{"id":23415,"date":"2023-08-03T10:09:18","date_gmt":"2023-08-03T15:09:18","guid":{"rendered":"https:\/\/blogs.edf.org\/climate411\/?p=23415"},"modified":"2025-12-03T11:02:35","modified_gmt":"2025-12-03T16:02:35","slug":"4-ways-california-should-strengthen-its-cap-and-trade-program","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/climate411\/2023\/08\/03\/4-ways-california-should-strengthen-its-cap-and-trade-program\/","title":{"rendered":"4 ways California should strengthen its cap-and-trade program"},"content":{"rendered":"

This blog was co-authored by Mary Catherine Hanafee LaPlante, Intern, U.S. Climate Policy<\/em><\/p>\n

As the hottest summer on record<\/a> scorches the state, California leaders are working to tackle the impacts of climate change head-on by strengthening an essential tool in their climate policy toolbox: the state\u2019s cap-and-trade program<\/strong>.<\/p>\n

Last year, the California Air Resources Board (CARB) finalized its Scoping Plan for Achieving Carbon Neutrality<\/a> which recognized the importance of accelerating action this decade<\/em> to put the state on track to achieve net-zero emissions by 2045 as well as 85% reductions below the 1990 level. Specifically, the Scoping Plan highlights that California needs to exceed its near-term goal and achieve 48% reductions below 1990 by 2030<\/strong>.<\/p>\n

To reach these critical goals, CARB is evaluating potential amendments to its cap-and-trade program. With two workshops<\/a> on the books, CARB is already making significant strides towards fortifying the program.<\/p>\n

Here are four key opportunities for the state to strengthen the cap-and-trade program:<\/strong><\/p>\n

1.\u00a0 Align the emissions cap with the Scoping Plan goals<\/h3>\n

The cap-and-trade program plays a crucial role within California\u2019s suite of climate policies by ensuring that emission sources covered by the program do not exceed the allotted emissions \u201cbudget.\u201d The program does this by setting an overall, declining cap (or limit) on emissions and accounting for each ton of climate pollution beneath the cap with one emission \u201callowance.\u201d Emissions sources covered by the program \u2014 which account for approximately 78% of the state\u2019s total emissions<\/a> \u2014 are required to hold one allowance for every ton of climate pollution they emit. As the cap declines over time, sources must cut their pollution because there are fewer allowances \u2014 in other words, fewer emissions \u2014 available under the cap.<\/p>\n

That\u2019s why tightening the emissions cap is a critical tool to accelerate emissions reductions<\/strong>: when the program issues fewer allowances, regulated sources must release fewer emissions \u2014 and the program achieves greater emission reductions.<\/p>\n

The current emissions cap is set to decline towards a 40% reduction below 1990 levels by 2030. But California can \u2014 and should \u2014 tighten the emissions cap to achieve the Scoping Plan goals. CARB has taken a promising step forward toward this goal, announcing at recent workshops<\/a> that the state is evaluating multiple allowance budget scenarios set to a 40%, 48%, and 55% reduction below the 1990 level by 2030. The scenarios also evaluate allowance budgets to meet the state\u2019s longer-term legislative goals to reach net-zero emissions and reduce emissions at least 85% by 2045.<\/p>\n

EDF applauds this important step and urges CARB to move forward with a cap adjustment that will reduce emissions at least 48% below 1990 levels by 2030 \u2014 in line with the emission reductions called for in the state\u2019s 2022 Scoping Plan.<\/strong><\/p>\n

2.\u00a0 Calibrate the cap as the emissions \u201cbackstop\u201d<\/h3>\n

Increasing ambition in the cap-and trade program is especially important to provide a \u201cbackstop\u201d on emissions: playing a crucial role in keeping California on track to achieve cumulative emission reductions in line with its goals. Essentially, the emissions cap is the state\u2019s \u201cinsurance policy\u201d \u2014 in the event that other policies deliver fewer reductions than expected, the emissions cap ensures that the necessary reductions are still accomplished.<\/p>\n

This is especially important as CARB has raised concerns about the ability of California to deploy nascent technologies like green hydrogen and carbon capture on a meaningful scale by 2030. So, in the event that these technologies don\u2019t deliver the desired reductions on the necessary timeline, California can rely on its emissions backstop to ensure the state still meets its climate goals. Uncertainty underscores the necessity of a firm emissions cap.<\/p>\n

To function effectively as the backstop, the emissions budget must be calibrated to ensure that cumulative emissions in California stay below levels allowed under a linear trajectory from 2020 to the Scoping Plan\u2019s 2030 target.<\/strong><\/p>\n

As described in more detail below, CARB\u2019s approach to setting future allowance budgets already takes a crucial step in this direction by committing to achieve cumulative reductions consistent with the target trajectory. CARB should also evaluate strategies to shore up the emissions cap as the backstop on economy-wide emissions. That could include factoring in emissions projections for California emissions sources that fall outside of the cap\u2019s coverage. This helps to ensure that the allowance budget is stringent enough to account for potential emission growth in uncapped sectors and still achieve the necessary cumulative reductions. This \u201cbackstop\u201d approach should also factor in any previously \u201cbanked\u201d allowances that may be used for compliance in the upcoming years to ensure that, when these allowances are used, the program still guarantees the necessary pollution cuts.<\/p>\n

3.\u00a0 Minimize cumulative climate pollution this decade<\/span><\/h3>\n

California\u2019s commitment to tightening its allowance budget marks a significant stride in climate ambition: not only will a more ambitious cap help the state meet its 2030 and 2045 climate targets, but it will also accelerate emission cuts in the near term.<\/p>\n

To effectively minimize climate damages, California must rapidly cut climate pollution in this decade. Long-lived greenhouse gases, like carbon dioxide, can last for centuries in the atmosphere \u2014 meaning that pollution emitted today will continue fueling climate impacts for generations to come. Therefore, the sooner California cuts emissions, the greater the cumulative reductions \u2014 and the easier it becomes to ensure California minimizes the cumulative build-up of climate pollution over time.<\/p>\n

CARB\u2019s recent workshop emphasized the importance of securing cumulative emission reductions consistent with the state\u2019s goals. Staff presented modeling scenarios<\/a> that considered three \u201cend points\u201d for the point-in-time target the emissions cap would be set to achieve in 2030 \u2014 then, critically, showed how the emissions budget between 2025 and 2030 would be tightened to reduce cumulative<\/em> emissions in line with meeting these targets.<\/p>\n

For example, the figures below illustrate the \u201chypothetical linear decline\u201d that would have been achieved by tightening the emissions cap between 2021 and 2030 aligned with the state\u2019s Scoping Plan scenario: a 48% reduction below 1990 levels by 2030. To implement the cumulative<\/em> reductions consistent with the Scoping Plan scenario, CARB would need to apply these reductions \u2014 which are modeled over the decade \u2014 to the future 2025 through 2030 allowance budget.<\/p>\n

\"\"<\/a>
The \u201chypothetical linear decline\u201d shows the trajectory if the emissions cap were reduced, beginning in 2021, towards the Scoping Plan\u2019s 48% by 2030 emission reduction goal. This emissions trajectory, modeled over the course of the decade, is then used to determine the cumulative reductions that are needed from future allowance budgets. Note that this analysis is an approximation based on the methods described in CARB\u2019s July 27, 2023 workshop<\/a>.<\/figcaption><\/figure>\n
\"\"<\/a>
Future allowance budgets in 2025 through 2030 would be adjusted to achieve the same cumulative reductions under the \u201chypothetical linear decline.\u201d Note that this analysis is an approximation based on the methods described in CARB\u2019s July 27, 2023 workshop<\/a>.<\/figcaption><\/figure>\n

This approach emphasizes that the path we take towards achieving emissions targets<\/strong><\/em> \u2014\u00a0and the cumulative reductions achieved over time<\/strong><\/em> \u2014 is even more important than \u201chitting\u201d a particular emissions level in a specific year.<\/p>\n

EDF commends CARB\u2019s focus on driving cumulative reductions in line with the state\u2019s target \u2014 helping the state accelerate emissions reductions as rapidly as possible and secure a safer climate future.<\/p>\n

4.\u00a0 Follow recommendations from the Environmental Justice Advisory Committee<\/h3>\n

As CARB evaluates potential changes to the cap-and-trade program, it should strongly consider implementing the following recommendations from the Environmental Justice Advisory Committee<\/a> and the Independent Emissions Market Advisory Committee<\/a>:<\/p>\n