One of the keys to passing SB 32 (Pavley), the landmark 2030 climate change legislation the legislature approved this year, is that the California economy has thrived since AB 32 (Nunez) passed in 2006. As many climate advocates have noted, despite lowering emissions on a per capita and aggregate level for over a decade, California’s economy is growing at one of the fastest clips in the nation.
All of this economic activity happened despite numerous regulatory and statutory programs to rein in carbon emissions, including cap-and-trade, renewable energy mandates, energy efficiency standards, and the low-carbon fuel standard. And the state is on pace to meet the AB 32 2020 goals, which requires a return to 1990 levels of emissions (about a 15% reduction from business as usual).
In short, this progress has deflated the typical conservative objections to environmental regulations, that they will be economy crushers and job killers. Here’s a summary of the good news, as Debra Kahn reports in ClimateWire (pay-walled):
Meanwhile, California’s economy since 2006 has jumped from the eighth- to the sixth-largest in the world. Yet the amount of greenhouse gas emissions it produces per person, as well as per dollar of gross domestic product, have fallen. Since 2001, state agencies have reported, its carbon emissions per unit of GDP have fallen 28 percent. Last year, the state was home to 68 percent of all clean technology investment nationwide and led in clean-tech patent registrations, as well, according to environmental advocacy group Next 10. And from 2007 to 2015, California outstripped the United States as a whole in job growth and personal income, according to an analysis released in June by Chapman University.
But the celebration shouldn’t get too loud, at least not yet. It’s clear that the state has benefited from some unusual trends that has made it both easier to meet the emissions goals and to grow the economy in a carbon-lite way. First, the economic recession in 2009 put a significant damper on emissions with a slower economy:
“California had a pretty soft economy for many years after its goal was set,” said Severin Borenstein, an economics professor at UC Berkeley and a member of a committee that the California Air Resources Board (ARB) set up in 2012-13 to advise it on the design of its cap-and-trade market. “Although it’s heating up now, we will easily make the 2020 goal, and that will in large part be due to the weak economy for many years.”
Second, the state’s economy has grown in emission-lite industries:
Since 2009, California has lost 1 percent of its manufacturing jobs, compared to 3.7 percent growth in the United States as a whole. During the same period, California’s information services sector grew 10.9 percent, compared to a 1.4 percent decline nationwide, according to Chapman’s June analysis.
We’ve essentially pushed many energy-intensive industries out of state, while benefiting from a boom in services industry like tech, which has made it much easier to meet these carbon-reduction goals.
To be sure, I would also credit the thoughtful, measured approach of many of California’s climate programs and regulations. And of course we have to credit the innovation in the private sector, bringing down the costs of solar PV and batteries and scaling up electric vehicles and low-carbon biofuels, among others.
But as we head into a post-SB 32 world of 40 percent reductions by 2030, the state may not be so lucky with these larger economic trends going forward. It doesn’t mean we should change the approach, but it means we should be honest about what it takes to decarbonize an entire economy and do everything we can to continue bringing down the costs of the technologies that will help us achieve those goals.
Part of the point of AB 32 was to begin the process of “bending the curve” on emissions and clean tech costs. We’re seeing that happen. But to continue on this path through 2030 without costing the economy significantly (and thereby undermining public support), we’ll need further price declines and massive gains in energy efficiency. It’s all doable, but it still remains an open question as to how much and how soon.
Until then, we may need to inject some notes of caution into an otherwise positive picture, so far.
California committed itself last week to the most aggressive greenhouse gas reduction goals in the country. Governor Brown signed SB 32 (Pavley) and AB 197 (Garcia) in Los Angeles on Thursday, placing the state on a pace to reduce emissions 40 percent below 1990 levels by 2030.
The Real News Network interviewed me on Friday to discuss the implications, in a piece airing today:
With the passage of AB 197 yesterday, it’s easy to assume that the future of cap-and-trade may be gloomy beyond 2020. The program relies on legislative authorization via AB 32, which expires in 2020 (although arguably does not preclude extension beyond 2020). But AB 197 now specifically directs the California Air Resources Board to prioritize:
(a) Emission reduction rules and regulations that result in direct emission reductions at large stationary sources of greenhouse gas emissions sources and direct emission reductions from mobile sources.(b) Emission reduction rules and regulations that result in direct emission reductions from sources other than those specified in subdivision (a).
Ann Carlson at Legal Planet asks the question whether or not this spells the end of cap-and-trade. The answer may be quite complicated and will probably land the agency in court to resolve either way, as Ann discusses:
First, what does it mean to “prioritize” direct emission reductions? Does the language require ARB to impose such reductions? Or only consider them in conjunction with other considerations? What happens, for example, if direct emissions reductions are more expensive than reductions achieved through cap and trade even taking into account the social costs of emissions as required?
If the Air Resources Board leadership is committed to keeping cap-and-trade alive beyond 2020, which it appears they are, then my guess is they have enough wiggle room and deference to do so, once they undertake a proper analysis of the various options on any given issue before them.
But the new language in AB 197 will certainly provide fodder for cap-and-trade critics to take the agency to court over any decisions privileging that program over direct command-and-control approaches. So in that respect, AB 197 only adds further uncertainty to the program after 2020.
The issue does not not need to be solved right away, as cap-and-trade will continue through 2020. But the lingering doubts are apparently undermining the auctions for allowances, leading to low prices and uptake. And industry will not want to continue indefinitely with so much uncertainty in the short term. Hence their motivation to encourage a legislative fix as soon as possible.
2017 should be an interesting year for cap-and-trade.
As I noted earlier today, there was a bit of added drama to the passing of SB 32 yesterday in the California Assembly, as the passage was dependent on the state enacting AB 197. The Assembly debated AB 197 this morning, and it passed out of the natural resources committee with six votes in favor and one opposed. It then headed to the assembly floor where it just passed 44 votes in favor, 28 opposed. The governor has vowed to sign it.
The irony is that the oil and gas industry fought attempts in the legislature to save cap-and-trade with a two-thirds vote. Cap-and-trade is a more palatable market-based alternative for the industry, compared to direct regulation, which AB 197 now prioritizes. So the industry is stuck with a majority-vote command-and-control approach. Perhaps then it’s no surprise that industry representatives argued against AB 197 in committee this morning by saying it would undermine cap-and-trade.
So given the political momentum, my guess is that diverse parties now have an incentive to save cap-and-trade. But in the meantime, California has affirmed its international-leading commitment to stay the course on greenhouse gas reductions through 2030, pending final senate approval of an amended SB 32.
As I blogged yesterday, the California Assembly took a giant step in approving SB 32 (Pavley), with one vote to spare for a majority. But the bill is tied to AB 197, which is up for debate today. That bill restricts some of the California Air Resources Board’s independence to implement the 2030 law by giving the legislature more oversight. It also adds in a requirement that all regulations under SB 32 must include a “social cost” accounting that could make command-and-control regulations more palatable than market-based solutions like cap-and-trade. My colleague Ann Carlson at UCLA Law has more analysis at Legal Planet.
The oil and gas industry has apparently targeted AB 197 as a way to bring down SB 32, plus the state senate will need to reconsider SB 32 given that the assembly amended it after it passed the senate first. So it could be another nail-biter.
But assuming these bills are approved in their current form, the implications for California’s post-2020 plans will become much more clear. First, most of the major climate regulations in place now will be able to continue through 2030, without the uncertainty of relying just on an executive order. The big exception is cap-and-trade. However, with command-and-control regulatory authority in place from SB 32, the oil and gas industry will have an incentive to try to re-authorize cap-and-trade as a more palatable alternative to direct regulation. That could make 2017 a big year for that program in the legislature.
In the end, cap-and-trade is just one means to achieving our state’s climate goals, and there are other ways to get there. Command-and-control may be more effective at guaranteeing actual emissions reductions. The downside is that this approach could entail greater costs for industry than a market-based program. And for environmentalists, these site-specific regulations don’t generate auction proceeds like cap-and-trade, which the state is now relying on to fund a host of programs, from high speed rail to low-income housing near transit.
But all of this speculation is premature, as we wait to see what the legislature does with AB 197. I’ll provide updates as the process moves forward.
