California’s Climate Leadership


Originally Published in The Jacobsen on August 30, 2016
California Biodiesel Industry Commentary

In case you missed it, California’s landmark climate solutions legislation was extended last week with the passage of SB 32 in both the State Assembly and Senate. Governor Brown has enthusiastically promised to sign the bill into law.

SB 32 essentially takes the groundbreaking AB 32 Global Warming Solutions Act of 2006 and strengthens and extends it. AB 32 had required a reduction in Greenhouse Gas emissions (GHGs) to 1990 levels by 2020. SB 32 requires at least a 40% GHG reduction below 1990 levels by 2030.

And with that, California has raised the bar, making its intentions crystal clear by more than redoubling its efforts.

In general, AB 32 authorized the California Air Resources Board (CARB) to develop regulations and market mechanisms with the intention of reducing GHGs. These have included a number of strategic proposals, the most controversial of which has been the Cap & Trade program. This regulation essentially caps the amount of emissions from major GHG emitters in the state such as power plants, refineries, industrial facilities and the transportation sector and allows them to buy credits to cover any overages. Each year the cap is lowered. Last year, Cap & Trade credit auctions raised billions of dollars, which far exceeded CARB’s expectations and seemed to indicate smooth sailing. But the first quarterly credit auction of this fiscal year only raised about $10 million, a comparatively dramatic underperformance, which indicated the ship might be taking on water, not to belabor the nautical metaphor.

In 2007, shortly after the passage of AB 32, then Governor Arnold Schwarzenegger signed an executive order creating the Low Carbon Fuel Standard (LCFS), requiring a 10% reduction in carbon intensity of transportation fuels by 2020. This was technically not part of AB 32 but since 40% of California’s GHG emissions are estimated to come from the transportation sector, the LCFS certainly was a complimentary directive.

It’s fairly simple to give a synopsis of the state’s climate policies, but the negotiations and legal battles to achieve them have been quite complex and hard fought. With the passage of SB 32, California has not only cemented its leadership role in addressing climate change. It’s also sent a clear message to its detractors and climate deniers that there will be no backsliding on efforts from the world’s eighth largest economy and twelfth largest carbon-emitter. It’s also sent another message to the clean tech sector that investments in renewables, biofuels, and other GHG-reducing technologies is a good move – and a safe bet – in California. It may also have sent an even more important message to the world by setting this precedent – now other governmental agencies across the country and around the globe might be emboldened to follow California’s example.

The world has been watching, and has begun to imitate what it has seen – especially now that the example has been set and successfully defended.

Not surprisingly, the petroleum industry has fought relentlessly to undermine passage of these bills. The California Chamber of Commerce brought a suit claiming Cap & Trade was tantamount to a tax, which would require a two-thirds majority vote in the legislature. A couple of months ago there was some discussion, and much rumor, that Governor Brown was contemplating offering the LCFS up as a sacrifice to the petroleum industry in exchange for its agreement to support SB 32 and the Cap & Trade program. The result was that LCFS credit values rapidly lost more than half their value creating widespread panic amongst traders, not to mention worry and consternation in the biofuels and other stakeholder communities.

But it appears the Governor was only negotiating. Some of us who have watched this process for a while have gotten used to seeing how the sausage is made here in California and prefer ours with a nice Napa cabernet or central coast Zinfandel.

It turns out that in order to get the votes needed to pass SB 32 in both houses LCFS did not have to be sacrificed. Instead it seems that two things happened: Cap & Trade was not extended in SB 32; and a second bill authored by Assembly Member Eduardo Garcia of Coachella, AB 197, was conditionally attached to it. AB 197 directs the state to prioritize disadvantaged communities and evaluate the cost-effectiveness of programs developed and adapted to address climate change, effectively providing for more legislative oversight of CARB.

Many legislators, especially the more moderate ones, have been calling for metrics-based evaluation of programs as well as specific funding directed to disadvantaged communities, which are disproportionately impacted by climate change. These communities should now get a more commensurate share of funding and other direct attention benefiting residents who live in them.

There has always been an important environmental justice element to California’s climate policies, but many have argued that they were mostly providing lip service and not substantive action. AB 197 seeks to address that problem.

Not surprisingly, in the few days since the SB 32 vote was announced, LCFS credit values have jumped back up into the high $80 range, which is about half way back to where they had been before the rumors began.

So what’s to become of Cap & Trade? The second quarterly auction was also anemic, fueling further speculation about the program’s demise. But keep in mind what Mark Twain said about reports of his death. Whether it’s passed in the next legislative session or goes to a ballot measure in 2018, one way or another, given the political climate and demographic trends in California, it would not be surprising to see Cap & Trade renewed.