The Road to Victory for Cap and Trade in California

Posted by Amisha Rai on Jul 24, 2017 1:00:00 PM


In January, Gov. Jerry Brown declared he would seek a two-thirds vote to extend California’s cap-and-trade system to 2030. The extension to 2030 would keep in place the market-based mechanism that enables the state to reach its ambitious greenhouse gas reduction goals on a cost-effective basis – and send a market signal in favor of advanced energy technologies and services – while passage by two-thirds would protect the system from legal challenges claiming it is a tax, which by law requires approval by supermajority vote. Supporters and neutral observers alike agreed that was the ideal scenario for locking in cap and trade for the next decade, but there was substantial doubt that the votes were there. The idea of a two-thirds vote became even more challenging after the Governor asked the Legislature to hike the gas tax as part of a transportation package. Could he get a two-thirds vote twice in one year? Yes, he could and he did. Here’s how – and how AEE was engaged all along the way.

The cap-and-trade system now in place is on track to reduce emissions to 1990 levels by 2020, as required by AB 32, which was passed into law in 2006. Last year, with the passage of SB 32, a new emissions target was set – 40% below 1990 levels by 2030 – but the cap-and-trade mechanism for achieving it still needed to be extended. 

It was not just the Governor, state regulators, and environmentalists who understood that necessity. When AEE sat down with our members last year to discuss our top priorities for 2017, extending the cap-and trade-program quickly rose to the top. Not only would extending the cap and trade program cement California’s commitment to fighting climate change, it would send a clear signal to business, regulated and non-regulated, to invest in cleaner and more efficient technologies. It would also establish a regulatory path toward an advanced energy economy that other states and regions can link to and follow. 

This effort took months of discussion and deliberation and had its fair share of drama. The Governor’s office amassed a broad coalition of businesses and environmental groups to support the bill. AEE was proud to be part of this coalition. We and our member companies worked tirelessly with the Governor’s office, lawmakers, and other coalition partners over the past months.  

On our lobby day, immediately preceding our Pathway to 2050 conference in Sacramento, more than 40 representatives of over 30 member companies took the call for extending cap and trade to legislative offices. Then, over the past couple of weeks, we kept working to secure votes and support for the bill package. With lawmakers, we emphasized, over and over again, the more than 500,000 jobs supported by advanced energy in California in 2015, a number that would only grow with continued use of cap and trade. Indeed, new data from the U.S. Department of Energy place the number of jobs supported by advanced energy in California at over 550,000 in 2016.

The politics of securing two-thirds support required a complex strategy, which was evolving right up to the final votes in the evening of July 17. The legislative package – put together by Gov. Brown, Speaker Anthony Rendon, and Senate President Pro Tem Kevin De León – needed to win approval included three different bills, each serving a different purpose and geared to a particular constituency. The main vehicle, AB 398, extends the cap and trade program to 2030. It also includes some incentives for industry, such extension of a sales tax exemption on equipment for manufacturers. The bill also removes the fire prevention fee imposed on rural residents. These additions were key to securing industry support – and Republican votes, which it became apparent would be needed to reach the two-thirds threshold. The second bill, AB 617, focuses on air quality monitoring and strengthening efforts to combat criteria pollutants in local communities and hotspots. This was critical to addressing objections from environmental justice groups that cap and trade did not address local pollution problems.

Finally, there was a Constitutional amendment, which will go to the ballot for a vote by the people. ACA 1 was developed by Assembly Republicans and negotiated with the Governor’s office. The measure requires the Legislature to get a one-time, two-thirds vote to expend greenhouse gas reduction funds – generated by the auction of allowances under cap and trade – in the year 2024. This amendment was a safeguard for Republicans to ensure they have a seat at the table at the midway point in the program, and a necessity for obtaining bipartisan support for the entire package. Ultimately, AB 398, extending cap and trade, received one Republican vote in the Senate and eight votes in the Assembly.

The effort brought together a rare alliance. The California Manufacturers Association, CalChamber, AEE, EDF, and our respective lobbyists were all on the same side in the last week. This doesn’t happen often, but it is proof that different industry groups can work together, and that bipartisanship is still possible in California.

It is also clear that AEE has brought something new to the political equation in Sacramento. It is not just us, but also legislative leaders, who cite AEE’s jobs numbers for the state. An industry that supports more than half a million jobs in the state is significant and gets noticed.

Our members played an important role on the way to the final votes. We held countless roundtables and meetings with leaders from the Senate and Assembly on both sides of the aisle. But our work is not done. Understanding the advanced energy opportunity and impact in the state will be just as important as we move to the next phase – implementation of the bill package. For that, AEE will continue to work with state policymakers. While we should all be relieved that California is on track with cap and trade going forward, it is important for AEE and our members to stay engaged, involved, and working to create an advanced energy economy in California.

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Topics: State Policy Update, California Engagement