Act Now. California, A Model for Climate Policy.

Peter Weisberg, The Climate Trust
As published by Sustainable Business Oregon – November 19, 2014

Recent action from the Obama administration requires states to act on climate change. In light of the challenges of the new climate goals outlined in the President’s Clean Power Plan, other states might be wise to consider the subtleties of California’s climate policy, which could provide an excellent framework to follow.

To bypass the current stagnation in our political system, a new strategy to craft policy that mitigates catastrophic climate change is emerging in the United States. International negotiations drone on—attempting to settle on a timeline under which future agreements could come to terms. The conversation in Congress, amazingly, continues to focus on whether or not action is needed at all. Yet over the last three months, the Obama Administration has ditched these broken processes and taken a leadership role where it can. And it’s making an impact.

In last week’s bilateral discussions, China (the world’s largest emitter) agreed to the first absolute limit on its carbon emissions. In turn, the United States (the second largest emitter) agreed to deeper cuts to our own pollution. As part of the strategy to meet these new commitments, the Environmental Protection Agency announced greenhouse gas emission reduction targets for power plants—referred to as the “Clean Power Program” or “111(d)”—over the summer. Each state must now develop its own plan to reach these targets.

Creating policy to mitigate climate change is not simple, an issue Nicholas Stern, the previous Chief Economist at the World Bank labeled “the largest market failure the world has seen.” States, searching for solutions, are turning their eyes to the same place they previously looked for other air quality policy: California. Starting in 2006, California created a comprehensive set of climate policies. And some of the nuances of their system design demonstrate why California is a model for other states to follow.

Requiring emitters to pay for their greenhouse gas emissions (“pricing carbon”) is the essential step needed to address this “market failure,” voiced by Stern. Disagreement centers on whether a carbon tax (which fixes the price we pay for emissions) or a cap-and-trade system (which sets the total amount of emissions allowed) should be used to establish that price. Importantly, California has implemented a hybrid of these two models.

The center of California’s climate action is a cap-and-trade system. Yet, within that market, California has established a minimum and maximum price at which permits to pollute can be sold. The price of emitting still rises or falls when more or less incentive is needed to meet emissions targets, but only between a floor and ceiling. This provides a window of certainty for the price we will pay for our emissions (like a tax) while also ensuring emission goals are met (like a cap).

While this hybrid method of pricing carbon is the backbone of California’s efforts, a series of not-so-excitingly-labeled “complementary policies,” concurrently ensure different sectors of California’s economy begin the innovation that will be needed to meet long-term emission targets. An expanded Renewable Portfolio Standard requires 33% of electricity to come from renewable sources, a number that could soon grow to 50%. A Low Carbon Fuel Standard sets requirements for renewable fuels to be used in vehicles, with high emissions fuels paying to develop low carbon alternatives.

Keeping with this all of the above strategy, the revenues raised from the cap-and-trade system are reinvested into technologies and sectors with particular promise to innovate; like biogas and forestry, two sectors at the center of The Climate Trust’s work. Each of these complementary policies provides a specific incentive for a sector to innovate, while the cap-and-trade system guarantees a maximum level of emissions at a cost that Californian’s can stomach.

California emits about 1.3% of the world’s greenhouse gases; acting alone will have little, if any, global impact. It is essential that California demonstrate success and proliferate. Oregon should take a hard look at California’s hybrid carbon pricing and series of complementary policies. It would be a good start to allow our Clean Fuels Program (similar to California’s Low Carbon Fuel Standard) to come into place in 2015.

As we start to feel the impacts of climate change, and warning about future impacts become more severe, action is inevitable. Oregon should move now, before it falls behind, and misses the opportunity to grow the technologies, industries and businesses the future will demand.