2015 California Policy and Regulatory Preview

The California Air Resources Board (ARB or Board) workload skyrocketed in the fall of 2006 with the passage of AB 32. By any definition, that was a BIG year in the world of climate change and carbon markets. Year after year since that pivotal moment when Governor Schwarzenegger signed a relatively short, all-encompassing, economy-shifting, and authority-granting piece of legislation, ARB has been running at full speed. It takes extraordinary effort to change the foundations of a top-ten global economy, but that was in essence what AB 32’s goal was. Though the intervening years have been busy, 2015 could be just as pivotal as 2006. Let’s see why.

As we all know by now, AB 32 requires California to reduce its greenhouse gas emissions to their 1990 levels by 2020, and ARB was designated as the lead state agency responsible for implementing the ambitious climate change agenda. This massive undertaking was in addition to their traditional regulatory and enforcement role in cleaning up California’s infamously unhealthy air quality. Since AB 32 was enacted, meeting these dual mandates has proven challenging for staff, management and Board members, but there is no arguing that they have succeeded in getting new climate change programs in place, including the original Scoping Plan and its first update, Cap and Trade, Low Carbon Fuel, Clean Cars, a variety of “complementary measures”, an offset marketplace, and more. More recently, the Brown Administration has doubled down the focus on this policy area. Governor Brown has committed political and actual capital, thanks to Cap and Trade revenues, to battling the impacts of climate change on California and simultaneously committing the state to leadership outside its borders.

In 2015 all of these issues are in play again. California has three major challenges in front of itself:

1. Developing a post-2020 policy;

2. Integration of all the varied, but relatively siloed, state policies and regulations into a more efficient and effective coordinated marketplace; and

3. Translating and integrating statewide actions into nascent regional, national, and international efforts.

Establishing a Post-2020 Vision

Though ARB has already hinted at a post-2020 path in the First Update to the AB 32 Scoping Plan, they lack explicit authority under AB 32 to command reductions past the established 1990 goal. And using existing air quality laws will go only so far. What would be needed to accomplish these longer-term goals is a new version of AB 32, originating in the Legislature and then being signed into law by the Governor. This is the perfect cue for State Senator Fran Pavley, who coauthored AB 32. On the first day of the 2015-2016 legislative session, she introduced SB 32. This is the first bill this session to explicitly seek to extend the time horizon for AB 32-type reductions. SB 32, in its current form, would require the state to set a 2050 GHG target equivalent to 80 percent below 1990 levels. But don’t expect the bill to end up at Governor Brown’s desk in the same form as it takes now. With AB 32 implementation well under way, it is clear what such a bill would actually mean to the State, and who stands to gain or lose under such a law. Tracking the gyrations of this bill and the multitude of others in 2015 will be important to those who follow the California carbon market.

Meanwhile, Governor Brown was reelected and recently sworn back into office. Last month, he gave a speech that doubled as his inaugural address and his State of the State. In that speech he laid out a 15-year time frame for advancing climate and energy goals. He proposed three carefully worded, but ambitious, targets for California to accomplish as it moves past 2020. By 2030 the Governor proposes to:

• Increase from one-third to 50 percent our electricity derived from renewable sources;
• Reduce today’s petroleum use in cars and trucks by up to 50 percent; and
• Double the efficiency of existing buildings and make heating fuels cleaner.

Each of these efforts will impact the AB 32 marketplace depending on how the new authority is granted, how the requirements are incorporated into the existing AB 32 Cap, and how any potential 2020-2050 compliance curve is adopted. (Note: Each of these last two sentences should have read “if and when” rather than “how.” But for the sake of this article, it is assumed that the state’s existing trajectory will continue, as the legislative leaders and the Governor have all shown a full commitment to this path.)

Simple math shows that 2020 is only five years away and that AB 32 was signed over eight years ago. So the clock is ticking if a smooth transition from AB 32 to post-2020 policies is to be achieved. With a two-year legislative cycle just starting, there are no guarantees that a new law will be signed in 2015, only the guarantee that 2015 is the beginning of the next phase of AB 32.

Policy Integration with California

Starting January 1 of this year, the last major piece of AB 32 kicked in – Fuels Under the Cap. With this final cornerstone policy in place, California can now continue to seek greater and greater integration among all its greenhouse gas policies. The state now has independent markets for renewable energy, low carbon fuels, clean cars, cap and trade, local air pollutants, and others. Each of these markets is tied to a specific regulatory program, but they all have a unified goal and ultimately are interdependent, as the success of one impacts the needs of the others.

In his speech, Governor Brown also vowed to continue a host of the state’s most progressive energy policies, which include expanding distributed generation, rooftop solar, microgrids, energy storage, and electric vehicles. He also called on the broader minds (think Silicon Valley and Academia) within California to make it all work. It is this full integration of energy, transportation, technology, policy, and behavior of the citizenry that is needed to achieve the larger goals California has for itself, and it hopes the world is following its lead. And now that all the major pieces are in place, integrating all the policies is going to ramp up even more starting this year. ARB continues to take the leadership position, and specifically Chairman Nichols has been tasked with coordinating all the state efforts and agencies to make post-2020 policies a reality.

External Climate Policy Integration

Over the past several years, California has signed agreements with the governments of Mexico and British Columbia, the states of Oregon and Washington, and China’s National Development and Reform Commission. We can’t forget the still-operating Western Climate Initiative and the formal linkage with Quebec.

Most of this work was done in the vacuum left behind by a lack of action at the federal level. But that changed with the Obama Administration’s proposed Clean Power Plan, also known as 111(d). California’s official comments on the Plan highlight the desire that existing state-level programs be recognized and any disruption to them be minimized. No commitments have been made as to whether California will go at the CPP alone or seek regional partners, but this is just one aspect of coordination that will be needed in 2015.

With the U.N. Paris Conference of Parties at the end of the year, California is looking to remain a leader in this area and will be sending a full delegation. It will be important to show that not only is the California program working amid economic growth, but that cross-border coordination can occur even if the programs are not identical.

All of this work is being done under increasing legislative oversight, an active and expanding stakeholder community on both sides of the issues, and a governor looking to cement his legacy. With the clock ticking toward 2020, 2030 and 2050, 2015 seems to be shaping up as another pivotal year in determining what the California carbon market(s) will look like for years to come. Knowing this, the pressure remains firmly in place on policymakers, as well as the staff and management of the Board, to act.

Over the next two weeks ARB will publish their 2015 Regulatory Calendar, and Executive Officer Richard Corey will present to the Board the 2015 vision. Come back for more insights as we explore these issues in more detail over the coming weeks and months.

This article was originally published in California Carbon.