Assembly Democrats Answer the Call to Extend Cap-and-Trade

Thursday, January 12, 2017

Today, Assemblymembers Autumn R. Burke, Jim Cooper, Evan Low, and Blanca Rubio have introduced legislation to extend California’s cap-and-trade program beyond 2020. Assembly Bill 151 affirms the State’s goal of reducing greenhouse gas emission at least 40 percent below 1990 levels by 2030 in the most technologically feasible and cost effective way by using a market based mechanism: cap-and-trade.

“The Cap-and-Trade program is an effective tool which helps California fight global warming and the emission auction revenues generated help us pay for programs that reduce carbon emissions while helping California’s industries create 21st Century jobs,” said Assemblywoman Burke. “We can demonstrate that government can support industry by guaranteeing certainty while encouraging economic investment that will create jobs for our working families.”

“Cap-and-trade is an important tool to help disadvantaged communities participate in efforts to improve air quality,” said Assemblymember Cooper. “AB 151 will help ensure California continues to invest cap-and-trade revenues in areas of the state with the greatest need."

Cap and trade is a market-based instrument to provide economic incentives for achieving reductions in greenhouse gas emissions. The “Cap” sets statewide limits on emission allowances that are gradually lowered over time. The California Air Resources Board distributes a mix of free allowances and holds a quarterly auction to allow market participants to acquire emission allowances. These quarterly auctions can generate significant revenues for the State that pay for a variety of greenhouse gas cutting programs including High-Speed Rail, Transformative Climate Communities, energy efficiency, public transit, low-carbon transportation, and affordable housing.

The “Trade” creates a market for emission allowances that lets companies buy and sell allowances, providing the flexibility needed to meet their cap and creating an incentive to invest in cleaner technologies.  The relationship between supply and demand of allowances in the trading market in essence creates the price of each emission allowance.  Companies that end up with extra allowances are then able to sell them to other companies turning their emission cuts into revenue. At the end of each compliance period companies must surrender enough allowances to cover its actual emission of greenhouse gases. The number of allowances allocated is lowered every year with the cap ideally incentivizing private industry to spur technological innovations that result in companies emitting less greenhouse gas emissions. 

“It is important that we preserve the intent of the cap-and-trade program beyond 2020 and we continue to provide incentives for energy efficiency,” said Assemblywoman Rubio. “AB 151 will adhere to the State’s goal reducing gas emissions while bringing clarity to existing law.”

Currently, California’s historic cap-and-trade program established by California Global Warming Solutions Act of 2006 AB 32 is set to expire in 2020. Additionally, there is pending litigation lead by the California Chamber of Commerce that asserts the auction process under the cap-and-trade program is unconstitutional because it was not enacted, as they claim, with the necessary two-thirds majorities vote in both chambers of the legislature as required in the California Constitution. As a result of the legal haziness of continuing the existing program, Governor Brown’s budget included the following statement regarding the funding of his Cap-and-Trade Expenditure Plan: “Funding for these programs will be allocated only upon legislative confirmation of the Air Board’s authority, through a two‑thirds vote, to administer Cap-and-Trade auctions beyond 2020.”