Chris Megerian quotes me in the Los Angeles Times on SB 775:
When Stanford University energy economist Danny Cullenward looks at California’s policies on climate change, he sees a potential time bomb.
The state wants to slash greenhouse gas emissions so deeply in the coming years that oil refineries and other industries could face skyrocketing costs to comply with regulations, driving up gasoline prices until the system loses political support. If that happens, an effort touted as an international model for fighting global warming could collapse.
Not everyone agrees with Cullenward’s assessment, but it reflects how experts, officials and lawmakers are starting to reckon with the state’s steep ambitions and the understanding that its current policies may no longer be adequate. Although California has been gliding toward its initial goal of reducing emissions to 1990 levels by 2020, it must cut an additional 40% by 2030 under a law signed by Gov. Jerry Brown last year.
“It’s going to take bold proposals to get us to where we need to be,” said Cullenward, who has helped shape legislation in the Capitol.
Although I think the article does a great job of providing context for California's 2030 climate target, the options for reaching it, and highlighting different stakeholder reactions to SB 775, I need to respond to the article's opening framing. Mr. Megerian accurately captures the thrust of our conversation from last Monday about the status quo cap-and-trade system, which expires at the end of 2020. I wouldn't call it a "potential time bomb" even though I don't think it's a functional option at this time. My concern is that the current cap-and-trade system could, if extended without reform, lead to serious impacts that cause a political crisis—as I testified yesterday at the Senate Environmental Quality Committee's oversight hearing.
But I am confident that a proposal like SB 775 would avoid these problems by (1) setting a more gradual path to higher carbon prices in the form of a price collar with maximum and minimum prices and (2) returning most of the revenue back to California residents via a quarterly rebate. SB 775 would cause no impacts until January 1, 2021, and then carbon prices would follow a glide path upwards in a managed process with money going back to California families.
That's a big difference compared to an extension of the current program without reform, which extension would risk an immediate price impact with limited cost containment tools in the current market design and no mechanism for recycling a large share of program revenue back to Californians. I frankly don't think the legislature would authorize such an extension, even though many stakeholders had been calling for just that over the last few months. My concerns are exactly why proponents of market-based climate policy need to address these risks head-on and develop solutions so that we can maintain a carbon pricing policy after 2020.
Later in the article Chris Megerian addresses how SB 775 would work, so I'm not complaining about the balance of the article—it's very comprehensive and provides excellent context for the scale of the challenge California is well positioned to tackle. But it is worth emphasizing here that I am not at all alarmed about the prospect of a managed transition to a set of post-2020 policies. And that is exactly the conversation that is now unfolding in Sacramento.
For example, yesterday's SEQ oversight hearing featured a broad consensus on the need for programmatic reforms, a number of which are contained in SB 775. Even ARB Chair Mary Nichols testified that she was open to the idea of a price ceiling, and many stakeholders from industry and environmental groups supported the notion of a large consumer rebate from program revenue. That's a big shift from two weeks ago, when the only other idea on the table was to simply extend the status quo market.
All of which is to say that we are well on our way to avoiding the kinds of problems that motivated me, my colleague Michael Wara, and other stakeholders to explore new approaches to extend California's successful climate policies into a new and more challenging era. I stand by the discussion Chris Megerian and I had in Sacramento last Monday when SB 775 was launched, but I don't think those concerns are at all representative of the conversation about solutions that has evolved since SB 775 was released last Monday.