Thanks to Larry Goulder for inviting me and Michael Wara to join his graduate seminar in environmental economics to talk about carbon pricing policy in California. Larry's research in climate policy instrument choice and design shaped my understanding of the field, so it meant a lot to me to have the opportunity to talk with him and his students about the way these issues are playing out in California.
Debra Kahn quotes a recent comment letter from my team at Near Zero and Michael Wara in a ClimateWire story on California's proposed scoping plan update for 2030:
Academics warned that if the Trump administration interferes with the state's waiver to enforce its tailpipe standards under the Clean Air Act, it could cost the state 52 million metric tons of CO2 emissions through 2030.
The state is also banking on about 111 million metric tons of reductions from the destruction of hydrofluorocarbons (HFCs) under its plan to address short-lived climate pollutants. About half of those reductions could be in jeopardy if the Trump administration abandons last year's Kigali Amendment to the Montreal Protocol for ozone-depleting chemicals, the academics said, for a total of about 15 percent of the cumulative reductions the state needs to achieve by 2030.
"[T]he prospects for the Trump Administration following through on this international agreement are dim," wrote Mason Inman, Michael Mastrandrea and Danny Cullenward of the Carnegie Institution for Science and Stanford University law professor Michael Wara. The administration recently defended a 2015 rule from U.S. EPA that eliminated some uses for HFCs in recognizance of the international agreement, however (Greenwire, Feb. 17).
As an aside, Debra is absolutely right to note that the Department of Justice recently defended EPA's authority to regulate low-global warming potential HFCs under the SNAP program in response to an industry challenge (Mexichem Fluor, Inc. v. EPA).
Given DOJ's recent reversals in other energy- and climate-related lawsuits, DOJ's consistent arguments in favor of EPA in this case may reflect the administration's support for (or indifference to) current SNAP policy. A few of the major companies that manufacture chemicals in this area support the SNAP regulations, so perhaps the administration has received mixed messages from the business community. Or perhaps this is just a low-profile case that didn't rise to the level of political attention so soon after President Trump's inauguration.
In any event, we didn't cover this legal risk in our comment letter. Going forward, however, we'll keep a close eye on what the D.C. Circuit decides, since a loss for EPA in this case could undercut California's broader effort to control HFC emissions.
Meanwhile, the 51 MMtCO2e in planned HFC reductions we identified as at risk are a separate matter. With low odds that the U.S. Senate will ratify the Kigali Amendment to the Montreal Protocol, these reductions are in question even if the D.C. Circuit finds in favor of EPA in Mexichem Fluor.
Our letter focuses on CARB's approach for managing uncertainty and risk on the path to California's ambitious 2030 climate target. As we point out, the scoping plan process began at a time when California could expect a cooperative federal government. With the Trump Administration moving to reverse the United States' early efforts on climate, however, a number of key provisions in the proposed scoping plan are now at risk.
Mason and Mike did a remarkable job of using CARB's own data and models to analyze the impacts of the Trump Administration's actions two key policy areas: (1) EPA's review and possible revocation of California's Clean Air Act waiver authority to exceed federal regulations for emissions from light-duty vehicles, and (2) increased hydrofluorocarbon (HFC) emissions as a result of the U.S. Senate not ratifying the Kigali Amendment to the Montreal Protocol. Mason and Mike each contributed an extensive technical appendix showing how these calculations were made, in order to help CARB staff evaluate the risks with greater clarity.
Our modeling work suggests that worst case outcomes in each instance could cause emissions to exceed the scoping plan goal by 52 MMtCO2e (vehicles waiver) and 51 MMtCO2e (Kigali Amendment) above the scoping plan goal, expressed as cumulative emissions over 2021-2030 using 100-year AR4 GWPs. Together, the risks clock in at 103 MMtCO2e, which is about 15% of the cumulative emissions reduction budget (680 MMtCO2e) CARB is using to establish compliance with SB 32's target for 2030. (As an aside, it still isn't clear how a cumulative emissions budget can be used to demonstrate compliance with an annual target, but that's another problem.)
The implication of these risks is that if they come to pass—and the loss of the Kigali Amendment looks very likely at this point—other policies will likely need to pick up the slack in the final scoping plan. One option would be to shift these planned reductions to the cap-and-trade program (although I should point out that cap-and-trade needs a 2/3 re-authorization vote in the Legislature). In that case, the projected role of the cap-and-trade program would grow from 191 to 294 MMtCO2e over 2021-2030, an increase of 54%. As this calculation shows, incorporating policy risks into the scoping plan highlights the importance of getting a robust carbon pricing program in place for the post-2020 period.
In addition to quantifying the potential impacts from hostile federal policy, we also point out that CARB's use of a deterministic reference case to analyze business-as-usual emissions to 2030 introduces significant uncertainty into the planning process. No single forecast can serve as a reliable basis for planning on this time horizon; by locking into a single reference scenario without any uncertainty analysis, CARB would increase the risk of strategic errors in its efforts to achieve deep decarbonization.
I'm really proud of this letter as an example of what can be accomplished by merging legal analysis with high-quality technical modeling. Great job, everyone!
Debra Kahn at E&E's ClimateWire quotes me in today's lead story on the appellate court decision that came down yesterday in California Chamber of Commerce v. CARB, a case in which carbon market opponents challenged the legality of the state's quarterly allowance auctions:
"It's great for the state," said Danny Cullenward, a research associate at the Carnegie Institution for Science who has been analyzing the market since its inception. "It's an unambiguous win."
Observers disagreed on whether that part of the ruling would affect future legal challenges to the program. While [UCLA Emmett Institute Co-Director Cara] Horowitz said the court's "rationale makes the auction look less like a tax under any analytical approach," Cullenward said a supermajority vote is still needed. "This case does not change the question or the need for ARB or any other advocate of carbon pricing to obtain legislative authority and confront Prop 26," he said.
Cara Horowitz's comments build on a post she made over at Legal Planet. We appear to disagree because I don't think the dicta in yesterday's decision provides a firm basis for pursuing an exemption to Proposition 26, whereas Cara is more optimistic about the opinion's meaning—but in any case it is extremely important to be clear about the fact that Propositions 13 and 26 are entirely distinct in legal terms.
Yesterday's decision concerned Proposition 13. The court defined the word "tax" using an 1850 California Supreme Court case, People v. Naglee, and evaluated the cap-and-trade auctions using a two-part test drawn from that case. Ultimately the court concluded that the auctions did not meet the two Naglee criteria and therefore that the auctions are not a "tax" under Proposition 13.
As all three justices acknowledged, Proposition 26 wasn't implicated by this case because Proposition 26, which strengthened the older Proposition 13 standard, applies only to statutory changes made after 2010. Since AB 32 (the statute that authorized cap-and-trade) passed in 2006, the California Chamber of Commerce challenge operated under the older Proposition 13 standard. But any new legislation to extend California's carbon pricing policy beyond its expiration in 2020 would trigger review under Proposition 26 as a post-2010 change in statute.
The difference between Propositions 13 and 26 is enormous in legal terms. Because Proposition 13 doesn't define the key term "tax", courts can and do develop their own relatively permissive tests for asking whether or not a policy constitutes a tax. In contrast, Proposition 26 included a broad and strict definition: "any levy, charge, or exaction of any kind imposed by the State" (Cal. Constitution Art. XIII A § 3(b)). There are five narrow exemptions to this definition, none of which obviously map to the situation at hand (as I have written about concisely in a comment letter to ARB and at great length in the Energy Law Journal).
Proponents of carbon pricing—a group I am definitely in—need to confront Proposition 26 and not send the message to lawmakers that perhaps a tough vote isn't needed on the basis of a case that no courts are bound to apply in a challenge made under Proposition 26.
If someone has an argument about why yesterday's decision relieves the Legislature of the need to secure a supermajority vote to extend carbon pricing, he or she should make it in clear, transparent, and fully developed terms—something Cara suggests she will do in a follow-up post. I did my best at that exercise and came up short in the Energy Law Journal article linked to above precisely because I wanted the climate policy community to take seriously the enormous challenge that Proposition 26 presents.
My view is that is going to take a major effort to secure a 2/3 supermajority vote, and that is something that is absolutely worth pursuing. Meanwhile, there is nothing wrong with thinking through backup plans if a 2/3 vote proves elusive, but advocates should remember that policymakers are unlikely to understand the detailed nuances of a tentative legal theory that is deep in the weeds of California's forty-plus year history of convoluted anti-tax ballot initiatives. How confident can anyone be that yesterday's good news on Proposition 13 makes the Proposition 26 voting hurdle unnecessary?
After well more than a year working on this specific issue—including writing a 25,000 word law review article that was peer reviewed by a prominent lawyer who disagreed with my argument and helpfully negotiated every critical footnote—I would not express any such confidence. But I welcome the chance to continue the discussion with Cara and others as this important issue unfolds with the goal of advancing California's critical leadership role in climate policy.
Michael Wara and I gave a joint presentation on Monday at the Stanford Energy Seminar. The description and series of companion readings is available at the Precourt Institute; I'll post the video here as soon as it's available. Thanks to John Weyant for the invitation and to Sally Benson for introducing us on Monday.
Update: the video is now available.
The Bulletin of the Atomic Scientists hosted a mini-forum on what President Trump's new executive order on climate means for the Paris Agreement. My take is that this is a de facto withdrawal of the Paris pledge, but that the United States was never on track to meet those commitments—absent the level of policy action we are now seeing from President Trump, albeit in the opposite direction.
Trump Moves to Dismantle U.S. Climate Rules, Bobby Magill, Climate Central:
The reversal of the plan is likely to be interpreted abroad as the U.S. pulling out of the Paris pact even if it doesn’t do so officially, said Danny Cullenward, a professor [*] of climate change law and economics at Stanford University.
“Politically, it will rightly be recognized as the Trump administration thumbing its nose to the climate problem,” Cullenward said.
Justice Department Moves Swiftly to Back Trump Climate Order, John Upton, Climate Central:
The professionally drafted climate order and its smooth rollout suggest environmental groups opposing the order face greater obstacles than groups that opposed Trump’s immigration ban.
“This EO [executive order] is much more sophisticated than the immigration EO,” said Danny Cullenward, a Carnegie Institution for Science researcher focused on climate policy. “On its face, it raises no obvious legal concerns.”
Thanks to Bobby and John for reaching out and for their helpful coverage of the massive changes underway in federal policy.
* Note: I am only a Lecturer at Stanford—I will be teaching a class on the ongoing transformation in U.S. environmental law that begins next week and a class on climate law and policy in the fall quarter, but I'm not on the permanent faculty.
In a new Comment at Nature, NYU political science professor Jessica Green argues against the prevailing theory that emerging carbon markets can and should link together to pursue a coordinated global carbon pricing policy. Citing problematic interactions between the EU Emissions Trading System (EU ETS) and Clean Development Mechanism (CDM), as well as California's cross-border electricity emissions accounting woes, Jessica makes the case that governance challenges limit the viability of linked carbon markets:
Many policymakers argue that the next logical step is to combine cap-and-trade efforts into one global carbon market. According to prevailing economic theory, linking markets together should promote trading, smooth financial flows and lower the overall cost of reducing emissions. A global price on carbon emissions would emerge without the need for long and fractious diplomatic negotiations.
But reality is more complicated. Initial attempts to join up trading schemes in Europe and in California and Quebec have led to price crashes and volatility, not stability. It is becoming clear that cap and trade works only under special circumstances — when one entity controls the market and parallel initiatives do not undermine it.
Personally, I wouldn't make the general argument that market links themselves have led to low and volatile prices. Those are common outcomes in all emissions trading systems, not necessarily a product of the market links themselves—though the presence of a market link does mean that volatility in one system is readily transmitted to another, so the distinction I'm drawing is perhaps a minor one.
Sometimes the link itself is a driver of low prices, such as in the EU ETS / CDM link. CDM offset credits contributed to the oversupply of compliance instruments in the EU ETS; when EU regulators banned problematic CDM credits in Phase III of the EU ETS they nevertheless allowed allowance banking in between Phases II and III, with a large quantity of allowances from Phase II made available for banked use in Phase III as a result of CDM credit used in lieu of allowances in Phase II. Hence, the connection between the EU ETS / CDM market link and persistent low carbon prices is a direct one.
In contrast, the California-Québec market link has little to do with causing the ongoing anemic allowance auctions and low market prices that followed. However, this link illustrates an important governance challenge I documented in an earlier paper that Jessica cites. On the eve of California's formal market launch, last-minute reforms to cross-border electricity trading rules led to significant reductions in expected market demand without acknowledgement in the public regulatory process whereby California and Québec linked carbon markets. Analytically, it is possible to show that either: (1) California regulators told their Québécois counterparts about the expected consequences that they denied in the public regulatory process in California; (2) California regulators were aware of the expected consequences but neither disclosed them to their Québécois counterparts nor in the public regulatory process; or (3) that California regulators ignored the findings of their own expert advisers, believing that no consequences would follow from their internal market reforms.
Whatever the case, the California-Québec experience highlights how administrative and oversight requirements are much higher in linked markets where all participants seek to share governance responsibilities and not just let one jurisdiction become the de facto group regulator. This also reinforces Jessica's main point, which is that the consequences of regulatory reforms in one jurisdiction necessarily affect all of the linked jurisdictions as well—especially when one jurisdiction is much larger than its smaller trading partners. On that basis alone the concerns she raises are important to consider, even though I tend to describe market links primarily as vectors for volatility, rather than drivers.
If linking carbon markets turns out to be too difficult to pursue in practice, does that mean carbon markets won't be effective as a means to some future coordinated climate policy? Not necessarily. Carbon markets can be designed to achieve specified price trajectories, using price floors and ceilings (or together, a price collar to ensure that market prices stay within a specified range). In this application it is actually quite simple to coordinate carbon market prices with carbon pricing policies in other jurisdictions—by comparing and negotiating carbon price trajectories across instruments and jurisdictions, just as in tax policy coordination.
Update: on a second read, I realize my post might come off as critical of Jessica's work. That wasn't my intention. I'm very happy that Jessica has published this important essay and hope it will lead to more conversations within and between the social science communities that research climate policy.
Yesterday I spoke at the UC Davis Environmental Law Society's annual symposium on California's 2030 climate policy. My co-panelists Richard Frank (UC Davis), Leslie McAllister (UC Davis), Michael Dreibelbis (Latham & Watkins), Darien Shanske (UC Davis), Albert Lin (UC Davis), and I discussed California's foreign climate policy—including whether we can ever pursue such a thing under the U.S. Constitution.
My presentation began with the observation that California's major climate policies were launched during the Bush Administration, but didn't actually take shape until the Obama Administration, which explicitly and implicitly supported the state's efforts to demonstrate leadership on the global stage. Those were the good old days. Under President Trump the risks of federal preemption on foreign affairs grounds are much higher, as his administration begins to roll back bedrock environmental regulations as well as the United States' commitments to the United Nations climate negotiations.
For California to continue to lead in this difficult new era—especially in its approach to carbon pricing—we will need to be more strategic about the form our outward-facing engagement takes. In my view policymakers should continue to convene and demonstrate leadership in non-binding discussions like the Under2 MOU and the Pacific Coast Collaborative, but linking our carbon market with international jurisdictions raises new and unnecessary risks. Rather than link carbon markets, we can coordinate our carbon prices with our neighbors and allies around the world, just like the framework Prime Minister Trudeau has initiated for Canadian provinces.
Thanks to the student organizers—Sophie Wenzlau, Dane Jones, and especially Jamie Katz—for inviting me. I really enjoyed the event and the chance to visit the Davis campus during the peak of California's early spring season.
Update: Leslie McAllister writes to share more about her presentation on the history of California's international climate cooperation.
Bobby Magill quotes me in a Climate Central story on EPA's decision to withdraw a request for methane emissions data from existing oil and gas facilities, which had been an early part of an Obama-era EPA process for developing regulations that would apply to these sources:
The decision will hobble the EPA’s ability to accurately calculate methane emissions in its annual tally of total U.S. greenhouse gas emissions, which is provided to the United Nations to track America’s progress in addressing climate change, said Danny Cullenward, an energy economist at the Carnegie Institution for Science.
“The notion that EPA won't be collecting and monitoring data is cause for concern,” Cullenward said. “How is the public supposed to be confident that EPA policy is striking an appropriate balance without any data?”
Thanks to Nik Sawe and Sibyl Diver for having me visit their Environmental Governance class to talk about emissions trading. We covered the SO2 trading program and California's carbon market as two important case studies in the history of emissions trading. It was fun to see some friends from the E-IPER program, including the course's TA and current PhD student Christa Anderson.
Last week I spoke at a Law Seminars International conference in Seattle on Climate Change in the West. My talk covered dormant commerce clause and federal preemption issues as they relate to state climate policy design, which is now the main path for policy progress under the Trump Administration.
I really enjoyed the chance to talk about western energy and climate policy issues with non-California stakeholders, as well as to meet a number of energy lawyers whose work I've respected for years. Thanks to conference organizers Kevin Poloncarz and Craig Gannett for the invitation, as well as to the excellent LSI staff for their help making the event successful.
Gizmodo's Sidney Fussell quotes me in a story about Pruitt's confirmation as EPA Administrator:
In 2015, Pruitt led a coalition of 28 states in a lawsuit against the EPA that aimed to block the [Clean Power Plan's] implementation, saying it overburdens coal-dependent economies by forcing them to choose between energy production and federal compliance. Some states, Pruitt argued, will see massive layoffs in the energy sector and state-wide power shortages.
“Those are alarmist talking points,” said Danny Cullenward, a research associate at the Carnegie Institution for Science. Cullenward points out that a number of states, even those protesting the law, are close to meeting its regulatory goals. “The idea that this is gonna cause blackouts and massive layoffs is really a farce. There are massive transformations underway in the US power sector that are driven by completely different forces,” including the booming natural gas industry, and rapidly-falling cost of renewable energy.
“Climate policy isn’t killing the coal industry, economics is killing the coal industry,” Cullenward said, explaining that the decline in American coal production is part of a nationwide shift to natural gas and renewable energy. “The pursuit of natural gas under first the Obama Administration and now the Trump Administration is really putting the nail in the coffin [for coal].”
Thanks to Marjorie Went and Jeff Reimer for having me visit their class on carbon capture and sequestration technologies to give an overview of the history and outlook for climate policy. Marjorie and Jeff were kind enough to have me speak when I was a research fellow at UC Berkeley and I'm delighted to have the chance to come back. It's always good to see old friends at Berkeley, and of course the class itself is a welcome reminder of how valuable it was for me to learn about CCS technologies when I was in graduate school.
Earlier today my co-author Andy Coghlan and I gave a talk on our recent Energy Law Journal article, State Constitutional Limitations on the Future of California's carbon market.
Thanks to ELJ Editor-in-Chief Bob Fleishman, the Energy Bar Association, the Foundation of the Energy Law Journal, and the Environment & Energy team at Morrison & Foerster LLP, which generously sponsored the event. Andy and I are grateful for the chance to publish with ELJ and to share more about our work with the Energy Bar Association's members.
James Temple has a new story at MIT Technology Review on the actions that Scott Pruitt, President Trump's nominee to head the Environmental Protection Agency, could take to reverse progress on climate policy. Thanks to James for taking the time to explore the complex administrative processes involved in revoking or modifying climate rules under the Clean Air Act and for featuring me in the resulting article:
None of the administration’s policy overhauls could simply sail through, however. Undoing the federal fuel economy standards and withdrawing the California waiver would each require a protracted process of public notice and comment, says Danny Cullenward, an energy economist and lawyer with the Near Zero program at the Carnegie Institution.
Bobby Magill at Climate Central quotes me in a story on the U.S. Army Corps of Engineers' decision to grant an easement that allows the Dakota Access Pipeline's final link to be constructed:
Danny Cullenward, an energy economist at Stanford University, said the Keystone XL and Dakota Access pipelines are likely to increase oil production because the costs of shipping oil via pipeline are lower than shipping oil via rail or truck, two of the primary modes of transport for Bakken shale oil and Canadian oil sands today.
The Obama administration’s rejection of the pipelines wasn’t merely symbolic because additional greenhouse gas emissions from tapping such large sources of oil are likely to make it difficult to keep global warming from exceeding 2°C, Cullenward said.
“The total emissions that would come from long-term exploitation of the oil sands are not inconsequential in global terms, and therefore activists who believe they are stopping that long-term trend are consistent in claiming the significance of their actions in climate terms,” he said. “If that’s where you draw the line in the sand, then it’s not mere symbolism to oppose these pipelines.”
Thanks to Nicolas Stahelin for the opportunity to visit the International Honors Program on Climate Change to talk about climate policy today in San Francisco. It's always refreshing to be around smart young people, even more so when times are tough. As I told the IHP students today, I didn't see the old ways working very well for climate policy. Although state and local governments are our only shot for climate policy progress in the next few years, the path forward also offers an opportunity to build a different political model for policy change. Here's hoping a few of the IHP students decide to pitch in the months and years ahead!
PolitiFact quotes me in an analysis of Governor Brown's State of the State Address, which compared California's leadership in the Under2 MOU initiative to the Paris Agreement under the United Nations Framework Convention on Climate Change:
Under the MOU, California pledged to reduce emissions 40 percent below 1990 levels by 2030 and actually enacted legislation that codifies the target and sets a regulatory process in place. That’s a "really high watermark" that hardly any national governments have met, said Danny Cullenward, an energy economist at Carnegie Institute for Science.
Cullenward pointed out that the Paris agreement’s depth is the result of two decades of negotiations, while the MOU is a relatively new compact and will likely become much more sophisticated over time.
"It’s no substitute for eventual national action. But it’s a really appropriate strategy where you have national governments that aren’t interested in taking action on climate change," he said.
Thanks to Tampa Bay Times journalist Linda Qiu for speaking with me.
Michael Wara and I have a new essay at the Bulletin of the Atomic Scientists on the need for new climate legislation to price carbon in California. A recent bill, SB 32, set a deep climate mitigation target for 2030, but left unresolved the question of how to reach this goal because the bill's backers lacked supermajority support that is necessary to impose carbon pricing policies under the state's infamous restrictions on raising new revenues.
In addition to describing the lay of the land, Michael and I offer our thoughts on how state policymakers can assemble a broader coalition. In our view the key to political success—and in turn, effective carbon prices—lies in prioritizing social justice concerns:
Making sure the climate transition benefits low-income neighborhoods and communities of color isn’t just the right way to pursue climate policy. In California, where policies to price carbon require a two-thirds vote before becoming law, it may turn out to be the only way.
As difficult as the two-thirds voting requirement seems, the California legislature has a remarkable opportunity to lead on climate policy in 2017. Its success would offer a much-needed model for others follow in the years to come, both in shifting to a market-oriented strategy for deep mitigation targets and in demonstrating a new political coalition to support robust climate policy. Here's hoping California will once again step up to the plate when new ideas are needed most.