State Analyst: Cap & Trade Plan Good as Far as it Goes

But what happens after 2020?

A non-partisan analysis of California’s recently approved cap-and-trade program says state regulators at the Air Resources Board (CARB) did a decent job of balancing competing directives, but warns that legislators need to start thinking about what happens after the program runs its course, less than a decade from now.

Craig Miller

“The legislature and the Air Board need to provide some certainty of what the regulatory landscape will look like after 2020, so that the regulated community can start planning and making appropriate investments,” Mark Newton of the Legislative Analyst’s Office (LAO) told me in a telephone interview. The state’s greenhouse gas emissions reduction law, AB 32, sets a goal of reducing California’s emissions to 1990 levels by 2020. “AB 32 leaves open the door to changes being made,” said Newton, “but it doesn’t provide any specificity about a new goal that you’ll be reaching after the 2020 goals are met.”

In other words, industries regulated under the program have no idea what will happen after 2020, although the legislative intent — and California environmental history — points to further regulation. It took regulators a solid four years to get their carbon trading plan off the ground, so planning ahead seems prudent.

The LAO report also points out that the Air Resources Board had a difficult task in balancing the diverse priorities of AB 32. “It’s quite a lengthy list and they do often compete,” chuckled Newton. Legally, the Board had to balance everything on that list, but the legislature could still shuffle priorities. For example, if the legislature decided cost efficiency was most important, it could intervene and pass a law directing CARB to prioritize cost above some of the other mandates.

“There is a window of opportunity for the legislature now to direct a change in the legislation,” said Newton. That’s because the state delayed enforcement of the program until 2013, in part to give the state’s economy a chance to recover from the worst of the recession. The program is at its starting point and remains open to changes without too much disruption. The LAO report lays out various ways the program could be adjusted to emphasize different priority objectives.

The Air Board’s program does try to mitigate the impacts of cap and trade on California’s economy. “There will still be adverse economic impacts, but it goes a reasonable way in trying to address some of those impacts,” said Newton. It does that by giving away a significant portion of the carbon allowances to the most affected businesses, to prevent them from relocating outside the state. It also sets up rules for how electric utility companies interact with the program to avoid ratepayers having to pick up the bill.