By Chris Busch
California is America’s climate policy leader, home to both the country’s biggest clean energy industry and an internationally-linked carbon market being modeled across the world. To build on this momentum, California must go even further.
California Gov. Jerry Brown’s 2015 State of the State speech set the right tone by outlining 2030 goals for renewable electricity and building energy efficiency, as well as reducing fossil fuel dependence in transportation. But one fundamental decision remains: What should California’s carbon emissions cap be after 2020?
Energy Innovation recently proposed a cap of 40 percent below 1990 level emissions by 2030 to support the push for international commitments leading up to this year’s COP21 climate conference in Paris. This target and the proposal for how to get there will empower California to keep leading America’s clean energy transition through continued demonstration of the environmental and economic benefits.
In addition to recommending this 2030 target, Energy Innovation’s report outlines a roadmap to get there through a cap-and-trade design building on California’s current program. The value of using the cap-and-trade program as a capstone policy is that it: provides an economy-wide ceiling (or cap) on emissions that declines over time; generates revenue to ensure a fair transition and to help fund low-carbon investments; and introduces flexibility mechanisms that will ensure costs are manageable.
Figure 1 shows how the proposed cap-and-trade program puts California on track to reach its recommended 2030 emissions target. The proposed design of the program contains costs through a reserve mechanism that would be filled by setting aside allowances initially and would allow for future borrowing if this initial allotment was ever depleted.
If allowance prices rise to certain levels, the California Air Resources Board would make these reserve allowances available at auction. If prices stay low and reserve allowances are never tapped, statewide emissions would fall 44 percent below 1990 levels. If prices rise high enough, released reserve allowances would accommodate higher emissions. Despite this potential for annual variation, cumulative emissions would still have a fixed limit equal to the sum of all the annual caps over the life of the extended program.
First, increasing evidence shows the feasibility of decoupling economic growth and carbon emissions. In California, emissions have declined 6 percent (comparing 2007 emissions to the most recent data, 2012) while the state’s economy has expanded 9 percent since AB 32 passed in 2006. This is part of an accumulation of evidence that environmental protection and economic expansion can be achieved at the same time. OECD countries’ economies grew nearly 7 percent while their emissions fell 4 percent over the past five years, and last year global emissions from energy use remained flat while economic output increased 3 percent.
Second, the recent U.S.-China climate accord calling for the U.S. to reduce emissions 26 to 28 percent below 2005 levels by 2025 and for China to peak emissions on or around 2030, has completely changed the model for how international progress can take place. A seemingly unsolvable standoff previously existed between developed and developing countries, but nations are now embarking on increasingly ambitious climate mitigation efforts, in large part because of their domestic benefits.
This is certainly true in China, which is looking closely at California’s experience in trying to clean up its own notorious air pollution. For instance, Chinese officials want to know how policymakers greatly improved air quality in Los Angeles, home to some of the world’s worst air pollution in the 1960s. Gov. Brown visited China in 2013, and the state has provided technical cooperation to Chinese authorities seeking to expand renewables and set up a national carbon market.
California is not alone in advancing clean energy in America — 29 other states plus Washington, D.C. have also adopted mandatory renewable portfolio standards — but smart policies originating in California have often spread to other states:
Chris Busch is the Director of Research at Energy Innovation, where he leads the company’s work on Urban Sustainability. Prior to joining Energy Innovation, Chris served as a Climate Economist with the Union of Concerned Scientists, Policy Director for the Center for Resource Solutions, Policy Director for the BlueGreen Alliance, and Senior Research Associate at Lawrence Berkeley National Laboratory. His work in California has helped shape the design of the state’s cap-and-trade program. In 2009, the California Air Resources Board appointed him to the AB 32 Economic and Technology Advancement Advisory Committee. Chris holds a Ph.D. in environmental economics and a master’s degree in public policy, both from the University of California, Berkeley. He received a B.A. in economics and history with honors from the University of Pennsylvania.