California’s Fight Against Climate Change Carries On Thanks to Last Week’s Court Decision

Last week California won big in its fight to address climate change. The California Third District Court of Appeal issued an April 6th ruling confirming that the state’s greenhouse gas (GHG) cap-and-trade auction program is legal!

Cap-and-trade, along with a suite of complementary regulatory measures, is one of California’s primary tools to achieve critical greenhouse gas (GHG) reductions. Here’s how it works:COMM Capitol 2016 07

  • The state sets caps to limit emissions coming from activities within different sectors, eg. industrial operations, energy production, transportation, etc.;
  • the amount of allowable emissions for each sector decreases over time in order to reach overall statewide targets set by legislation;
  • companies that keep emissions below their sector’s cap accrue “allowances” they can sell;
  • companies whose emissions continue to exceed the cap can buy these allowances via auction to offset a portion of their excess emissions (the trade part);
  • revenue generated from auctioning these credits funds emission reduction projects that help reach statewide targets. 

Cap-and-trade started with a bang in its first few years, bringing in more than $3 billion over FY 2014-15 and 2015-16; but in 2012 the California Chamber of Commerce challenged the program’s legality, arguing that it constituted a tax placed on emitters and, therefore, should have passed the Legislature with a 2/3 vote rather than a simple majority. A lower court found that the program was legal as-is, but the Chamber appealed that decision in a case that has dragged on for some years now. Last week’s ruling by the Appellate court upheld the lower court’s decision in favor of the program. The California Chamber is considering whether to appeal this latest ruling to the state Supreme Court.

Funds from the cap-and-trade auctions are important to the Sierra because they support GHG-reducing projects across all sectors, including forest health, farming and ranching, recreation, water, energy efficiency and more. The cap-and-trade system also offers many co-benefits, including providing compliance flexibility for regulated entities while ensuring firm, measurable emission reductions over time, as well as local job creation and economic growth, cost-effectiveness relative to other alternatives, and ensuring that target emission reductions can be met if other emissions reduction measures fail to meet their projected targets.  

The uncertainty caused by the unresolved lawsuit, coupled with doubt about the program’s continuation beyond 2020, dampened more recent auction sales. This fiscal year, for example, auctions have generated only about $380 million, less than a third of the prior two fiscal years. Cap-and-trade funds have supported a number of projects in the Sierra, including affordable housing, forest health, wetland restoration, clean vehicles, and more. While the Sierra to date has received only about 2% of the GGRF’s early funding, SBC and its partners are advocating for a more regional approach in the future that would lead to additional funding for the Sierra based on the region’s importance to the rest of the state.

Cap-and-trade is currently slated to end in 2020; but this important court decision paves the way to reauthorize the program. Without cap-and-trade, Sierra communities will lose access to potential funding for a host of projects critical to their health and well-being. Many rural communities face great challenges trying to adapt to climate change impacts – especially wildfire and flooding – due to political marginalization, isolation, economic disadvantage, and other factors. Current and future cap-and-trade funding for forest and watershed management and sustainable economic development in rural communities depends on this program moving forward.

The court’s decision affirms the basic purpose and structure of the program–to deliver carbon reductions in a cost-effective and flexible manner. The decision provides additional certainty for this keystone program, which supports all the other approaches California has underway to fight climate change. Together, our climate policies will continue to drive innovation and clean energy, deliver good clean tech jobs, and make it possible to continue to invest in programs, especially in disadvantaged communities, to reduce greenhouse gases and improve the quality of life. California Air Resources Board Chair, Mary D. Nichols