It’s not every day when politics pleasantly surprises you. California’s Legislature has been locked in a struggle over the future of the state’s climate policy for the last two years. The state’s landmark climate policy was set to expire in 2020. Last week, in the waning days of the Legislative session, legislators passed a bipartisan package of bills to ensure that the state will continue to lead the world in the fight against climate change. For the last year, the question on everyone’s mind was whether the state would continue to reduce its GHG emissions, now the question is not whether but how.
Oil and allied business interests fought climate policy at every turn, dumping tens of millions into lobbying and campaign contributions, building a network of “astroturf” front groups to repeat its policy platforms and making fantastically hyperbolic, and misinformed, claims about the harms of clean energy.
In truth, California’s commitment to clean energy and a healthy climate have helped the state not only lead the world in climate policy, but create hundreds of thousands of new jobs and grow its economy faster than the national average, even as it emerges from the worst recession in modern memory.
Despite this success, legislators had struggled to overcome oil company opposition to extending California’s commitment to climate leadership. SB 32, authored by the patron saint of climate policy, State Senator Fran Pavley, had languished in the Legislature for over a year. With the end of the session looming, most observers, including myself, did not see a path to victory, with a substantial bloc in the State Assembly withholding its support for the bill. Even the Governor, who has made it clear that protecting the climate is one of his top priorities, issued a statement promising that the fight would not end, no matter what happened to SB 32.
A week later, that statement seems like either unnecessary pessimism, inspired political strategy, or perhaps a bit of both. SB 32 and its companion bill AB 197 passed, sending both bills to the Governor’s desk, where he has promised to sign them.
Much has been written, with even more to come, about the importance of these bills in the fight against climate change; I would suggest Brad Plumer’s piece on Vox as a good starting point to unpack how great of an achievement this really is. The biggest and most obvious takeaway from this saga is that California will maintain its position as a climate leader. Our leadership has been critical to drive global climate policy forward and helped catalyze last December’s landmark Paris Agreement. Beyond the victory for climate policy, the fight over SB 32 highlighted some important lessons for how the politics of climate change have shifted over the last year.
Victory for data and persuasion
2016 brought a wave of new data about the effects of clean energy investment on California’s economy. The first wave of cap-and-trade financed projects had reported their results to the state, which were made available in a variety of formats. This data allowed advocates to make much more granular and district-specific arguments about the value of sustainability policies in general and cap-and-trade investments in particular. For example, the picture below is a map of renewable energy generation projects, including Proposition 39 school upgrades (purple markers) and water efficiency projects (yellow markers) near Fresno, CA.
It’s one thing for a legislator to hear that cap-and-trade has delivered over $3 billion in projects to the state, and another entirely to see hundreds of markers in their district, each representing a solar roof, hybrid car or energy efficiency retrofit. This pushed back the unfounded, oil-sponsored skepticism which had been attached to cap-and-trade expenditures and let the truth shine through: California’s climate investments were being felt in every district, typically more than a hundred million of dollars per district and often several hundred million, while also improving air quality, boosting property values and providing good-paying jobs.
Business came into the big tent
Armed with persuasive data, advocates shifted the narrative within the State Capitol. This was no longer about tradeoffs between health and prosperity, but about how we were already achieving both. This message came not only from the usual environmental advocates, but also from organized labor, faith, community and business groups. They talked about how much their communities had to lose from inaction and how much they had to gain from extending California’s climate policy. In the victorious press conference Wednesday afternoon, Senator Pavley thanked them all, noting how the environmental community, brought together by coordinating organizations like California Delivers, had been organizing and building capacity for years to support this kind of multi-stakeholder coalition.
Unlike many contentious bills, victory for SB 32 and AB 197 did not come from a last-minute bargain hashed out in a smoke-filled room. The essential framework of the bills was clear long before the final push. While it could not have passed without the efforts of legislative leaders like Senate President Pro-Tem Kevin de Leon and Assembly Speaker Anthony Rendon, it was not singularly an effort of political arm-twisting. This victory was the result of a broad coalition engaging in a months-long ground campaign, talking to every member of the legislature, presenting their message in myriad ways and through a variety of messengers. Around a dozen members of the Assembly who voted against SB 32 last year were persuasively encouraged to reconsider. Advocates broke down every argument against the bill and exposed how flimsy the arguments against climate action really were. The consensus moved far enough toward passage that legislative leaders were able to push the bills across the finish line, whereas it had seemed impossibly far away in weeks prior.
Business leaders especially made their presence felt and clearly demonstrated that the oil industry does not speak for the business community in general. Several business-focused organizations, including Advanced Energy Economy, Environmental Entrepreneurs, and CalSTART, brought dozens of leaders from renewable energy companies, fuel producers, electric vehicle makers, sustainable farms, software companies and advanced technology labs to make their voices heard, telling legislators how California’s prosperity was in large part because of its climate policy. Their voices gave a concrete presence to the numbers and helped fundamentally shift the landscape of this debate.
Cap-and-Trade is not in crisis, but in need of attention
Lurking in the background of the debate this week was concern over the cap-and-trade program, the backbone of California’s climate policy. SB 32 did not address the future of this program, a top priority of Governor Brown and legislative leaders. The cap-and-trade program has set an enforceable cap on total emissions from the state and generated billions of dollars in revenue for clean energy projects, and rebates to consumers on their utility bills. The quarterly auction held in April produced dramatically lower revenue than expected. Similar results were expected for the most recent auction, the results of which were released hours after the vote on SB 32.
It is quite clear that the cap-and-trade market is not generating as much revenue as had originally been hoped, and much has been written about the problem, as well as possible solutions. This is a complicated topic which deserves more space, but the success of SB 32 highlights several key points about cap-and-trade.
- California climate policy is working and will continue to work. Emissions are going down, as intended, in fact the success of many of California’s complementary GHG policies has dropped emissions fast enough that companies are finding less need to obtain credits through the cap-and-trade market.
- The cap-and-trade market has built-in failsafes, which worked as planned. The market has a price floor, which is designed to maintain the incentive to reduce emissions and an automatic trigger to reduce the supply of credits in the event of slow sales, but this response does not trigger immediately, since over-reacting to market fluctuations can cause as many problems as it solves.
- Guaranteeing the market beyond 2020 is the best way to stabilize prices. The price floor is designed to increase over time, so when California began auctioning permits in 2012, businesses knew that if they wanted to build up a cushion of credits for a rainy day, the prices would never be lower. Now, with political gridlock making the auction’s future uncertain, regulated parties reasonably want to make sure that their investment in those reserve permits do not evaporate if the program is not extended, so they’re using those reserves to meet current obligations rather than purchasing more credits. If businesses knew that they had to plan for the long run, it’s reasonable to believe that they would start buying permits again.
- It may be 2009 all over again for the oil companies. Now that the state is committed to reducing GHG pollution, regulators can begin discussing how best to do this. Oil companies, like most regulated parties under the cap-and-trade system, will realize that of all the regulatory options to significantly reduce emissions, it is probably the cheapest and most efficient. Oil companies have had an on-again-off-again relationship with the cap-and-trade program, first supporting it, then opposing it, then supporting it again , before coming back into (mostly) opposition.
In the late 2000’s, after the landmark AB-32 legislation was passed, oil companies looked at the regulatory options for complying with broad GHG reductions and concluded, rightly so, that a market-based mechanism like cap-and-trade was the least-cost option. Although no one would be surprised if their first response is to continue to fight it tooth-and-nail, eventually their business sense should prevail and they should come back around to supporting cap and trade, again.
This round is won, the fight goes on
The success of SB 32 and AB 197 are among the most significant victories for climate policy in this decade; they ensure that California can continue to set an example for the world on how to reduce emissions while enhancing prosperity. Our efforts will bring a new generation of sustainable technologies to market and let businesses start developing the tools needed to succeed. There is still more to be done, however. Our job will be much harder without an extension to the cap-and-trade program and continued commitment to the Low Carbon Fuel Standard. We need to keep working with international stakeholders to encourage greater action and hold accountable those who fall short. We need to accelerate the deployment of zero-emission vehicles and expand the presence of renewable energy on the grid. Climate advocates will be busy for years to come, but the prospect of abandoning our commitment to reduce emissions, no longer looms over these efforts. That is worthy of celebration.
 See: 3:56:30 in this this February, 2015 video of a CARB meeting. A Vice President at BP describes the cap-and-trade program for fuels as “very cost effective and efficient.”