Last week as part of his revised budget plan, Governor Gavin Newsom proposed extending California’s cap-and-trade climate change program without any structural changes.
The California Chamber of Commerce welcomed the proposal as a prudent approach that maintains a focus on affordability for Californians while materially reducing emissions.
Balance
“A clean reauthorization of the cap-and-trade program through 2045 means that California will continue to balance compliance costs for businesses and consumers while encouraging investments into the state,” said CalChamber President and CEO Jennifer Barrera. “The Governor’s proposal serves as a reminder that economic growth and climate action can advance together.”
California’s climate strategy ensures the state’s leadership in the move toward a low-carbon future without onerous mandates that impede economic progress.
Governor Newsom’s announcement is consistent with his January budget that noted an extension of the program will “provide the market with greater certainty, attract stable investment, further California’s climate leadership and set the state on a clear path to achieve its 2045 carbon-neutrality goal.”
“While the cap-and-trade program is not without its costs, it’s become a reliable way to make both climate progress and clean-economy investments,” said Barrera. “It includes the kind of flexibility that ensures industries continue to grow in California and supports emerging technologies which drive California’s economy.”
Cap-and-Trade Program
California’s cap-and-trade program, implemented in 2013, applies to major industrial facilities, power plants and fuel suppliers. The program sets a statewide cap on greenhouse gas emissions that declines each year and applies to slightly more than 400 entities.
Covered entities must hold allowances (permits) for every ton of carbon they emit. They may obtain these allowances by buying at quarterly auctions, trading on the open market, or through free industrial allocations designed to prevent “emissions leakage” which occurs when environmental rules push companies to move production (and the associated jobs and CO2) to areas with weaker or no carbon emission protections.
Companies also can use a limited number of carbon offsets from approved projects, such as reforestation or methane capture from dairy farms.
By putting a price on carbon and allowing market flexibility, the cap-and-trade program encourages cost-effective emissions reductions while generating billions of dollars for California climate investments, supporting clean energy, high-speed rail and other transportation, plus programs for climate resilience and disadvantaged communities.
Auction Returns
Over the last decade, the quarterly allowance auctions have pumped nearly $30 billion into the state’s Greenhouse Gas Reduction Fund, backing everything from wildfire-hardening to transit modernization. The fund returns billions of dollars to households through the California Climate Credit on their utility bills.
The current program provides strong protections for containing costs and preventing emissions leakage.
The CalChamber and others have pointed out to lawmakers that reauthorizing the cap-and-trade program in its existing form will provide the long-term clarity that investors and employers need, sustain the steady flow of auction proceeds into climate investment programs and ensure that California continues to prove that climate action and economic prosperity can advance hand in hand.
