Blogpost: What made California successful in climate policy?
by Lars Zetterberg
PhD, Program Director Mistra Carbon Exit,
Swedish Environmental Research Institute
2 October 2018
I’m on my way to Sacramento, the capital of California. The grass is brown and the air is yellowish and hazy due to fires. In a week from now the fires will spread rapidly, consume homes and vineyards in the wine districts north of San Francisco and kill more than 20 people. The fires fuel the debate of climate change and strengthen the engagement from people and politicians in California. One may think that with Trump as United States’ president climate action has halted in the US. But not here in California. Jerry Brown, the governor said “The denial of climate change is something going on in Trump’s head, nowhere else”. Indeed, here in California, droughts and fires have plagued the state for several years, and the public support for climate action is strong.
In the 1970-ies and 80-ies, California put itself on the map for implementing some of the most progressive environmental legislation in the world. Serious smog problems in Los Angeles resulted in health problems and millions of dollars’ worth of damage on crops. Authorities responded by making catalytic converters mandatory on all new cars, which drastically reduced the emissions of nitrous oxide and hydrocarbons, responsible for the smog episodes. Other countries followed and today catalytic converters are used in all industrialized countries. Today, California is implementing a suite of innovative climate policy instruments, again putting California on the map as one of the most interesting jurisdictions when it comes to climate policy.
I wonder how California came to be so successful in climate policy. Today, I hope to find out. At my side is Dallas Burtraw, an economist from the think tank Resources for the Future, and who’s been working closely with Californian authorities. We are on our way to California Air Resources Board (CARB) in Sacramento to meet some 20 managers and experts responsible for shaping Californian air policy today. We pass the city of Davis, where Dallas spent his university years in the 70-ies studying economy. He tells me how he and his friends spent the weekends handing out leaflets throughout central valley to gain support against the establishment of a new coal-fired power plant. At the time, Dallas had long hair and was renting a house with some fellow students. One weekend they organized a party for some 200 friends. Every guest was given a leaflet. Incidentally, one of the guests worked at the Governor’s office. The governor, a young Jerry Brown, was an upcoming Democratic politician with environmental values. He had a habit of clearing his desk before going home for the weekend. After the party, the employee at the Governor’s office placed a leaflet on Brown’s empty table. When Governor Brown got to his office on Monday morning, he read the leaflet and understood there was an emerging public movement against the plant. Although he already sympathized with the cause, he needed a mandate to go forward. Now he had this mandate and the coal plant was stopped.
The car radio plays Scot Mc Kenzie’s song ‘If you’re going to San Francisco’, a symbol of the hippie movement in 1968. In the 60-ies young people questioned their parent’s norms, listened to rock music and protested against the Vietnam War. It dawns on me – perhaps today’s environmental engagement in California is an extension of the flower power movement. Nature conservation and protesting against nuclear power was probably part of the same spirit of solidarity and love.
We arrive in Sacramento. More than 40 years after the party in Dallas’ garden, he is back, now as an expert and advisor to the state air agency. And oddly enough Jerry Brown is governor again.
We are received by Matt Rodriquez, Secretary for Environmental Protection under Jerry Brown. He tells us that California met their climate target for 2020 four years early. The climate objectives for 2030 are to reduce greenhouse gas emissions by 40 percent compared to 1990 levels and use at least 50 percent renewable energy by 2030. In order to reach these targets a set of sector specific policies have been implemented: renewables requirements on power producers, low carbon fuel standards in transport, policies to promote zero emission vehicles and more. Finally, an emission trading system has been put in place, putting a price on 85 percent of the greenhouse gas emissions in California. The emission trading system covers the same sectors as the sectoral policies. It’s estimated that about 80 percent of the emissions reductions are provided by the sectoral policies, while 20 percent are provided by the ETS. The sectoral policies are the primary instruments to reach the target, while the ETS serves to sweep up low cost reductions that remain. Over time, however, the influence of the ETS has been and is expected to be growing.
In Europe, climate policy has been designed differently. An EU-wide emission trading system, the EU ETS, was established in 2005 and is meant to be the most important policy tool to meet the climate objectives of the European Union. The emission cap assures that the emission target is met. The carbon price assures effectiveness – that the target is met at the lowest possible cost. However, for years, the system has been plagued by an enormous surplus of emission allowances, which has pushed down the carbon price to persistently low levels. The EU emissions trading system has clearly not created the incentives needed to reduce emissions to reach the Paris agreement. In response to the low price some EU member states want to introduce complementary measures to reduce emissions in sectors that are already part of the ETS. But this is problematic. Since the total emissions are capped and the volume of emissions allowances fixed, extra emissions reductions in one country can lead to emissions increasing elsewhere in the EU. This is sometimes referred to as the “waterbed effect.” It is like sitting down on one side of a water bed and seeing it rise on the other side. Moreover, if additional climate policies are introduced on sources already covered by an emission trading system, the surplus of allowances may increase even further, putting downward pressure on the carbon price and reducing the incentive to adopt low carbon technologies even further.
After years of negotiations, the EU ETS has recently been reformed including the introduction of a mechanism that automatically cancels a part of the surplus allowances. This has had a clear effect on price. Following the reform, the EUA price has risen by a factor four to 20€ (approximately 22 USD) in September 2018.
The policy makers in California chose another way. We meet Edie Chang, Deputy Executive Officer at CARB and responsible for development and implementation of California's plan to reduce greenhouse gas emissions, for an in-depth discussion of emission trading. I ask her how California has addressed the dilemma of the waterbed effect, since California also has an almost economy wide emissions trading system with sectoral regulations pushing down emissions under the cap. She says “Looking at the EU ETS, we saw that needed a feature that guaranteed a certain price. Not too high that it shocks the participants, but high enough to make them engage in the market”. The solution was to introduce a price floor, starting at 10 USD and growing each year. It is now at 15 USD.
We ask if a price floor would change the ETS from being a quantity based system to something else. But Emily Wimberger, the chief economist at CARB, says that “in an isolated world this is true. But the theoretically intended function of the ETS is carved out by a lot of influences and market failures. The California ETS is a hybrid, yes. We didn’t think that the ETS alone would drive all reductions to reach our emissions target”.
I return to my thoughts of how California became so progressive in climate policy. I ask Edie Chang what the success factors were? She explains to me that California is in a very good position. The economy is strong which has allowed California to de-link economic growth and emissions. I can see that California has an advantage being one of the world’s strongest economies, with companies like Microsoft, Apple, Google and Facebook. As we walk through the corridor, passing the offices of her colleagues, Edie Chang tells me that CARB has also been fortunate to recruit some of the best economists from top schools. Eddie Chang explains that Californian authorities also put effort into designing environmental policies in a way to gain public support. For instance, a share of the revenues from selling emission allowances is payed back to the public in the form of a rebate every six months on their electricity bill. The rebate is marked on the invoice and some people have even received money back. An important part of the revenues is used to support investments in disadvantaged communities. This use of revenues in this way has led to increased public support for Californian environmental policies. This builds public confidence for the policy makers and allows CARB to test new policies. Edie explains - ”we weren’t sure which policies would work. So we tried them all. This has given us experience. Now we know what works and can build on that experience. And we’re open to try new instruments.”.
As we drive back, Dallas Burtraw tells me that one reason to the progress on climate policy is the air quality challenge, which is still the most problematic in the US. That has necessitated policies in both domains, and California Air resources Board and Jerry Brown have aligned them.
A few days later, I am visiting Yosemite national park and walk through Tuolumne grove, a grove of gigantic Sequoia trees. It’s a truly existential experience to put my hand on a tree that has been there for more than 2000 years. In 1868, exactly 100 years before the 1968 summer of love, the Scottish-American botanist John Muir visited Yosemite for the first time. He understood that this area, with its enormous trees, sensitive streams and beautiful valleys needed to be protected against exploitation. After strong advocating by Muir, Yosemite became one of the first national parks in the USA.
Walking out from the Sequoia grove, overwhelmed by its beauty, I understand that Californians’ interest for conservation goes much further back than the flower power era. And I feel confident that as long as Californians continue to prioritize the environment and can see that the new policies are working, Jerry Brown and his staff will have the mandate for further developing innovative environmental policies in California.