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Price Controls without Cost Controls | Scorcher

Published: July 19, 2017 by Editorial Team

Sheldon Zakreski, The Climate Trust
Weekly Policy and Finance Update – July 17, 2017

California’s plan for a post 2020 cap and trade market is taking shape. Assembly Bill 398 has broad support among industry and environmental groups. The bill mostly continues the cap and trade program that came into effect in 2013, but notably establishes price ceilings for allowances. Price ceilings became a big deal politically after the state passed a new transportation package that increased gasoline taxes; the concern was that extending the program through 2030 would place immediate upward pressure on allowances, which would lead to further energy price increases.

The bill creates two price speed bumps whereby if allowances reach a certain price point the state will sell additional allowances held in a reserve at the speed bump price. Despite this concern about price escalation, the bill also does something to improve the odds that the market will hit the price ceilings. Currently, compliance entities have an offset usage limit of 8%, but under AB398, this limit will go down to 4% with a requirement that no more than 2% come from California projects and no more than 2% from out of state projects. The limits go up to 6% total capped at 3% in-state/out of state in 2025.

A recent analysis done by for the American Carbon Registry found that this change could add an additional $18 billion in compliance costs for the cap and trade program. While the extension demonstrates California’s continued leadership on climate, it’s curious that while increased costs were such a great concern, AB 398 greatly reduces the ability of offsets to play their role as a source of cost savings for California businesses and taxpayers.

Top News Headlines

Gov. Brown and lawmakers unveil proposal to extend California climate program
Los Angeles Times July 10, 2017

California’s Cap-And-Trade Compromise Is A Big Step Forward, Not A Win For Polluters
Forbes, July 12, 2017

Lawmakers plan Monday vote on extending cap and trade
Los Angeles Times, July 12, 2017

Nothing But Clear Skies Blog

California: Outwards, Not Inwards
Sean Penrith, The Climate Trust, July 6, 2017

Image credit: Flickr/Bemep