The Cap-and-Trade Program (the Program) is a crucial aspect of California’s climate agenda and one of the foremost carbon emissions reduction efforts in the world. But flaws in the design of the Program’s compliance instruments diminish its overall effectiveness by limiting the amount of net emissions reductions achieved. This In Brief argues that enabling covered
entities to purchase nonadditional carbon offsets and bank emissions allowances creates loopholes that lead to increased emissions and deepened inequities. The California Legislature (the Legislature) enacted the California Global Warming Solutions Act of 2006 (AB 32) to sharply reduce greenhouse gas emissions. AB 32 required California to reduce these emissions to 1990 levels by 2020. It also directed the California Air Resources Board (the Board) to implement the legislation. The Board established the Program in 2013. In 2016, California emissions fell below 1990 levels, meeting AB 32’s requirement four years early. In 2017, the Program surpassed its largest legal obstacle when the California Supreme Court declined to review a California court of appeal decision that upheld the Program. The authority of the Program was initially set to expire in 2020, but after this decision, the California Legislature extended the Program for another ten years. Many environmentalists celebrate this decision as a win for climate change legislation in California, since it validates the constitutionality of the Program.
Despite the Program’s apparent success in reducing statewide emissions, it is flawed in two ways. First, it enables covered entities to replace their own direct emissions reduction efforts with carbon offset credits. Often, the emissions reductions that the credits represent would have happened regardless of the Program. As a result, greenhouse gas emissions increase because offsets are not sufficient to compensate for covered entities’ lack of meaningful emissions reductions. Second, the Program allows participants to bank allowances for future use. This creates an oversupply of allowances, which will lead to increased future emissions that exceed state limits. These two loopholes represent significant flaws in the Program that impede emissions reduction efforts in California. The flaws frustrate the legislative intent of AB 32 by unduly rewarding carbon emitters while harming California’s most vulnerable communities, thereby deepening environmental inequity and injustice in the state.