California Moves Ahead with 2030 Extension to Cap-and-Trade Programme

3 August 2017

California Governor Jerry Brown signed legislation last week to extend the state’s cap-and-trade programme through 2030. The scheme, which would have otherwise expired at the end of the decade, is aimed at progressively curbing greenhouse gas (GHG) emissions from a host of sectors.

Proponents say that the programme is a key tool, together with various other regulations, for reaching California’s target of slashing state-wide GHG emissions by 40 percent below 1990 levels by 2030, at a minimum. That goal was enshrined into state law last year. There is also a separate goal in place for 2020, involving cutting emissions down to 1990 levels by that time.

To achieve the 2030 goal, the new law not only extends the existing programme, but also features some revisions. For instance, it sets a tougher price ceiling for the sale of emissions permits, along with keeping a price floor, aiming to ensure stability in the system. The new package will also curb the number of free permits by 40 percent by the programme’s revised expiration date.

It also places additional rules on carbon offsetting, including limits on the amount of offsets that can be purchased in other US states. Offsetting is a mechanism that allows businesses to invest in environmental projects as a way to meet their compliance requirements under the cap-and-trade system, as an alternative to carbon permits.

Legislative debate

Draft legislation to extend the programme was introduced in May, and the months since have seen some critics warn that its requirements would translate to higher costs for consumers, while others argued that the proposed changes would not be sufficiently robust to meet the 2030 emissions reduction goals and subsequent mid-century targets.  (See Bridges Weekly, 4 May 2017)

Ultimately, after some modifications, the bill passed in both chambers of the Californian legislature. Republican support was needed to reach the necessary threshold to pass the law by a “supermajority” and thus avoid certain legal challenges that had affected the existing scheme.

Upon signing the bill, Brown praised the extension of the programme for its environmental and economic potential, along with its role in positioning the state as an international leader in addressing climate change.

"California is leading the world in dealing with a principal existential threat that humanity faces. We are a nation-state in a globalising world and we're having an impact and you're here witnessing one of the key milestones in turning around this carbonised world into a decarbonised, sustainable future,” he said.

As a state, California is considered one of the world’s largest economies, with analysts deeming it to rank sixth worldwide last year – two slots ahead of its 2014 ranking.

Sub-national, international initiatives

The bill was passed just months after US President Donald Trump’s announcement that he plans to withdraw the country from the UN’s Paris Agreement on climate change. The accord was adopted in late 2015 and entered into force last year. (See Bridges Weekly, 6 November 2016)

While that move will still require some years to take effect, it has mobilised a number of US cities, businesses, and states, including California, to make pledges on upholding their commitment to the accord. International leaders in forums from the G7 to the G20 have similarly affirmed their continued dedication to the landmark accord, despite differences in opinion and approach with the current US administration. (See Bridges Weekly, 8 June 2017 and 13 July 2017)

California is also involved in the US Climate Alliance, a 14-state coalition whose governors have committed to the Paris deal’s targets – regardless of decisions taken at the federal level. The Western US state will also be hosting the Global Climate Action Summit in September 2018, which is expected to bring together leaders from across sectors on tackling the climate challenge.

California’s cap-and-trade system was approved in 2006, with auctions beginning in 2012. The coastal US state is also part of the Western Climate Initiative, which links up California with various Canadian provinces that are also pursuing cap-and-trade schemes and plan to cooperate in these efforts. Two of its members, California and Québec, already hold joint carbon permit auctions.

On the US’ East Coast, the Regional Greenhouse Gas Initiative has linked up nine states under a market-based system to lower carbon emissions from power generation.

In recent years, a number of countries have announced their intention to create their own carbon pricing mechanisms, including China, which is expected to introduce its own carbon market later this year – a system that is expected to surpass the EU’s Emissions Trading System (EU ETS), currently the largest, in its size.

California’s governor said in June that he hopes to eventually link his state’s programme with China’s market, and has held meetings with Chinese officials to boost bilateral cooperation on climate change.

ICTSD reporting; “California lawmakers approve landmark extension to climate policy,” REUTERS, 17 July 2017; “Gov. Jerry Brown signs climate change legislation to extend California's cap-and-trade program,” LOS ANGELES TIMES, 25 July 2017; “Exclusive: California to discuss linking carbon market with China,” REUTERS, 2 June 2017; “California surpasses France as world’s sixth-largest economy,” REUTERS, 18 June 2016; “California to host Global Climate Action Summit in 2018,” CNBC, 7 July 2017; “Explainer: California’s new ‘cap-and-trade’ scheme to cut emissions,” CARBON BRIEF, 28 July 2017; “California lawmakers extend landmark climate change law,” ASSOCIATED PRESS, 18 July 2017.

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