Will California's Cap and Trade Be Fair?
The text of AB 32 requires the state’s Air Resources Board, the agency responsible for implementing the law, to maximize “additional environmental and economic co-benefits for California” and consider “localized impacts in communities that are already adversely impacted by air pollution” in its plan for cutting carbon dioxide emissions. In 2010, CBE joined a coalition that sued the agency, claiming that cap and trade violated the intent of the law and that the ARB had charged ahead with the program before fully considering public comments and alternatives, as required by the California Environmental Quality Act. The plaintiffs won an injunction in March 2011. But an appeals court allowed cap and trade to proceed while the state revised its CEQA analysis. In September 2011, the California Supreme Court also ruled that cap and trade could move forward.
In August 2011, CBE drove its Wilmington members through the night to Sacramento to testify at a public hearing on AB 32. This time, Maria Ramos and Melissa Cervantes showed up to oppose the regulation. “I live close by to five refineries. The toxic emissions affect the health of all my family,” Ramos testified. “That’s why I worked a lot against Proposition 23 to protect the law, AB 32…. But I don’t agree with the method cap and trade, because it would not reduce the toxics that cause asthma, allergies and even cancer.”
In the summer of 2012, several of the same petitioners filed a civil rights complaint with the Environmental Protection Agency, arguing that cap and trade “disparately and adversely affects communities of color.” The EPA rejected the complaint in January, stating that it’s too early to prove these claims. But environmental justice advocates aren’t ready to give up their fight. “We will continue to oppose cap and trade,” says Jesse Marquez, who runs the Coalition for a Safe Environment, another petitioner in the legal actions.
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The Reagan White House, after conversations with the Environmental Defense Fund, was the first administration to seriously consider the concept of building a market for pollution. One of the chief proponents of cap and trade was C. Boyden Gray, an adviser to both the Reagan and first Bush administrations. (Gray went on to co-chair FreedomWorks, an organization with ties to the Tea Party and oil magnate David Koch.) Cap and trade was first used to remove lead from gasoline and then worked into amendments to the Clean Air Act in 1990 to force power plants to cut back on sulfur dioxide, one of the chemicals that produce acid rain. The cap-and-trade regulations made it through Congress after several attempts to pass more traditional regulations fizzled.
These days, depending on whom you ask, cap and trade is either the best hope for addressing climate change or a boondoggle that will create the next financial bubble. NASA scientist James Hansen, long a vocal critic of cap and trade, has called California’s program “half-assed.” “You have markets that then collapse, and you don’t actually reduce emissions much,” he said in December, while receiving an award at the Commonwealth Club in San Francisco.
In theory, cap and trade lets polluters choose the most affordable means of cutting emissions. Defenders of the policy argue that this benefits everyone—including the poor—by preventing unpredictable spikes in energy prices. The cost of the acid rain program was about one-fourth of what the EPA had predicted, and a 2011 report found that power plants made even deeper cuts in emissions than were required by law. But critics wonder whether the regulations were the real cause. “To some degree, it looks like a lot of those reductions would have happened anyway, for simple reasons of economics,” including the declining price of low-sulfur coal, says legal scholar Lesley McAllister.
Moreover, the acid rain program applied only to power plants; a carbon market is several orders of magnitude more complicated. And offsets introduce even more complexity. When a polluter buys an offset, it pays a company that isn’t required by law to curb greenhouse gases—tree plantations, wind farms, eco-friendly cattle ranches and other green ventures—for a promise to reduce a ton of carbon. That promise, in turn, counts toward the polluter’s own emissions cuts.
Critics say the offsets are difficult to verify. According to Carbon Market Watch, it’s hard to prove that the European Union’s offset program is actually creating the kind of emission savings it alleges for a large number of wind, hydropower and biomass energy offset projects. And the offset market in the EU has generated several high-profile cases of fraud.
Carbon Market Watch also reports that the offsets are creating further havoc in the EU’s carbon market—the largest such market in the world. Since the global recession caused the EU’s emissions to drop on their own, its carbon market has suffered from a surplus—including an excess of offsets. As a result, the price of carbon has plummeted. In late January, a ton of carbon reached a record low of less than $4 (2.81 euros).
Not every expert agrees that low-cost carbon is a problem. Stanford environmental law professor Michael Wara says it’s the cap that’s important, not the price. “The goal of a cap-and-trade program is a particular level of emissions, and the program doesn’t specify how an economy gets there,” he says. “If it happens to get there by an economic recession, the price of emissions is going to be very low. But the environmental outcome is the same.” According to the Öko-Institut, a German think tank, although the EU will have an oversupply of allowances and offsets until 2024, it is still on track to surpass its goals for reducing greenhouse gases by 2020.
However, many analysts argue that low prices are a problem because a key goal of cap and trade is to make burning carbon more expensive than becoming energy-efficient. This past fall, even the oil giant Shell questioned whether the low price of carbon could undermine the EU’s climate goals. When the price bottoms out, industries have little incentive to undertake the technology transitions necessary to make the economy greener.
Some groups fear California may be headed for a similar oversupply: the state is offering industries 90 percent of their carbon allowances for free in 2013 and 2014. The Union of Concerned Scientists estimates that California will give away $2 billion worth of free emissions permits by 2020. In the first auction of allowances this past November, a ton of carbon sold for $10.09, just nine cents above the $10 minimum. At the February auction, the price rose to $13.62. But the state is still bringing in far less revenue than it projected from cap and trade.
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