California’s ambitious new climate commitments follow 10 years of success

Photo credit: Joseph Thornton | Flickr.com

California made history a decade ago this month by being first in the nation to pass legislation (AB 32) putting an absolute limit on carbon pollution through 2020.

The California Legislature made history again last week by extending and strengthening those limits to 2030 (SB 32 and AB 197). SB 32 requires California to reduce pollution 40% below 1990 levels by 2030 – as ambitious as Europe’s climate policies – and provides the flexibility to use a variety of tools to accomplish this goal. The governor has announced he will sign both bills.

Legislators also passed a spending plan yesterday that will direct approximately $900 million in cap-and-trade proceeds to reduce pollution and benefit California communities, especially the most disadvantaged.  Another bill passed yesterday, AB 1550, increases the commitments of those disadvantaged communities and makes low-income communities beneficiaries as well.

California’s decision to set these new targets and establish this new spending plan was not just based on hope and necessity, but on a 10-year foundation of success and a solid understanding that this next set of targets are ambitious but achievable.

Here’s why California’s climate program has been a success, and why the new long-term emissions reduction target will help the state continue to thrive.

California’s carbon pollution is declining.

AB 32 requires California reduce its greenhouse gas emissions to 1990 levels by 2020, a reduction estimated at about 15% below where emissions would have been without regulation.  To meet these reductions, California has adopted a suite of climate policies anchored by a cap-and-trade program, which puts an absolute limit on carbon pollution, while providing cost-effective options for businesses to meet their reduction obligations.

California’s carbon pollution has steadily declined in the last 10 years. In the first two years that the cap-and-trade system was in place (2013 and 2014), California’s carbon emissions declined by an amount equivalent to taking over 1 million passenger vehicles off the road for a year.

California is ahead of schedule in meeting its 2020 goal. Emissions have been below required levels in every year we have data for. Regulators expect that in 2020 California will exceed its own requirements by an amount that is equivalent to taking 3.3 coal burning power plants off-line for one year.

California’s economy is growing.

Historically economic growth has been accompanied by a corresponding increase in emissions, but California is charting a different course. The state’s Gross State Product has increased steadily since the recession as emissions have continued to fall, as shown in this figure:

In the first two and a half years of California’s groundbreaking carbon market, the state added over 900,000 jobs, a growth rate that eclipsed the national rate.

Carbon markets are going global.

The impressive outcomes from the first decade of California’s AB 32 implementation have attracted numerous partners. States, provinces, cities and countries are taking note and action.

At the Paris negotiations at the end of 2015, California Governor Jerry Brown showcased a “Memorandum of Understanding,” bringing together states and regions committing to reducing greenhouse gas emissions to at least 80% below 1990 levels by 2050, or to less than 2 metric tons per capita by 2050. Over 100 states, provinces, and cities, representing one quarter of the world economy, signed on the agreement.

In addition, California is partnering directly with several Canadian provinces to implement joint cap-and-trade programs. It has also established an agreement to share information and work with China and Mexico on their carbon pricing efforts.

2030 target is ambitious but achievable.

Estimates suggest that after on-the-books polices are implemented, California will still have to find a way to reduce pollution another 17-29 percent to meet the 2030 target. The Air Resources Board has proposed relying on a ratcheting up of existing polices and a reliance on the existing cap-and-trade program to ensure the 2030 target is met.  Research from the Lawrence Berkeley National Laboratories shows that meeting the 2030 target is possible with a ratcheting up of existing polices

The world will be watching whether California can repeat its gold medal performance under these new targets, and all indicators seem to point in the state’s favor.

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Why aviation’s carbon must be capped, and how to do it

Airplanes on a flooded runway at Don Muang International Airport on Nov 19, 2011 in Bangkok, Thailand. Image: 1000 Words / Shutterstock.com

Government negotiators met in Montreal last week to seek agreement on a global cap on carbon pollution from international aviation. Bilateral negotiations are continuing, and text of a draft resolution is expected to be considered at the triennial meeting of the UN’s International Civil Aviation Organization (ICAO) in early October.

In anticipation of these meetings, Carbon & Climate Law Review (CCLR), a broadly-read journal catering to climate insiders, just released a special issue on international aviation. Experts illustrate the need for and feasibility of a strong market-based measure. Here are some highlights from the special issue:

Aviation’s impact on climate is understated

Aviation’s total global warming impacts are more than double those estimated from its carbon dioxide (CO2) emissions, or equivalent to roughly 5% of total radiative forcing from CO2. Nitrogen oxide emissions and aviation’s impacts on clouds add significantly to the warming effect of carbon dioxide. Without new policies, aviation emissions could compromise the goal of the 2015 Paris Agreement to limit the increase in global temperatures to 1.5 – 2 degrees Celsius above pre-industrial levels.

Climate change increases risks to aviation safety, infrastructure, and operations

Aviation pollution causes harm to the climate, but a warming climate also creates challenges for aviation safety and operations.

According to industry experts, in high temperatures, planes can’t carry as much. Airports risk damage to runways from storm surge and rising sea levels. Passengers and crew may be exposed to more turbulence. New electronics, sensing, and communication technology may be needed to reduce the risk of exposure to severe weather.

The solution: a market-based measure

To contain aviation’s impacts on climate change, experts from industry, policy, and law call for a market-based measure to cap emissions from international flights.

A market-based measure can be established and enforced under existing law

Legal experts recommend that an MBM can be established as a set of “standard” under the existing Chicago Convention, the foundational treaty for international aviation. Compliance with existing standards is good but not perfect. The experts show how market entry conditions, domestic transportation statutes, and conditions imposed by aviation financial services and trade associations can be used to bolster compliance.

A market-based measure should provide broad coverage and deliver co-benefits

Expert contributors to the issue recommend that the coverage of the MBM be broad. They caution that exemptions from a market-based measure could distort the market and disproportionately benefit the wealthiest individuals in those countries.

Other contributors show that policies to reduce emissions from deforestation and forest degradation (REDD+) can help meet international aviation’s demand for emissions offsets, even after taking into account existing commitments and demand for offsets. Further, a “keep what you save” policy that allows air carriers to use their own fuel use reductions to reduce offsetting obligations could help resolve current debates over allocating offsetting obligations between air carriers.

This fall’s ICAO General Assembly is a critical moment for countries, and the aviation industry, to demonstrate leadership in providing safe international air travel while minimizing risks to the climate.

If countries don’t agree to the market-based measure in October, the world may have to wait until ICAO’s next General Assembly in 2019. With rapid growth of aviation pollution, that’s a delayed take-off that none of us can afford.

Click “read more” to see key takeaways from each article of the special issue of CCLR. The journal’s publisher, Lexxion, has made the special issue free to access through October 7, 2016.

Read More »

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EDF-IETA maps show how the world can double down on carbon pricing

Carbon pricing

Currently, about 12% of the world's greenhouse gas emissions are covered by carbon pricing. More details about this map can be found in the Doubling Down on Carbon Pricing report by EDF and IETA.

There are a number of signs we are entering a golden age for carbon pricing. Perhaps the most important one is that many countries around the world are currently considering carbon pricing policies to achieve their greenhouse gas emissions reduction goals.

And for good reason.

A price on carbon gives emitters a powerful incentive to reduce emissions at the lowest possible cost, it promotes innovation while rewarding the development of even more cost-effective technologies, it drives private finance, and it can generate government revenue.

This spring, World Bank Group President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde convened the Carbon Pricing Panel to urge countries and companies around the world to put a price on carbon. On April 21, 2016, the Panel announced the goals of doubling the amount of GHG emissions covered by carbon pricing mechanisms from current levels (about 12 percent, as illustrated in the map below) to 25 percent of global emissions by 2020, and doubling it again to 50 percent within the next decade.

EDF and the International Emissions Trading Association (IETA) worked together to explore a range of possible, though non-exhaustive, scenarios for meeting these goals. You can see the results in a series of maps which show how carbon pricing can be expanded worldwide.

Achieving the Carbon Pricing Panel’s goals will be a crucial stepping stone to realizing the ambition of the Paris Agreement, which aims to hold the increase in the global average temperature to well below 2°C above pre-industrial levels. Meeting that objective will require countries not only to implement the targets they have already announced, but to ratchet up their efforts dramatically in the years ahead. Carbon pricing will have to play a key role in that effort.

Explore how the world can reach the Carbon Pricing Panel’s ambitious goals.

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California carbon market's August auction results see slight rebound, but show need for post-2020 climate action

The results released today from California and Quebec’s latest cap-and-trade auction show a slight rebound in demand from results seen in May, but still demonstrate the need for a continued commitment on ambitious climate action beyond 2020. The results were released minutes after members of the California Assembly voted on ambitious 2030 targets; the final legislative votes are expected tomorrow.

The August 16 auction offered more than 86 million current vintage allowances (available for 2016 or later compliance) and sold just over 30 million. Approximately 10 million future allowances were offered that will not be available for use until 2019 or later; 769,000 of those allowances were sold.

These auction results represent a slight increase in demand from the May auction, where approximately 10% of the current and future vintage allowances that were offered sold. More allowances were also offered at this auction since allowances consigned by utility participants that were not sold in May were offered again at this auction.  The number of allowances offered for sale by utilities meant that the only state controlled allowances that sold were a small number of future vintage allowances.

California state controlled allowances that were not sold in August will not be offered again until two auctions clear above the floor price, representing a temporary tightening of the cap and a way for the program to self-adjust to temporary decreases in demand.

What changed and what is the same since the May auction

After May’s auction we pointed to several major factors that contributed to low demand: secondary market allowances were available for purchase below the floor price; regulated emissions have been below the cap allowing businesses to take a wait-and-see approach to purchasing allowances in advance of a pending appeal challenging the cap-and-trade auctions in the court of appeal; and need for increased certainty about the post-2020 cap-and-trade program.

Here’s what affected the August auction results:

  1. Secondary market prices have increased to right around the price of the current auction floor. This is likely the main factor contributing to the August auction’s slightly higher sales.
  2. There have been no further developments on the litigation as parties wait for the court to announce an oral argument schedule.
  3. There has been some movement on California’s effort to provide post-2020 certainty but not definitive action. In July, California's Air Resources Board released proposed amendments to set rules and a cap-and-trade carbon budget in-line with achieving a 40 percent reduction below 1990 levels by 2030. Final agency action is not expected until spring of 2017. The California Legislature is also considering a package of bills that would cement the 2030 target, currently in executive order, into statute. Assembly members voted today on climate targets and we will see whether legislative members will fulfill the will of over two-thirds of the California electorate by passing these targets.

California’s package of climate programs, including cap and trade, must first be evaluated based on whether emissions are going down – and the latest data from ARB in June showed that emissions do continue to decline. Selling out an auction and raising a set amount of revenue does not equate to overall success for the cap and trade program.

That said, once climate proceeds are in the Greenhouse Gas Reduction Fund (GGRF), spending them wisely to reduce emissions and benefit communities, especially disadvantaged communities, is a metric of program success. To date, about 1.4 billion dollars have been languishing in the GGRF, not creating benefits, and resulting in consequences for real Californians.

In addition to passing climate targets, Legislators should continue to act on proposals like the one Pro Tem Kevin de Leon has put forward to spend existing climate dollars this session.

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California's new spending proposals benefit communities and the environment, and highlight need for long-term climate policy

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Cropped image via Flickr/ mikeslife

California drivers, communities, and businesses have endured degraded roads, unending traffic, choking pollution, and limited transit options for years.  As the population continues to grow, so too will the problems of the transportation sector (and many other sectors) unless major investments are made.

Given the profound need to clean-up California’s infrastructure, Tuesday’s $390 million expenditure award by the California State Transportation Agency (CalSTA) and yesterday’s proposal by the State Senate to spend $1.2 billion of available dollars generated by California’s cap-and-trade auctions are important steps in reaching communities that need these upgrades most. What these critical spending plans also clearly demonstrate is that cementing 2030 pollution reduction targets into statute ensures continued investment in reducing emissions and benefiting communities.

The value of long term climate policy

It’s been no secret that a political debate is underway in Sacramento over setting long-term climate pollution targets for California. Why? Setting long- term policy will support the state’s low-carbon, prosperous economy. This process is important not just for climate change, but to ensure growth and stability in the business and investment climate that will enable our economy to flourish.

Long-term climate policy – including cap and trade and a suite of other measures – aimed at cutting pollution has been a boon to the state over the past decade, allowing the economy to flourish, resulting in massive venture capital investment, innovative products, and reduced pollution.

Within the cap-and-trade program, auctioning emissions credits has become an integral way to make the program work, though the purpose has never been to raise and maximize revenue. As a result, within the existing landscape, the auctioning of permits has allowed for additional environmental improvements through investments such as the 14 different transit projects just announced. Similarly, and as outlined by the State Senate’s proposal, the cap-and-trade program can drive myriad other investments that cut climate pollution, such as traffic flow improvements, low- carbon vehicles, energy efficiency, urban greening, and sustainable community development.

When completed, the 14 projects funded by the CalSTA will benefit nearly every major urban area in the state, transcending political boundaries, bridging economic divides, cutting air pollution, growing jobs, and reducing congestion. And, with 30 million cars on the road consuming gas at some of the highest prices in the nation, improved transit and transportation systems simply give drivers more options – saving money and creating better mobility in the long run.

The massive need to invest in California and cut carbon

Unfortunately, California has a far greater need than what this $390 million can meet (the California Transit Association projects a total need of nearly $175 billion), or what the $1.2 billion State Senate proposal would deliver. Fortunately, policies like cap-and-trade work to cut pollution through a declining cap on carbon and a price on carbon, resulting in innovation and investments in regulated businesses. As permits are auctioned, targeted investments of proceeds generated through those auctions can also produce air quality benefits while leveraging private capital and inspiring innovation.

Over the next couple weeks, Sacramento lawmakers can positively impact the long-term certainty of California climate policy and its ability to drive pollution reductions and ensure vital investments in areas like transit and improved transportation systems. The current expenditure plans and proposals — along with several billion dollars that have already been allocated — illustrate how programs such as cap and trade create real investment options that benefit people, communities, and the environment across the state.

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Six benefits of California setting a 2030 climate pollution reduction target

Setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership. Image credit: Flickr/ Jeff Turner

It’s summer recess for the California Legislature which means we have some time to reflect before the race to the end of the legislative session on August 31. A big question is whether the Legislature will pass a climate bill package that would cement ambitious 2030 carbon reduction targets into statute. With the climate spotlight shining brightly on Sacramento – as usual – it’s worth considering why legislative action and leadership is so critical now.

Here are six ways setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership, especially the groundbreaking cap-and-trade market we forged three years ago with Quebec.

  1. Cap-and-trade allowance values will more accurately reflect the long-term cost of hitting emissions reductions targets – This is the classic impact that we consider. A 2030 target means that a carbon allowance sold in 2017, for example, will be a valuable asset not just through 2020 but through 2030 as well. This could translate into higher allowance prices, but if it doesn’t, there could be good news reasons for that too, such as the market anticipating a low cost of reducing emissions.
  1. Regulated polluters will value emission reduction opportunities more highly, potentially leading to lower direct emissions – This relates back to the first point. Imagine that a business needs to buy a new boiler that they expect to last 20 years. They have the option to pay more now for a more efficient boiler or pay less now for a less efficient boiler. They are more likely to invest in the more efficient boiler if they know there will be a price on carbon catalyzing ambitious reductions for at least 15 more years rather than just five more years.
  1. Allowance banking could increase, creating more incentives for faster emission reductions – This creates an important, but more subtle, environmental benefit. If carbon prices are expected to increase in the future as the cap gets tighter, regulated and non-regulated participants alike will have an incentive to “bank” allowances for future use. (Note that an important California design feature allows a “current vintage allowance”, say 2016, to be used for emissions that occur in 2016 or in any future year.) This banking is equivalent to a reduction that occurs earlier than expected and provides a net benefit to the atmosphere. The concept of banking promotes innovative solutions that cut pollution more quickly, and makes the overall program more flexible for California companies.
  1. Demand for allowances could increase – If banking increases, the uptick in demand for allowances may mean that all or most allowances offered at the quarterly auctions sell out, even if emissions remain below the cap through 2020. Out-performing the 2020 cap would be a great outcome, meaning that the long-term price signal is likely incentivizing emissions reductions (as in the boiler example above) or that complementary measures (like the Renewable Portfolio Standard) are succeeding.
  1. Offsets developers will have a stronger incentive to reduce emissions where possible and bring projects to market – Offsets provide an opportunity for all sectors of the economy, like the agricultural sector, to be rewarded for high-quality, innovative emissions reductions. Because robust actions that cut pollution take time and investment, a longer-term commitment by the state is essential. This means that, for example, a rice farmer would be much more likely to transform their growing practices to cut methane emissions if those actions reaped a payoff for 15 instead of just five years.
  1. Communities, the California work force, and the economy will continue to benefit from Greenhouse Gas Reduction Fund (GRRF) investments – The cap-and-trade program is first and foremost about reducing emissions not raising revenue. While the program’s purpose isn’t to maximize revenue, auctioning is an integral part of California’s well-functioning system and the undeniable benefits of the investments through the GGRF, especially for disadvantaged communities, are an important aspect of program success now and beyond 2020. California’s investments so far have furthered and enhanced the purposes of AB 32 which emphasize reducing carbon pollution in a way that maximizes benefits to the economy and environment, promotes social equity, and transforms the state into a low carbon economy. By sticking to these principles, California is creating benefits that far outweigh the initial investments. And these benefits need to continue!

A process not an event

Setting a 2030 target has been a gradual process in California. And the market may already be operating with some expectation that the cap-and-trade program will continue beyond 2020.

The market has received increasingly specific indications since 2014 that ambitious reductions will continue beyond 2020. For example, before AB 32 was ever passed, Governor Schwarzenegger signed an executive order calling for 1990 levels of emissions by 2020 and an 80% reduction below 1990 levels by 2050. In 2014, the Office of Planning and Research and the Air Resources Board (ARB) started calling for an ambitious mid-term 2030 target, foreshadowing Governor Brown’s 2015 executive order setting that target at 40% below 1990 levels by 2030. Since then, ARB has reopened the Scoping Plan process to meet that 2030 target and begun the regulatory process to amend the cap-and-trade program to extend it to 2030.

With a decade of world-leading, successful climate action behind it, California is on the verge of another momentous step forward. The market will gain even more certainty, and California communities and the economy will score a huge win if the Legislature does the right thing and passes a climate package this year that places a 2030 target in statute.

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