Debra Kahn quotes me in an E&E ClimateWire story on whether or not ARB has the legal authority to extend its cap-and-trade program after 2020 without new legislative re-authorization:
There could be other ways forward, of varying degrees of attractiveness to lawmakers. The program could get around the precepts of Proposition 26 by giving all of the carbon allowances away for free instead of selling them, but that would deprive the state and residents of auction proceeds.
ARB could also use an "enforcement fee," which would look like a carbon tax and could be pegged at whatever level the state decides would cover the "reasonable costs" of mitigating greenhouse gas emissions.
"Short of a two-thirds supermajority vote, I don't see any other legally viable path forward with a market structure," said Danny Cullenward, a research associate at Stanford University's Carnegie Institution for Science who advised state Sen. Bob Wieckowski (D) and state Senate President Pro Tempore Kevin de León (D) on S.B. 775.
While observers agree that lawmakers have power over the program, there are differing views on the expectations market participants should have of them. "All of these players understand there is no market for their product without legislative reauthorization, and any of them that invested beyond the 2020 time frame took on that risk knowingly," Cullenward said of the dismayed offset developers.
Update. My friends at UCLA's Emmett Institute continue to make statements that suggest ARB might have the necessary authority to extend cap-and-trade without a new 2/3 vote. For example, the ClimateWire story quotes Cara Horowitz as saying "In my view, it would be risky — but not totally unfounded — to [extend cap-and-trade on the basis of existing law]."
It is worth emphasizing that nobody has publicly offered a legal theory as to how this would be permissible. In contrast, I have repeatedly analyzed this question, including in a 25,000 word law review article that was peer reviewed by some of the top lawyers working on California climate policy, an extensive comment letter to ARB with Michael Wara, and in testimony to the Senate Environmental Quality Committee. My conclusion is that there are no defensible options to proceed with the current market design without a 2/3 vote to re-authorize ARB.
So I ask again: what is the theory that ARB can continue cap-and-trade beyond 2020?
For readers who are not steeped in the weeds of administrative law, it is a remarkable thing when an agency proposes a major rulemaking but does not articulate the statutory basis for its authority. Yet that is what ARB has done in its proposal to extend cap-and-trade through 2031. EPA's Clean Power Plan offers a useful counterpoint. The CPP was controversial and many states and industry opponents doubted EPA's authority to regulate greenhouse gases under Section 111(d) of the Clean Air Act, leading to the West Virginia v. EPA litigation in the D.C. Circuit. In its proposed and final regulations, however, EPA offered a lengthy discussion of its legal authority and even put out a 100-page legal analysis of the critical and contested issues.
EPA's actions were the sign of an agency that has a strong case to make and is willing to test its convictions in court. It is also no less than what the public should demand with respect to major rulemakings: if the agency's authority is so unclear that no one will articulate the legal basis for its actions—not the agency, and not even any supporters in academic or non-profit groups—then we should all take notice of the situation.
As someone who supports carbon pricing, I do not see any reasonable choice other than to secure re-authorization with a 2/3 legislative vote. With respect to my friends who prefer the current market model and aren't interested in discussing modifications, I urge them to reflect on the strong likelihood that the alternative to the legislative process is the expiration of the current cap-and-trade program. We should all agree that is the worst outcome.