California Gov. Gavin Newsom and state Democratic legislative leaders on April 15 announced they will seek to extend the state’s cap-and-trade emissions reduction program, part of which was set to expire in 2030.
The announcement came a week after President Donald Trump issued an executive order to investigate state energy policies, including California’s initiative, for possible constitutional violations.
“California must continue to lead on reducing pollution and ensuring our climate dollars benefit all residents,” the statement said.
Trump signed an executive order on April 8 directing the Department of Justice to identify energy and climate-related state laws “that are or may be unconstitutional, preempted by Federal law, or otherwise unenforceable.”
California’s cap-and-trade is among those to be investigated.
“Americans are better off when the United States is energy dominant,” Trump said in the order. “American energy dominance is threatened when State and local governments seek to regulate energy beyond their constitutional or statutory authorities.”
The executive order said many states have or are about to enact “burdensome and ideologically motivated ‘climate change’ or energy policies that threaten American energy dominance and ... economic and national security.”
Trump accused some states, including California, of forcing businesses to pay for carbon use.
California’s cap-and-trade program is intended to reduce greenhouse gas emissions. The California Air Resources Board (CARB) sets an annual cap on total carbon emissions and issues tradable allowances based on metric tons of carbon dioxide equivalent. Companies use the allowances to cover their emissions, and they can also sell unused allowances or buy more to meet their needs.
The emissions cap declines over time to meet climate goals, among them reducing emissions to 40 percent below 1990 levels by 2030, and to at least 85 percent below the 1990 level by 2045.
Dallas Burtraw, senior fellow at the Washington D.C.-based think tank Resources for the Future, told The Epoch Times that the cap-and-trade program itself does not expire in 2030.
“But the authorization to use an auction to sell allowances will come into jeopardy,” and it needs a supermajority vote from the state legislature for reauthorization, he said.
“So the auction is really what’s in doubt. And that’s really important, because as Governor Newsom’s budget describes, the uses of the auction proceeds, auction revenues, are really crucial to the whole strategy,” said Burtraw, who has provided technical support in the design of carbon dioxide emissions trading programs in several states, including California.
Newsom and legislative leaders said in the April 15 statement that plans on how to extend the cap-and-trade program will be shared with the public in the coming weeks.
Burtraw said that although most of the emissions reductions that California has achieved have been through other regulations, cap-and-trade is cheaper.
Under the cap-and-trade program, about half of the carbon allowances are provided free to industrial facilities and utility companies, while the other half are auctioned by CARB, Burtraw said. The revenues generated by the auction are used to fund various green energy projects and as climate credits to subsidize the electricity bills of ratepayers.
Oil refineries get free allowances for the refining process, but they have to purchase carbon allowances through auction for the gasoline they sell, and 100 percent of that cost gets passed through to gasoline prices, Burtraw said.
Utility companies are given free allowances. Since almost no emissions are assigned to these companies, they cosign their allowances back to the auction. A large majority of the money they get from the auction is sent back to ratepayers as “climate credits” that appear twice a year on ratepayers’ electricity bills.
