air pollutants, which directly affect public health. They also want refineries and power plants to be required to emit less CO2, which would mean fewer other pollutants coming out of the smokestack as well.

“We heard from communities, they wanted direct emissions reductions on major sources,” said Martha Dina Argüello, the director of Physicians for Social Responsibility-Los Angeles. “We feel that there is this process of democracy, public participation, that then gets ignored when policy making happens.”

They also worry that the air pollution bill, AB 617, is unfunded.

“There’s already a lot of demand on the greenhouse gas reduction fund,” Bill Magavern, policy director for the Coalition for Clean Air, told the Senate Environmental Quality Committee last Thursday. “So we think there needs to be a separate funding source to pay for air quality and it should come from charges on pollution.”

Local air agencies also worried that the air bill doesn’t address the largest source of pollution in many urban areas: cars and trucks.

“We talk about funding for air quality monitoring and running new networks. But there’s going to need to be a significant amount of funding also required to get the mobile source reductions we also need throughout California,” Allen Abbs, executive director of the California Air Pollution Control Officers Association, told the Senate committee.

How likely is it to pass?

The cap and trade bill needs a two-thirds margin to pass; the air pollution bill only needs a simple majority. To get to two-thirds, every single Democrat in the Senate and the Assembly must vote for it. But one Assemblywoman is out this week – Jaqui Irwin of Thousand Oaks – so one Republican must vote for the bill.

And at least one Democratic senator and one Assemblywoman, Josh Newman and Sharon Quirk Silva, both of Fullerton, are on the fence.

The Senate is scheduled to take up the bill Monday afternoon.

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