Governor Brown Signs SB 32
On September 8th, 2016, Governor Jerry Brown signed Senate Bill (SB) 32 into law, drastically increasing California’s greenhouse gas (GHG) emission reduction goals. SB 32, the California Global Warming Solutions Act, now requires California to reduce GHG emissions to 40 percent below 1990 levels by 2030, a far more ambitious goal than the previous target of hitting 1990 levels by 2020. The state was on track to meet the original goal of 1990 levels by 2020, California will need to enact additional policies and regulation, increase innovation to make clean technology more available and affordable, and strengthen political acumen to keep public backlash to a minimum in order to achieve the new goals.
A key initiative to meeting the new GHG reductions is getting more clean cars on the roads. Despite subsidies, Californians are not currently buying electric cars fast enough to help the state meet its target of reducing emissions to 40% below 1990 levels. The agriculture industry may also be the target of new policies and regulation as California will need to slash methane emissions from dairy production and landfills. Overall, California residents may see increased taxes and utility rates in order to subsidize cleaner technologies, and business owners can expect to see tighter regulatory requirements.
Assembly Bill 197
Governor Brown signed a second measure, Assembly Bill (AB) 197 on September 8th. AB 197 creates a legislative committee to oversee regulators, such as the California Air Resources Board (CARB), and pushes the state to take more direct action to reduce local pollution instead of focusing on sweeping statewide reduction measures. The key portion of the new law directs CARB to adopt regulations that result in direct emission reductions from large stationary sources and mobile sources.
A key component of California’s climate change strategy is the Cap-and-Trade program, a statewide GHG emissions limit and market-based compliance mechanism. Through the Cap-and-Trade program, the largest GHG emitters in the state buy, sell, and trade emission allowances to offset their GHG emissions, and the total amount of allowances is reduced over time. In addition to providing a GHG emissions limit that is gradually lowered, the Cap-and-Trade program provides funding for GHG reduction projects such as high-speed rail and incentive-based programs.
The program has been running smoothly in previous years, and nearly all available allowances have been sold in past auctions. However, the most recent allowance auction flopped, with buyers purchasing approximately 10 percent of the available allowances. Over 1.8 billion dollars were raised through the Cap-and-Trade program during fiscal year (FY) 2015-2016, but the recent August 2016 auction raised just 8.3 million dollars. Without Cap-and-Trade funds, California will struggle to pay for the incentives and other programs required to meet the new ambitious targets set by SB 32.
One possible cause of the poor auction results is buyers are unsure whether the program will last. The system is currently authorized through 2020, but there are a number of issues surrounding Cap-and-Trade and its potential extension past 2020. First, there is a lawsuit pending that challenges whether the program is an unconstitutional tax. The outcome of the lawsuit will have a direct impact on how CARB will be able to proceed with the program. Second, AB 197 stated that regulations and policies must result in direct reductions of GHG emissions from large stationary sources. The current program vaguely fits meets this requirement, but changes may be required to satisfy the new law’s requirements.
What’s at Stake?
The signing of the new SB 32 will help California continue with the Cap-and-Trade program because the new regulation gives CARB explicit authority to use market-based mechanisms to reduce emissions. However, due to the issues discussed above, the future of Cap-and-Trade is uncertain. It is important for businesses and residents alike to monitor upcoming regulatory actions, as they may have significant consequences for business operations and lifestyles. Many other states and countries are watching California to see if its innovative climate change strategies succeed or fail. The extension or closure of Cap-and-Trade may have lasting effects around the globe.
Alta conducts strategy development and risk assessment for our clients, making sure you have the information and tools to make the right strategic decisions for your business or agency. For more information contact us at 888-608-3010 or email Dave.Park@altaenviron.com or Chris.Waller@altaenviron.com.
Blog by Chris Waller, CPP.