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Policy perspectives with Jon Costantino: Picking a lane

May 8, 2017 by Ronjoy Bezbarua

Jon-CostantinoIn an exclusive guest feature for CaliforniaCarbon.info, policy expert and founder of Tradesman Advisors, Jon Costantino, provides an insightful take on the policy options surrounding Cap-and-Trade’s post-2020 outlook. The next six weeks will be critical in determining which lane California policy makers will decide to drive in for the next 13 or more years. With as many as five climate proposals to consider law makers need to make hard choices that will have different outcomes. 

There are a few things I learned about California by growing up here.  You can tell where a native Californian is from by the way they give directions. If they were to say “Take 101 to…” they are from Northern California. If they say “Take the 101…” they are from Southern California (and if they only use the names of the freeways, they are from Los Angeles, e.g “Take the Hollywood Freeway to…”)  Us impressionable kids also learned catchy phrases from our parents that were usually directed toward other freeway drivers. My favorite PG phrase was reserved for that one driver who couldn’t figure out what lane to actually be in. My dad would say “Pick a lane, any lane”.  With all that is happening in the post-2020 extension policy sphere, I want to roll down my proverbial window and shout “Can we just pick a lane already?”.

With 11 years behind us and only two and half left until 2020 actually is upon us, California policymakers are currently wrestling with at least three major proposals for a post-2020 Cap and Trade Program—AB 378, SB 775 and ARB’s pending Cap and Trade amendment package.  If you count the Governor’s yet-to-be-filled-in-with-any-details extension request and a potential unified business proposal, you are at five.  And though they may be similar in name, they are about as familial as fourth cousins on your sister’s husband’s side of the family, which is to say they would be very different programs when they grow up.  Let’s look at the three already on the street and if they can all play in the same sandbox.

 

AB 378 (Garcia)

This is an Assembly bill that very much as an Environmental Justice feel to it.  It ties many of the details of California’s Greenhouse Gas (GHG) program to its much older cousin, health-based air quality regulation. Big details such as individual facility limits, allocation methodology and the ability to actually conduct a trade are spelled out in the bill.

Though California’s GHG policy foundation, established in AB 32, required the maximizing of “environmental co-benefits”, the two programs had historically been independently implemented.  And for good reason. They were regulating different pollutants that impacted the environment differently, on different geographic scales and at a different time horizon.  That being said, the Air Resources Board (ARB) realized that these two programs could not be independent indefinitely as they essentially regulated the same products, namely industry and transportation, and have spent considerable amount of planning and technical work over the last couple of years to unify their efforts in these two programs. The proposed Scoping Plan highlights ARB’s latest efforts to conjoin these agendas. AB 378 takes the position that independence of the two programs is no longer an option to be left to ARB, but rather one that needs to be spelled out in any reauthorization legislation.

AB 378 is still in the Assembly and passed through its first policy committee (Chaired by it author).  It probably makes it out of fiscal committee relatively easy as well. But like the other legislative vehicle, SB 775, it is saddled with a 2/3 vote threshold requirement.  This requirement makes the most interesting part of it journey to becoming law its floor votes. That first floor vote will most likely not occur for almost a month. And as you will see, timing will be everything this year.

 

SB 775 (Weickowski)

This Senate bill is a new comer to the game. It was introduced only about a week ago, but it entered the post-2020 policy pool with a huge cannonball splash. Having a fundamental position that the current system is broke beyond repair, and that the only way to fix it is to start over, it got the attention of everybody watching. Like its fourth cousin in the Assembly, SB 775 needs to go through a policy hearing, and like AB 378 the author is the chairman of said committee. But unlike the story you just read, the road to the Senate floor has more potholes.

SB 775 was set for a double-header of a hearing on Wednesday in the Environmental Quality committee, along with an annual oversight hearing of the current Cap and Trade program. But as of Friday, the part of the hearing focusing on SB 775 was cancelled (the oversight hearing is still on, beginning at 9:30 am pacific). It is unclear if SB 775 will get its day in the sun, or if last week’s intense spotlight burned just a bit too bright. Only time will tell. Again with the timing thing, stay tuned I promise there is a punchline.

 

ARB’s Pending Cap and Trade Regulatory Package

Once delayed, this package is now scheduled for an end of June ARB public board vote.  The ARB has gone through 18 months+ of work to get to this point and they are intent on moving the program ahead now that SB 32 provides the mile marker to shoot for—40% below 1990 levels. Also, with Third Compliance Period allocations due out in October, they had some near-term issues to address as well.

The ARB package is essentially the same program only cranked up to meet the new tougher standards; the annual cap decline rate over twice as fast. But it still has all the familiar pieces—allowances, auctions, trading, declining cap, price floor, etc. This consistent policy framework is good news to many, but alarming to others.

So how do all these pieces fit together, or do they?  As I hinted in the beginning, they really do take differing approaches to the same problem. And since they are very different animals, it is hard to guess how they all work together.

Here is where the timing comes in.  The Governor has publicly stated that he would like to get a 2/3 bill signed BEFORE he authorizes new Cap and Trade revenue spending in the 2017-2018 California budget, which is Constitutionally mandated to be done by June 15th. That deadline is two weeks before ARB is scheduled to vote on their regulatory extension amendments and two weeks after Legislative rules dictate a floor vote on either AB 378 or SB 775. So as you can see, the next month to six weeks will be critical in determining which lane California policy makers decide to drive in for the next 13 or more years.  The answer is not simple, and it has way more implications than what exit to take, but without a decision on direction, it is hard to believe you will get to where you are going.

 

Jon Costantino oversaw the development and publication of the original AB 32 Scoping Plan when he served as Climate Change Planning Manager at the ARB. He is currently the owner and principal at Tradesman Advisors in Sacramento. Tradesman Advisors provide West Coast regulatory consulting and advocacy for clients in the areas of climate change, clean energy and other environmental issues. Mr. Costantino can be reached at (916) 716-3455, or jon@tradesmanadvisors.com.

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