Last week, a federal judge dismissed a Trump Administration lawsuit against California’s cap-and-trade program, the Western Climate Initiative — a massive win for the state of California in their continuous battle against the current federal government on environmental protections.
The Department of Justice brought California to court over the issue last year, stating that California was encroaching upon federal authority in making agreements with foreign nations because their cap-and-trade agreement is linked with the province of Québec. According to Judge William Shubb, however, the Trump Administration does not have the authority to impede upon the program, ruling that “the United States has failed to show that California’s program impermissibly intrudes on the federal government’s foreign affairs power.”
This ruling is extremely important for California if the state hopes to meet its ambitious emissions targets, as their cap-and-trade program is supposed to be the largest source of reductions in meeting their 2030 goal, according to the California Air Resources Board’s climate plan.
It also comes at a crucial moment, as California Democrats just announced a $100 billion package to respond to the economic crisis amid the COVID-19 pandemic. The plan relies on a variety of financing mechanisms, including revenue from the Western Climate Initiative, signalling the importance that carbon pricing initiatives may have in this unprecedented moment as a source for recovery revenue.
Attempts to dismantle California’s climate regulations
The Trump Administration’s targeting of the California program did not come as a surprise when it was announced in late 2019. In fact, the federal government has taken numerous measures to reduce the state’s ability to self-regulate since Trump was elected, labeled by current Governor Gavin Newsom as the administration’s “political vendetta against California.”
In the past, the Trump Administration has pulled back federal rules that allow California to set their own, higher, automobile emissions standards than the federal government’s. Vehicle emissions are the largest single source of pollution in the country, and therefore this change in policy has a drastic effect on U.S. emissions.
California has since sued the Trump Administration for this decision, although a final ruling has yet to occur. In the meantime, the largest automakers in the state have agreed to comply with California’s standards. This move spurred the Department of Justice to open an antitrust investigation in order to examine whether or not the automakers violated federal antitrust laws in agreeing to meet the standards.
At the same time, the Environmental Protection Agency threatened to withhold federal highway funding for California because of the state’s poor air quality. Governor Newsom saw this as a clear attack on the state, stating, “while the White House tries to bully us and concoct new ways to make our air dirtier, California is defending our state’s clean air laws from President Trump’s attacks.”
The Trump Administration also attempted to sue the state on the basis that the state’s water regulators violated the California Environmental Quality Act when they called to leave excess water in the San Joaquin River and Southern Delta to maintain and support the river’s ecosystem.
Why is the Western Climate Initiative important?
The Western Climate Initiative, joined by California in 2012, is a linked carbon marketplace between California and Québec. Every three months, polluting industries in both jurisdictions have the opportunity to purchase pollution permits; each permit then enables the polluter to emit one ton of carbon dioxide. The Western Climate Initiative places a cap on the total amount of permits available, which decreases every year in order to reduce total emissions. This incentivizes industries to find ways to reduce their emissions, in order to reduce costs, but also gives businesses flexibility in how they choose to do so.
The program began officially in 2012, and linked with Québec in 2014. According to California officials, this international link has only strengthened the program, and allowed for great success in the past 6 years. In 2016, California met its target of getting below 1990 emission levels four years ahead of schedule, and the state hopes to increasingly rely on cap-and-trade to reach their 2030 goals.
The Western Climate Initiative has also been instrumental in raising revenue for the state to reinvest in climate programs, much of which is required to benefit low-income and BIPOC communities. Similarly, Québec has utilized funding to reduce emissions and boost equity, specifically targeting transportation infrastructure and accessibility improvements for communities in need. Each participating jurisdiction is crucially allowed to set up their own processes and priorities for how to spend cap-and-trade revenue.
However, the Western Climate Initiative has occasionally been criticized in the past for not prioritizing low-income communities enough, and certainly still stands to improve on this front. Many polluting industries have simply chosen to offset their emissions, paying for emissions reductions projects elsewhere in the world to combat the cost for their pollution, which doesn’t help the communities in California most affected by climate change.
While officials have been receptive to the critiques and have been working to find ways to improve, these criticisms are important to note as the Western Climate Initiative may revise its funding priorities in the midst of the current economic crisis.
Cap-and-trade’s new prominence in funding economic relief
As California continues to battle the Trump administration’s efforts to undermine their climate regulations, a new sense of urgency for funding has arisen — the current economic recession that has derived from the COVID-19 pandemic.
Experts estimate that across the country, state budget shortfalls may exceed $555 billion over the next two years. At the same time, states are more in need of money than ever to get their economies back on track and afford adequate safety precautions as businesses begin to open back up.
Moreover, the federal government has failed to offer states enough funding to cover their budgets, let alone craft effective economic recovery plans, meaning that states are largely on their own in the process. Assembly Speaker Anthony Rendon in California highlighted this, stating, “millions of Californians are suffering in this economic downturn, and Republicans in Washington, D.C. don’t seem to care.”
With this in mind, California Democrats announced their own funding plan to reinvigorate the state’s economy — $100 billion to extend unemployment insurance and benefits to undocumented residents, deter evictions, fund new construction and infrastructure projects, and a myriad of other investments. It also includes some early rhetoric on green investments, including funding for wildfire prevention projects, electric vehicle infrastructure, and efficiency upgrades. At the moment, the plan is in its early stages, and is expected to be released in greater detail soon.
Instead of raising taxes at a time when many are short on money, the package draws from existing revenue streams, one of which is the state’s cap-and-trade program. The flexibility for the state to use these funds is essential in moments like these, and carbon pricing initiatives may begin to gain appeal in other states as they see the need for new sources of revenue.
Looking ahead in California
The Western Climate Initiative’s approval over the federal lawsuit is certainly a big win for the state, although it is possible for the Trump Administration to appeal the decision to the Ninth Circuit Court of Appeals, in hopes to receive a different decision.
California is also battling other challenges with the Western Climate Initiative, and while its revenue will be used to solve the current economic crisis, the recession has also severely harmed its ability to generate funding in strenuous times. This was exemplified in the most recent auction, where only one third of the carbon credits available for purchase were sold. Revenue from this auction was only $25 million, while last auction the state raised $600 million.
This has been very detrimental to climate programs throughout the state. California is now $105 million short of funding needed to maintain environmental projects, including clean vehicle incentives, projects that monitor and reduce air pollution in low-income communities, and programs to reduce waste from landfills, just to name a few.
Now, it is up to the state of California, along with Québec, to design and maintain the Western Climate Initiative, and sufficient revenue from it, to achieve ambitious 2030 goals. On top of this, the California Air Resources Board is considering other policies to ensure the state meets their 2030 emissions reduction target despite the current economic recession.