May 21, 2017 - From the May, 2017 issue

State Senator Wieckowski Offers Alternative to Post-2020 Cap and Trade

California State Senator Bob Wieckowski, chair of the Environmental Quality Committee, introduced legislation to replace California’s current greenhouse gas emission strategy—the cap-and-trade program. Announced last week, the new language in SB 775 would establish a new set of metrics for pricing carbon dioxide; return auction revenues to consumers through a climate dividend; and, potentially, provide more legal certainty. TPR sat down with Wieckowski to discuss the goals of these new draft provisions


Bob Wieckowski

"We’re putting out a blueprint for the next decade to make the state a cleaner and healthier place for our children and for all our residents—and to make money while we’re doing it." -Senator Bob Wieckowski

As chair of the state Senate’s Environmental Quality Committee, you introduced SB 775—a bill to extend California’s cap-and-trade program to 2030 while offering some meaningful alterations to it. Share with our readers the goals of this legislation, and the reasons it is necessary. 

Bob Wieckowski: The current cap-and-trade program was an administration-driven program designed by the Air Resource Board. The Legislature, when they established our targets for 2020, delegated the establishment and operation of the cap-and-trade program to the Air Resources Board. That system comes to a screeching halt in 2020.

Last year, we passed SB 32, which set California’s targets for reducing greenhouse gas emissions to 40 percent below 1990 levels. In order to meet those statutory goals, we had a couple of options.

One was to let cap and trade expire and go to command and control, where air resource boards simply slap on requirements to stationary sources to reduce emissions.

We could also have gone with a simple extension of the current program as it is, which does not get us the needed reduction in carbon. Or, we could have gone with a carbon tax.

After much discussion with people in academia who are concerned with this, we came up with the idea of starting a brand new, improved statutory cap-and-trade program beginning January 1, 2021. 

One major policy shift being considered is a consumer “climate dividend.” Elaborate on the idea of combining economic and social policy with environmental policy through this new dividend legislative provision.

When we drafted this measure, one of the things that we were very careful about was making sure that we would continue with the auction proceeds. We didn’t want to get into whether it was a tax or a fee. It’s an auction. That means it comes under Prop 26 and requires a two-thirds vote.

In a previous draft, we were trying to direct where the money would go. But we got to a point where we realized that under Prop 13 and Prop 26, we would need a two-thirds vote just to create the apparatus and the architecture for raising the funds. So we decided to keep it simple and create three pots of money: one for climate research, one for adaptation, and infrastructure—with particular attention to disadvantaged communities—and, lastly, the dividends.

We understand that when we set a cap, there is necessarily going to be an increase in the price of gasoline and carbon-based products. The idea is to return some of the money generated to the consumer, to ease the increased direct costs that we anticipate.

Coincidentally, this approach aligns with the traditional Republican model of minimal government and giving money back to the people, rather than the traditional liberal or Democratic idea of raising taxes to make investments into infrastructure, which is how our current cap-and-trade system works.

Elaborate also on the draft infrastructure and the adaptations provisions of the bill.

As the author of SB 246 a couple years ago, I’m a big believer in climate adaptation planning. We’re already seeing changes, but we can’t anticipate all the changes that will come about as a result of climate disruption. Here in the Bay Area, for example, we really don’t want to come to grips with whether sea-level rise is going to be six feet or 10 feet. But we know it’s going to be quite a bit.

We’ve got something of a climate planning apparatus set up now, and lots of coastal and inland cities are developing climate adaptation plans. But we need a dedicated bucket of money—hundreds of millions of dollars a year—bringing together all the cities and economic partners in the state to foster best practices in climate adaptation.

California’s forte is the export of problem-solving ideas and devices that can help out the rest of the world. California accounts for 1 percent of global greenhouse gas emissions, and reducing those emissions is an important goal. But, as people look at the program we develop and how we solve our problems, the true benefit will be the technology that we export.

The infrastructure bucket is also about climate adaptation. We’re hoping that it will focus on assisting baseline infrastructure work that has to be done—on our sewers, roads, water purification facilities, etc. Some of these facilities are located in areas that are endangered by sea-level rise and climate change. As we rebuild them, it may not be possible to simply fortify the surrounding ground. They may actually have to be moved to, for lack of a better term, higher ground. That’s quite a change from how we’re using cap-and-trade funds right now. 

Another provision included in SB 775 is an Economic Competitive Assurance program. What is its purpose?

If we simply raise the price of carbon in the state of California on our own, we’re going to lose businesses here. This provision is one of the clever ideas from academia that we added to the bill to equalize things. At the end of the day, we want California manufacturers and businesses to be on the same footing as their out-of-state and international partners.

Cement, for instance, is a very carbon-intense product. So we want California cement producers to be competitive with foreign and out-of-state competitors, and likewise for California manufacturers seeking to export their products.

The ECA program would create a border adjustment that foreign and out-of-state companies have to pay. The Air Resources Board, with the assistance of our California businesses, would develop the carbon price for these foreign and out-of-state companies.

This way, we get the benefit of low-carbon production, but businesses can be refunded or credited the actual dollars they are paying for their allocation, so that their products are competitive outside the state and in the world market.

Does SB 775 address where new cap-and-trade revenues will be invested going forward?

This would be considered later. Three of the last four auctions have gotten us little returns. We have complex and competing ideas about how we would split up the money—whether it’s transit or housing—and we get five years as a Legislature to work on how we’re going to spend the money.

I’m staying away from making all those decisions in this bill. I’m just saying, “Here are the pots the revenue goes into.” Once we start these auctions, it’s only going to take a simple majority vote for the Legislature to decide how they want to distribute the funds. 

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Already this session of the California Legislature a number of bills have been introduced that seek to add new provisions to the state’s environmental policies—such as Assembly member Christina Garcia’s AB 378, which would add the impacts of air pollution into cap and trade. How, as committee chair, are you managing these other bills and their possible consequences for your legislation? 

We know that there are other pollutants—criteria pollutants, black carbon, and other harmful toxic materials and emissions—that aren’t greenhouse gases, but still affect the health of the community in the areas where these polluters are located. I haven’t gone into an in-depth comparison of the related pieces of legislation, since the Assembly bills have not made their way to the Senate yet.

SB 775 does not allow for free allowances. It basically stops all of that activity on December 31, 2020. By implication, companies then have to deal with the emissions that are coming from their facility. You’re going to either have to pay the fee, or pay the carbon increment. I’m not trying to be too prescriptive about how it’s going to occur.

Your legislation is being watched closely not only in California but also throughout North America—including the Canadian provinces of Québec and Ontario. Have your legislative discussions taken into account ramifications on jurisdictions that have tied themselves to the California marketplace?

We have had initial discussions, and I am meeting with Canadian delegates in the near future here in Sacramento.

Remember, California’s current system is only operational until 2020, so Québec and Ontario could only participate in it until then. Our provision says that as long as these jurisdictions have a carbon price at least equal to the state of California’s, and there is no harm to the climate dividends, then we’ll continue to share auctions and trade together.

Québec and Ontario are watching us. They know that if this goes through, then they’ll have to implement their carbon cap-and-trade programs beyond the year 2020.

Give our readers some context on how California’s environmental legislation on carbon reduction is impacted by current or promised federal policy.

There really is no positive federal-state relationship existing now, at least in the area of climate adaptation and greenhouse gas reductions.

The federal government has said that they’re not interested in moving forward on the blueprint that Obama laid out, and they seem to be ignoring the international agreement inked in Paris. So, California is going to go our own way. We’re going to be a leader so the rest of the world can see how the policy decisions we make to meet these targets also support economic prosperity.

Other states are watching, and as long as they’ve got some commitment to reduction of carbon, I think that this is going to resonate with them.

A lot of folks have looked at the idea of our proposal and said, “Architecturally, this will work.” It provides the cushion for the consumer with the dividend or rebate. The price collar gives stability to businesses so they can know the high mark, the low mark, and it gradually goes up. And the carbon reductions help us meet our 2030 goals.

We anticipate that in the year 2021, under my proposed system, we would get $6-9 billion dollars—or $2 billion each quarterly auction. Our floor in 2021 will be $20, significantly higher than the last auction’s results of roughly $13. We’ve never had that.

You were noted by many as a valued member of the California delegation to the 2015 Paris climate change treaty negotiations. How significant for our state and national environmental goals is the prospect that the US might withdraw from the Paris agreement?

It would be a disaster for the United States to withdraw.

California is a big part of the US economy, and we want to show everybody: Here’s how we can meet our world commitment. We have an aspiration to get to 1.5 degrees—not 2 degrees—Centigrade. We want to be on the aspirational side.

There’s a certain panache that California has globally. People are looking for answers from us. How California goes, the world wants to go.

Let’s turn to job creation in California. Often, the attack on the state’s climate agreements and regulations is that they negatively impact jobs and the economy. From your experience in Santa Clara, speak on the reality of green job creation under California’s climate regulatory regime.

It’s not just Santa Clara. In the San Joaquin area, the state carbon reduction mandate has so far produced $13 billion worth of economic activity due to the amount of money we’ve put into solar energy, wind energy, and energy efficiency. Tesla, which is in my district, is on the verge of going to 5,000 Model 3 zero-emission vehicles per month.

My 10th Senate District has more green jobs than anywhere else in California. I want to export that. I want to develop, with SB 775, that technology and those job opportunities in other parts of the state. California has to continue on that leadership track.

It’s quite exciting, when you sit back and think about it. We’re putting out a blueprint for the next decade to make the state a cleaner and healthier place for our children and for all our residents—and to make money while we’re doing it. 

Lastly, when you return to VerdeXchange in January 2018, what do you hope to share about the success of the legislative agenda this year? 

I would like to have the governor’s signature on SB 775, and be in the midst of meetings to figure out the perfect mix of research dollars, climate adaptation planning, and infrastructure needs. We’d ideally be at the sweet spot of the rebates and the dividends to consumers, using all the expertise available to us to figure out how to get the most bang for our buck as we work toward meeting our 2030 goals and creating a healthier, economically stronger, and more robust California.

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© 2017 The Planning Report | David Abel, Publisher, ABL, Inc.