Cap-and-Trade May Not Be Working

Emissions in sectors covered by cap and trade have not gone down, according to A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.
Emissions in sectors covered by cap and trade have not gone down, according to A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.

At last week’s California Air Resources Board hearing to discuss its plan for meeting climate change goals, the cap-and-trade system that has underpinned much of the state’s efforts got raked over the coals. But not by the industries subject to the emissions cap.

Instead, representatives of the communities that are supposed to benefit from investments made possible by money raised by cap and trade asked the board to jettison the program.

Cap and trade, they say, has always been a way for polluters to continue polluting as long as they pay for it. And the harm to communities located near those polluters outweighs any benefits they might get from the money produced by charging them.

Environmental justice advocates have been talking about this for a while, and now there is data backing up their claims. A study by researchers at the University of Southern California and the University of California at Berkeley, A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program [PDF], found a tight correlation between the locations of polluting industries and of low-income communities, especially communities of color.

High-polluting industries tend to be located near low-income communities and communities of color. Graph from A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.
High-polluting industries tend to be located near low-income communities and communities of color. Graphic from A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.

But the study found more. The report says that cap-and-trade has not decreased greenhouse gas emissions, and that in fact the opposite is happening: in several industry sectors subject to the emissions cap, in-state greenhouse gas emissions have actually gone up since the program began.

Only about a quarter of offset credits, purchased to meet greenhouse gas reduction targets, come from California. Image from A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.
Only about a quarter of offset credits, purchased to meet greenhouse gas reduction targets, come from California. Image from A Preliminary Environmental Equity Assessment of California’s Cap-and-Trade Program.

The assessment also found that the highest emitters of pollution tended to buy out-of-state offset credits and use them to meet their emissions cap, rather than reducing their emissions locally.

Cap and trade specifically targets the greenhouse gases that are causing climate change, and yes, those need to be reduce everywhere, not just in California. In that sense out-of-state offsets make sense.

However, the study also found that the companies that emit the most greenhouse gases are the same ones that emit high levels of other serious pollutants like particulate matter, which affect the health of local communities.

In other words, the worst-case scenario seems to be true about cap-and-trade: that polluters who can afford to are continuing to pollute, buying their way out of making actual reductions. And those polluters tend to be located in or near low-income communities that are frequently also communities of color, where their continued emissions of particulate matter and the like are degrading residents’ health.

The purpose of Thursday’s ARB meeting was to discuss its scoping plan for meeting greenhouse gas emission targets, and to that end staff had prepared a fat report detailing the trade-offs of various adjustments that could be made to the existing cap-and-trade system. It was written before the legislature passed S.B. 32, which extends and deepens the greenhouse gas reduction targets that led to the creation of cap and trade—although ARB staff was working under the assumption that the targets would be extended.

The scoping plan was also written before the environmental equity assessment report was released. That may explain why so little of its 300+ pages—not including appendices—discusses alternatives to cap and trade. The staff report rejects the alternatives out of hand, saying for example that an exclusively regulatory approach is more expensive than the cap-and-trade system.

Members of the Center on Race, Poverty and Environment rallied outside the Air Resources Board meeting to bring attention to the inequities of cap and trade. Photo: Melanie Curry
Miguel Garcia from Arvin and other members of the Center on Race, Poverty and Environment rallied outside the Air Resources Board meeting to bring attention to the inequities of cap and trade. Photo: Melanie Curry

Almost two hours of public testimony included passionate statements from people who had come from Central Valley towns like Arvin and Delano to describe the impacts on their communities from climate change and air pollution. “It’s nice in your air-conditioned offices,” said one woman, “but when you’re working outside in the heat, and by the end of the day you can’t breathe, it’s a different story.”

“How many people have to die before your eyes are opened?” one commenter asked the board.

Katie Valenzuela, a member of the ARB’s Environmental Justice Advisory Committee (EJAC), told the board it needed to slow down.

“We have had serious concerns about cap-and-trade,” she said. “We recommended against cap-and-trade at the beginning. We were happy to see that alternatives to cap-and-trade were going to be included in the staff report. However, we don’t feel it is appropriate to be discussing details of how cap-and-trade will work before the scoping plan is complete.”

Martha Dina Argüello of Physicians for Social Responsibility, also a member of the EJAC, reminded the board that environmental justice advocates had raised questions early on about the risks of using cap and trade to reach emission targets. “There was a point in the negotiations,” she said, when a small word change was inserted into the regulations for meeting climate change goals. The words “shall include trading” were changed to “may include a market mechanism.”

“That word ‘may’ meant a lot to us,” she said, urging the board to reconsider the program. “Now you have received two early warnings. Your own [analyses] show some increase in greenhouse gas emissions since cap and trade began. And here is a second early warning in this report from USC. Those of us who work in the public health sector know the importance of acting on early warnings.”

Members of the board seemed receptive to the information in the report, asking staff for details on the technical aspects of cap and trade. For example, the system covers only about twenty percent of the total greenhouse gases that need to be reduced, with other policies bringing the bulk of reductions. The cap itself, which declines every year between two and three percent, should have the effect of both lowering the number of allowances and making them more expensive over time—but emitters who want to or can pay the higher price can continue to do so.

There were two pages in the ARB draft scoping plan addressing environmental justice.
There were two pages in the ARB draft scoping plan addressing environmental justice.

The board did not plan to take any action at Thursday’s meeting, and will take the matter up again at future meetings. Meanwhile staff told the board that there is still time to choose an alternative approach before the current scoping plan is completed, and promised a “robust analysis” by spring.

Not everyone spoke against cap and trade. Erica Morehouse of the Environmental Defense Fund reminded the board that cap and trade, in addition to defining overall pollution limits, does something else unique. “It also places a price on polluting and emitting carbon,” she said. “The benefits of that incentive are important, as is creating some flexibility” in how industries adapt to a world where emissions are limited. “We want to see an inclusive set of solutions that includes cap and trade, but also addresses environmental justice concerns,” said Morehouse. For starters, she said, “we should set the strongest cap possible.”

There are several caveats that accompany the equity assessment report. The authors emphasize that it is a preliminary report, studying the early years of a brand-new program that would be expected to require adjustments. It does not cover the transportation sector, which came under the cap-and-trade system after this data was collected—the authors say that will be the subject of its next report. More work needs to be done to fully collect and compare data, say the authors, who struggled to compile data from inconsistent sources. This problem must be addressed, and new legislation, including A.B. 197, may help with that.

The board expects to continue the discussion at its next meeting in October in Fresno.

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  • I don’t think that “not working” is the right description given how the program is designed. The problem is apparently that it’s not local enough if such a high number of projects keep getting completed outside the communities where the polluters are located or even the state in general. It sounds like the program needs to tighten up location requirements going forward to ensure that the benefits actually occur where they’re most needed.

    • Melanie Curry

      The headline is based on the report, which found that what GHG emissions California has achieved so far came from other regulatory efforts, not from cap-and-trade. That local emissions have worsened under cap-and-trade only adds more pain.

  • The biggest mistake Governor Brown made on cap and trade: giving a lot of the money raised in the auctions to the high-speed rail project. The disappointing latest auction may be the death knell for that poorly-conceived project that continues to waste taxpayers’ money:
    https://www.bloomberg.com/view/articles/2016-06-28/california-hits-the-brakes-on-high-speed-rail-fiasco

    • neroden

      Um, no. That was a perfectly sensible decision supporting a project which is *badly* needed. We’ve needed HSR from LA to SF for at least 40 years, since France built its first HSR lines.

      The incoherent, content-free rant you linked to — an opinion piece written by a Republican hack, not a news piece — isn’t worth reading.

      • Your definition of “hack” is evidently someone you disagree with. Postrel actually provides a good account of the project’s problems, including the main problem it has always had: Not nearly enough money to even begin building it.

        Here’s a more expansive discussion of its other fatal flaw: California voters passed proposition 1A, the enabling legislation for the project, in 2008, which prohibited any public subsidies to operate the system—in the unlikely event it ever gets built, that is:
        http://www.cc-hsr.org/assets/pdf/2ExecutiveSummaryToRepeatReport.pdf

        Since few high-speed rail systems can operate without taxpayers’ subsidy, this is another fatal flaw.

        • neroden

          No, she really doesn’t. She’s a hack. Anything which starts with, and I quote,

          “California’s high-speed rail project increasingly looks like an expensive social science experiment to test just how long interest groups can keep money flowing to a doomed endeavor before elected officials finally decide to cancel it. What combination of sweet-sounding scenarios, streamlined mockups, ever-changing and mind-numbing technical detail, and audacious spin will keep the dream alive?”

          … is just garbage ranting, not actual analysis.

          Flagged.

          • Nope. You’re just hoping no one else reads it so you too can “keep the dream alive.”

    • What exactly is the mistake in that? HSR will use less energy than flying, which currently serves an awful lot of the travel between the Bay Area and SoCal. Additionally, I can imagine that quite a few people who currently drive the Central Valley or from the Central Valley to the Bay Area will use the train once it’s available, thus directly reducing transportation sector emissions. As it is, the State hasn’t started using the $10bn in bonds at all and already, over 100 miles of the Central Valley spine are in progress. While certainly CAHSR seems to be turning into a slush fund for projects on the “bookends” (i.e. Caltrain electrification, Connect US), based on the results of the construction packages currently underway, there is still plenty more money for getting the majority of the way to the almond orchard and San Jose available. Furthermore, if it were to be abandoned, the State is required to leave whatever is started in a usable condition for Amtrak.

  • neroden

    The cap’s too high. If you want cap-and-trade to work, you have to set a cap much lower than the current emissions.

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