California politicians propose new emissions pricing regime for 2020

Making sure the climate transition benefits low-income neighborhoods and communities of color isn’t just the right way to pursue climate policy. In California, where policies to price carbon require a two-thirds vote before becoming law, it may turn out to be the only way.

The quote is from Danny Cullenward, which is a name I found in the first article I saw on a new proposal that would replace California's current cap and trade carbon pricing program (to which Ontario is linking). From the Wahington Post's As Trump reverses climate actions, California considers a bold new step:

...a new proposal, announced Monday, would replace California’s current cap and trade carbon pricing program, its flagship effort to reduce the state’s greenhouse gas emissions, with an updated — and, according to supporters, more socially progressive — scheme. 

“The state and the federal government were until recently working hand in hand on these issues,” said Danny Cullenward, an energy economist, lawyer and research associate with environmental research organization Near Zero, who helped advise the development of the new proposal. “In an era of the Trump administration, carbon pricing is one of the few tools that the state has to whatever the federal government does.”

...
The new proposal establishes another cap-and-trade program — which will extend either until 2030 or until the state meets its 40 percent emissions reduction goal, whichever comes first — with some notable updates intended to make it more effective and more socially responsible.

Verbose self-described climate hawk David Roberts has an informative (yet smarmy) post at VOX, From California is about to revolutionize climate policy … again: The state’s cap-and-trade program would be replaced by a new, sleeker one:

Regulations, not carbon pricing, have been the main driver of California’s carbon reductions to date.
...
[The elegant new cap-and-trade system proposed in the California senate] has the following features, almost every one of which will cause a tingle in the toes of carbon wonks:
1) It is entirely new...Allowances and offsets from the old program would not transfer over...
2) It includes a price collar...a price collar creates a hybrid of [a carbon tax versus a cap-and-trad system]...
3) Prices start low and rise, predictably, in perpetuity.
4) It has a border-adjustment tax.
5) In includes zero (0) offsets.
6) Most of the revenue will go to per-capita dividends... The first and largest is the California Climate Dividend Program, which will rebate revenue on a per-capita basis...The second bucket is for “public infrastructure investments and investments in disadvantaged communities"...The third is for “climate and clean energy research and development.”
7) California is going to leave other states behind.

My greatest concern with pricing emissions has been the disposition of the revenues (see A tool to heal, A tool to steal: Thoughts on a Carbon Tax ), and social consideration in distributing revenues is the major driver of the new California proposal.

Also addressed in the proposal is setting price ranges in a manner that would allow the price to "[create] incentives for developing new technologies", and inspire "switching from high-GHG to low-GHG energy sources as their relative costs change." The quotes are from Severin Borenstein's post arguing,"with a credible price floor and ceiling [ cap-and-trade] can still be an effective part of the state’s climate plan." 

A familiarity with Washington State's 2016 ballot Initiative 732 proposing a carbon tax for that state - which failed. From Inside Climate News, Washington State Voters Reject Nation's First Carbon Tax:

The carbon tax was expected to raise $2 billion annually through higher prices for gasoline and fossil fuel-fired electricity. It would have given all the money back, and then some, to the state's residents and businesses through a sales tax cut, rebates for working families and a tax break for manufacturers. Like all carbon taxes, Initiative 732 was designed to drive down global warming emissions by reducing demand for high-carbon fuels.
But it was unpopular with many social justice, environmental and health advocates who sought to use the revenue for renewable energy, mass transit and other green infrastructure projects, and to aid communities most affected by fossil fuel pollution or climate change.

The story of Initiative 732 is, politically fascinating. It is one reason, along with the NRDC's influence of the Obama Administrations Clean Power Plan, that I now suspect most major legislation in recent years is being largely written by non-governmental organizations, so I investigated the Net Zero organization cited in the Washington Post article.
The quote at the top of this post is from a January post to Net Zero's site, PRICING CARBON: CALIFORNIA’S UNFINISHED CLIMATE PRIORITY by Danny Cullenwood. The blog posts points to a longer article by Cullenward and Michael Wara at the Bulletin of the Atomic Scientists, Pricing carbon: California’s unfinished climate priority:

In order to bring the new goal [ to reduce its greenhouse gas emissions 40 percent below 1990 levels by 2030] within practical reach, California must renew its commitment to carbon pricing. But first, climate policy advocates need to build a broad coalition that benefits from the state’s plans for deep de-carbonization.
Whether in the form of a carbon fee or via an overhaul of the state’s carbon market, carbon pricing will be essential for encouraging technological innovation and copycat policies around the world. Yet due to the state’s idiosyncratic tax system, in which any new levy must first receive two-thirds approval from the legislature, carbon pricing requires supermajority support.
... Because carbon pricing generates revenue that can protect low-income communities from the cost of energy transitions—or even help them benefit from tackling the climate problem—this would seem like a natural alliance. In fact, a progressive use of carbon pricing revenue may prove to be the key that unlocks the politics of deep climate mitigation, especially in a state where concerns about the environment and concerns about growing inequality are increasingly intertwined.

...a legally binding climate target is just an initial step because targets mean little without implementation strategies. Right now, the only legally viable strategy is to rely exclusively on traditional regulatory approaches. We are skeptical of the state’s ability to deliver using solely this approach, and pessimistic about the interest and ability of other governments to follow suit. Hence the need for a renewed commitment to carbon pricing—and new legislation to make it happen.

...
Carbon pricing is superior to a pure regulatory strategy for three key reasons.
First, regulations will be successful only if the Air Resources Board accurately predicts the future of all major economic sectors and energy technologies...
Second, regulations don’t scale easily...
Third, carbon pricing will be needed to spur broad and rapid innovation.

From the length of my quote you'd be best served by reading the full article - but I'll spoil the ending in case you don't, because it takes us to the news today:

...the division within the environmental movement over carbon pricing in Washington reflected the failure of two coalitions to find common ground on revenue use. If those divisions can’t be overcome in California, there is no reason to expect a different result, whatever form carbon pricing takes.
While that challenge may seem daunting, California’s success on carbon pricing could show the way forward for broader political coalitions to emerge on climate. We believe that revenue use will be the key issue to navigate in carbon pricing, especially since the carbon prices necessary to achieve California’s 2030 target are likely to be much higher than they are today. Hiding those costs in regulatory programs can work for modest efforts, but to begin deep de-carbonization requires the environmental movement to prioritize social equity. Harnessing markets has the added advantage of increasing the pace of innovation, too.
Making sure the climate transition benefits low-income neighborhoods and communities of color isn’t just the right way to pursue climate policy. In California, where policies to price carbon require a two-thirds vote before becoming law, it may turn out to be the only way.

So... I don't see this as a slam dunk. While the social policy driving the disposition of revenues is a plus, a big issue in Washington was a renewables lobby wanting revenue spent on their stuff, and this California proposal again sticks to economics in structuring the pricing to incent generation choice -nob lobbyists.

It will be easy for a Nextera - for instance - to lobby that by not spending revenues on it the government is not being green.

A final note from the Ontario perspective - which had linked it's brand new cap and trade system to California's, and intended on keeping prices down by buying cheap California (hot air) credits. Furthermore, the spending proposed under Ontario's Climate Action Plan is mostly uneconomic - meaning revenue from pricing emissions is to be used to fund programs to reduce emissions at a far higher cost than emissions are priced at. This is fairly standard thinking on using proceeds from carbon pricing - and why I call carbon pricing a tool to steal.


The proposal in California is far superior to the current regime there, and in Ontario, but I don't know that Ontario will be blind-sided by the changes. Ontario's cap and trade was a dusted off 2008 plan taken off the shelves in order to present a plan in times for a Paris climate change conference. The pricing in the California proposal is similar to that projected by Canada's federal government - and other provinces had point out they'd not be reaching that price when other provinces (Ontario) did not.


California is not the only jurisdiction needing to reset its emissions reduction policies, and I suspect most in Ontario recognize that.