Experts – Once Again — Tell Senate Panel That California’s Key Climate Change Strategy Is Flawed

Legislators debated the Newsom administration’s long-term strategy for cutting greenhouse gases on Wednesday, with some experts reiterating their common refrain that parts of California’s cap-and-trade program are deeply flawed.

A panel of experts and the Legislative Analyst’s Office told lawmakers at a Senate hearing what they’ve heard before: The market-based cap-and-trade program that California relies on to do the heavy lifting to reduce climate-warming pollutants is unlikely to achieve the state’s 2030 targets.

The current design of cap and trade presents “a very real risk” that California’s next set of carbon-reduction goals will not be met, said Ross Brown of the nonpartisan Legislative Analyst’s Office.

The state Air Resources Board is currently revising its climate roadmap, known as the scoping plan. The air board will receive an update on the revisions on Thursday, with a draft expected to be unveiled this spring.

“The problem we are all dancing around is that we have a scoping plan that says most of the work is going to be done by cap and trade,” said Danny Cullenward, an economist and vice chair of the Independent Emissions Market Advisory Committee. “We don’t have a cap-and-trade program that is capable of doing that right now.“

The panel of experts issues an annual cap-and-trade report, which makes recommendations to the air board and Legislature. The group, as it has in previous years, noted fundamental problems: overestimating emission reductions produced by cap and trade and underestimating the number of pollution credits the system allows companies to hoard.

Sen. Bob Wieckowski, who chairs the subcommittee that held the hearing, was a spirited questioner, reminding administration officials that some key issues persist. “This is not a new debate,” the Fremont Democrat said. He repeatedly pressed the air board, known as CARB, to be more transparent and less defensive about cap and trade.

“CARB says, ‘We are staying the course,’” Wieckowski said. “ I hope that the board takes the recommendations to heart and looks at some of these questions.”

The landmark cap-and-trade system that allows polluters to buy credits to offset their emissions has been the centerpiece of California’s climate change policies for a decade — and a lightning rod for criticism since then. Environmental justice advocates fault cap and trade as a mechanism that allows pollution to continue in disadvantaged communities near refineries and other major polluters.

Administration officials dodged pointed questioning from senators, who wanted timelines and pledges from air board Chair Liane Randolph and Environmental Protection Secretary Jared Blumenfeld.

Randolph assured the committee that all aspects of cap and trade and other programs were under review and would be evaluated. She said the final scoping plan would be ready in the fall.

Regarding flaws in the fundamental design of cap and trade, Randolph said while there is always room for improvement, the air board may have to “agree to disagree” with some of the critics. Blumenfeld was less firm, terming the advisor’s report “thought-provoking” and said some of the analysis and modeling “need to be tightened.”

The final scoping plan, he said, “may show that cap and trade does not need to play such a large role.”

Much of Wednesday’s hearing centered on the arcane issue of allowance banking: In the cap-and-trade system, major polluters such as oil refineries and power plants must either produce fewer greenhouse gases to comply with California’s emissions caps or buy credits to offset their excess emissions from companies that reduce their emissions.

Credits are traded at state-sanctioned auctions and on secondary markets. And the state gives some free to utilities, natural-gas suppliers and industries that are vulnerable to out-of-state competition. The number of free allowances was estimated to be about half the total, according to Dallas Burtraw, who chairs the advisory committee.

Some companies have not yet needed to use up the allowances to stay within state emissions limits and probably won’t have to in the next couple of years, according to some analysts; the advisory group estimated there are about 321 million credits in the bank, about twice as many as regulators had anticipated.

“We find that the size of the bank is greater than an annual allocation of new allowances,” Burtraw said. “The optics of this are challenging.”

The result is a glut of credits that could allow businesses to keep polluting past state limits in later years, after the overall cap becomes more restrictive. Some estimates suggest that the banked credits are equal to a year’s worth of pollution from the regulated industries.

Blumenfeld said the air board would submit an analysis of the credit banking system to the Legislature by the end of 2023.

But, unless the oversupply is addressed soon, experts say polluters will have no incentive to cut emissions to required levels by 2030; instead, industries could continue polluting and use banked allowances to offset their emissions and technically keep them under the cap.

The Legislative Analyst’s Office predicted this reckoning five years ago, estimating that because of excess allowances, actual emissions could be as much as 30% over the statewide target by 2030.

Brown of the Legislative Analyst’s Office suggested that legislators may want to pursue the allowance issue and “ask the administration if the allowance bank is a real risk.”

He also targeted Blumenfeld’s timeline that the air board report on the allowance bank at the end of next year, indicating it might be too late to make changes in time to meet 2030 targets.