California to Reevaluate Its Cap and Trade Program in the Wake of COVID

The Phillips 66 refinery in Rodeo. Image: Craig Miller/KQED

The State of California’s 7-year-old cap and trade system is an important component of how the state plans to achieve its ambitious climate goals: to reduce greenhouse gas emissions to 1990 levels by 2020, 40% below 1990 levels by 2030, and 80% below 1990 levels by 2050. As C2ES explained, California’s emissions trading program is the fourth largest in the world, following the cap-and-trade programs of China, the European Union, and the Republic of Korea and has provided valuable insights into creating and managing an economy-wide cap-and-trade system for many other national and subnational governments. 

But as a result of COVID-19, demand for fossil fuels has decreased across and California’s and its latest quarterly cap-and-trade auction generated very little money for the state to spend on key environmental programs.

Now, in a letter obtained by CalMatters, California EPA Secretary Jared Blumenfeld laid out plans for re-examining the program and whether it’s likely to meet its goals. 

Why This Matters: In California’s cap and trade system, polluters had accrued enough surplus allowances to depress the price of carbon credits being auctioned off. And as ProPublica explained, while the state’s program has helped it meet some initial, easily attained benchmarks, experts are increasingly worried that it is allowing California’s biggest polluters to conduct business as usual and even increase their emissions. Using this time to reevaluate the mechanics of the cap and trade program could be a necessary step.

Go Deeper: How cap and trade works.

Good or Bad?: Energy experts have differing opinions on how effective of a tool California’s cap and trade system is at reducing emissions while also funding state environmental programs. Katelyn Roedner Sutter, U.S. climate program manager for the Environmental Defense Fund explained that the latest weak auction illustrates the “need to diversify funding for complementary climate investments.” As Sutter told KQED, “Rather than relying solely on a program specifically designed to reduce emissions and lower mitigation costs (and therefore revenue), California should move toward ensuring climate priorities are a core part of the state’s long-term fiscal priorities.”

The Plan to Reevaluate: CalMatters explained that Blumenfeld wrote in his letter that the review of the cap and trade program must clarify how much California can rely on it. The state’s latest climate roadmap “designates cap-and-trade as responsible for almost half of the reductions required to achieve California’s 2030 climate target, making it the single largest driver of planned climate policy outcomes.”

California is currently not on track to meet its climate goals, thus a review of the program is much needed.

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