Capped out

California’s cap-and-trade program is a cornerstone of the state’s effort to curb greenhouse gases. But it’s also in crisis.

Faced with Republican opposition, Gov. Jerry Brown has so far been unable to muster two-thirds of state legislators to vote to extend the program beyond its current 2020 expiration.

Meanwhile, the latest auction of carbon-dioxide-emission allowances in May, which was supposed to generate more than a half-billion dollars for politicians to spend, brought in a paltry $10 million, as the California Air Resources Board sold a tiny fraction of the allowances it was offering.

This could mean less money for local communities, which have already struggled to secure cap-and-trade funding.

As Evan Schmidt of nonprofit research and social advocacy group Valley Vision told SN&R, the six-county Sacramento region contains 6.2 percent of California’s population, but received 4.7 percent of funds for the 2014-15 fiscal year.

Sacramento Mayor-elect Darrell Steinberg, who crafted the cap-and-trade legislation while in the state Senate and campaigned, in part, on his ability to raise local dollars through his statehouse connections, has been especially bullish about the program.

“I’m telling you, I’m going to fight for cap-and-trade dollars for Sacramento,” he told SN&R. “I wrote the law, and I understand the law.”

Cap-and-trade might have deeper issues, though.

Jesus Hernandez is a sociology lecturer at UC Davis who assists the North Franklin District Business Association. He said certain neighborhoods in the region do better at chasing the money, competitively available through a limited number of state agencies.

“You see this uneven balance of where the money goes,” Hernandez said. “These issues are structural that people aren’t seeing, and that creates some really big problems.”

Hernandez, who helped North Franklin secure a $433,000 grant earlier this year from the Sacramento Area Council of Governments for neighborhood improvements, sees solutions beyond cap-and-trade.

“That’s not the panacea for neighborhood health,” Hernandez said.

There’s also a question of diminishing returns. Cap-and-trade’s purpose is to decrease emissions “and in the end not have any money come from the auction if we did our job right,” said Katie Valenzuela Garcia, who serves on the state Air Resources Board’s Environmental Justice Advisory Committee.

“I just don’t think it’s a long-term sustainable solution to have everything go through that litmus test,” said Jonathan London, director of the Center for Regional Change at UC Davis.

Still, it’s a lot of potential money, which might justify state lawmakers resolving the current drama with the program.

The governor has negotiated with oil-industry leaders about the possibility of scaling back some of California’s climate-change programs in exchange for the industry’s support for extending cap-and-trade, the Los Angeles Times reported earlier this month. And the Western States Petroleum Association, the main lobbying group for oil corporations in six western states, is especially keen on repealing California’s low-carbon-fuel standard, which is the world’s first regulatory program to require oil suppliers to slash the carbon footprint of their motor fuel.

But environmentalists are urging Brown not to “send the state’s climate change policies backward,” as Amy Vanderwarker, a co-director of the Oakland-based California Environmental Justice Alliance, put it. She and other advocates say cap-and-trade’s recent stumbles actually open the door to far better climate change policies.

For instance, her organization is supporting Assembly Bill 197, introduced in June by Assemblyman Eduardo Garcia, a Democrat from Coachella. The proposed law deals at once with emissions, public health, and eco-injustice, activists say. It also encourages direct emissions reductions by the state’s oil refineries, fossil-fuel power plants and other major industrial emitters, as well as from the transportation sector.

“The keys to addressing climate change and the environmental-health crisis in communities of color are fundamentally the same,” Vanderwarker said.

Under cap-and-trade, the number of metric tons of carbon-dioxide emissions allowed in the state is capped, and the allowable levels of pollution are steadily reduced, creating an economic incentive for companies to cut emissions.

Industrial entities then buy and sell pollution “allowances,” which lets pollution increase in one area of the state—often in low income and minority communities—so long as it decreases it somewhere else. California’s version of cap-and-trade also lets companies avoid regional pollution reductions by purchasing a certain number of “offsets” from carbon-saving projects elsewhere in the United States or in Quebec.

But dozens of unregulated toxic chemicals are co-emitted with greenhouse gases, a fact that critics say cap-and-trade fails to address and that perpetuates environmental racism, since most of those living alongside these polluting installations are low-income people of color.

“When an oil refinery wants to expand under cap-and-trade, they buy cheap allowances or offsets from somewhere else, and the people who live in the vicinity get stuck with the pollution,” explained Brent Newell, a staff attorney at the Center on Race, Poverty, & the Environment. “It’s a way of saying to these communities: You have to subsidize these major polluting industries with your lungs.’”

Valenzuela-Garcia, who grew up near California’s oil drilling mecca of Bakersfield, emphasized this point when she criticized the cap-and-trade program at a hearing in the California Environmental Protection Agency’s headquarters this past April.

“Children in California shouldn’t continue to pay the price for the Air Resources Board’s unwillingness to change its course,” she said.

A March study by CEJA found that the leading purchasers of offsets under California’s cap-and-trade program from 2013-14 include several companies that operate in the Bay Area, such as Chevron, Calpine, Shell and Tesoro. For example, Calpine’s natural gas-fired power plant in Pittsburg has increased its greenhouse-gas emissions by more than 20 percent since 2011, but has used forests in North California and methane digesters on cattle ranches in Indiana to offset pollution increases.

An even more fundamental problem, environmentalists say, is that California’s cap-and-trade program is designed to ensure that it remains cheaper for oil and gas companies to continue burning fossil fuels than it would be to eliminate them.

Cap-and-trade proponents, by contrast, view the program as a balanced way of reducing pollution without unduly harming businesses and consumers.

“Cap-and-trade helps ensure that the state and ratepayers don’t bear the costs” of greater expenses to industry, CARB spokesman Dave Clegern wrote in an email.

According to a 2015 federal-government study, a ton of carbon emissions causes $37 in economic damage, in terms of decreased agricultural yield, harm to human health and lost worker productivity. A study last year by Stanford University’s School of Earth Sciences placed the figure at $220 per ton. Yet the cost under California cap-and-trade has hovered between $11 and $14 per ton. Assembly member Garcia’s bill features a provision that calls on CARB to consider the full social cost of carbon emissions in future regulatory decisions.

Fossil-fuel industries have offered mixed signals concerning current positions on cap-and-trade. In some situations, they have opposed the program on the grounds that it increases the cost of doing business.

But whenever threatened by more stringent regulations that go beyond cap-and-trade, industry leaders have spoken in favor of the program, with Western States Petroleum Association President Catherine Reheis-Boyd stating in a presentation to New Mexico oil-and-gas producers that her organization favors “a well-designed cap-and-trade program as a feasible and balanced approach to addressing GHG emissions.”

In addition to encouraging at-source emissions reductions, SB 197 would create a Joint Legislative Committee on Climate Change Policies consisting of three members of the Senate and Assembly each, who would provide greater oversight of CARB as part of an effort to increase that board’s transparency and accountability. Environmental justice groups and numerous other environmental groups have often complained about the agency’s lack of responsiveness to their concerns.

These groups have already scored a minor victory amid the uncertainty about cap-and-trade’s future. The state’s leaders have been pushing to become the only jurisdiction in the world that offsets its climate pollution through investments in tropical forest regions in the Southern Hemisphere. The common name for such efforts is REDD.

CARB had planned to have a vote on linking its cap-and-trade program to Acre, Brazil, as early as spring 2017. But the agency issued a draft proposal last week to expand the greenhouse-gas cap-and-trade program beyond 2020, and this proposal does not include an international forest offset provision—a decision that postpones, but does not ultimately rule out, such a move.

Ninawa Huni Kui is a 35-year-old traditional indigenous leader of the Huni Kui people of forest-rich state of Acre in northern Brazil. In a conversation earlier this year via a Portuguese interpreter, his arguments against REDD offsets were reminiscent of California-based environmental-justice advocates that support on-site emissions reductions at polluting facilities rather than cap-and-trade.

“Our perception of California is that they are coming here to deal with their own environmental problems, and they should be solving those at home,” Huni Kui said.