California Leads on Climate Action: Cap-and-Trade Extension & VW Settlement Funding

The last few months have been a whirlwind of activity for California’s Air Resources Board, concluding with the successful adoption of an updated cap-and-trade program. Elaborate on the challenges of reaching consensus on cap-and-trade with the Legislature and Governor.

Mary Nichols: Nothing about the cap-and-trade program has been easy, but we knew that we would face a challenge in the last compliance period if we didn’t have a clear path toward reauthorization.

Due to some unfortunate language in the original AB 32 legislation in 2006, CARB was given the authority to create a market-based program only until 2020. It creates a problem for any kind of market if participants think that the value of their allowances is going to disappear on a certain date. It also created a problem for us in terms of planning to reach the more ambitious greenhouse gas reduction goals of SB 32. So, we began talking internally about how to get to a reauthorization.

We realized that it would be prudent to try to get a two-thirds vote, in order to make sure absolutely that we would not be subject to a challenge under the constitutional amendment adopted as Prop 26, which applies to all sources of revenue. But this was the second two-thirds vote we were asking of the Legislature in a very short space of time, coming immediately on the heels of the new increase in the gasoline tax to pay for much-needed road repair (SB 1). That was not easy to achieve.

It was particularly challenging because we had opposition not only from the farthest right part of the spectrum, but also from the farthest left, which has had doubts all along about any kind of market-based program. But the governor put his shoulder to the wheel and employed his powers of persuasion, and we made it. In fact, as many reporters noted, we were able to attract a substantial number of Republican votes—not just one or two.

What elements of California’s cap-and-trade “reset” facilitated legislative consensus?

Part of what helped us succeed is what we didn’t do to the program. We did not add elements that would have made it more difficult to trade or to get allowances, or that would have linked the ability to trade to activities not directly connected to greenhouse gas emissions, including air pollution. It was a clean program.

Three elements were significant in terms of gaining support from the business community. One is that the level of support we’re giving now in the form of free allowances will continue on through the program. Secondly, the legislation requires that CARB put a limit, or ceiling, on prices in the market.  Lastly, the program prohibits a local air district from adopting its own cap on greenhouse gas emissions.

Back in May, TPR interviewed Senator Bob Wieckowski regarding the now-dead SB 775, which would have dramatically redesigned cap and trade. Although that bill died, address how the Legislature’s expressed interests have impacted CARB’s agenda going forward.

Some of the motivations, and the details, of SB 775 are frankly still mysterious to me. But in general, the Legislature has a desire to make sure that CARB doesn’t turn into the “climate change planning board” to the exclusion of dealing with local air pollution, which is still our core mission. That was accomplished, I think, through the companion legislation that passed alongside the cap-and-trade bill.

That legislation gives CARB a mandate to have all the regional air districts in the state update their plans for dealing with their major sources of air pollution, with a focus on community air pollution problems. That is a whole new element of what we’re required to do and to report on; we’ve got a lot of new tasks assigned to us as a result of this legislation. This is going to be a real shift in focus for the air agencies toward figuring out why we continue to have persistent hotspots in certain areas, despite ongoing regional progress, and developing strategies to deal with that.  We’re excited about the opportunity it provides as we continue to work to provide clean air for all Californians.

For the first time, we’re going to align our emissions reporting on toxic air contaminants, conventional air pollution, and greenhouse gases all in one place and one format. That’s going to be very helpful in enabling the public to understand and participate effectively in designing strategies to improve public health.

Clearly, the Legislature sought to increase its voice in CARB’s proceedings and priority setting. How will the addition of two ex-officio legislative members as well as two appointees to CARB’s board impact CARB’s mission ?

Senator Ricardo Lara and Asm. Eduardo Garcia had a track record of accomplishments on air issues in the Legislature before they came to the board. Having people with their degree of experience and reputation who are able to speak knowledgably to the Legislature about what’s actually going on at CARB is an enormous help to us. Beginning January 1, we will also have formal oversight through a joint committee that I will report to.

Our new appointees—former Sen. Dean Florez, and a longtime, well-known community activist from San Diego, Diane Takvorian—are our official environmental justice representatives, and they are very vigilant. In addition to speaking up at formal board meetings—which are important because they’re so visible and public—both of them have also been actively working with staff to make sure that their issues are addressed in projects and reports.

When I joined the board, it had five members—all part-time. I think as the board’s mission as grown, and as its importance has been recognized, adding members been a healthy way of making sure that we continue to engage with the public and to reflect public sentiment.

Mary, having first joined the board in 1975, you have a unique perspective from which to judge the evolution of its mission and capabilities. Reflect on that evolution, and on the critics’ who early on predicted that CARB would be the death knell for the California economy.

The scope of CARB’s mission has expanded over time. It has gone from being primarily a motor vehicle pollution control agency to being, not only the overseer of regional air districts that still have primary authority for regulating industrial sources of pollution, but also the agency responsible for developing the state’s plans for achieving our climate goals – and implementing quite a few of its climate policies.  This means we now assign targets for the MPOs for per capita emissions of greenhouse gases; we regulate consumer products; we regulate fuels, of course; we operate a research program; and we have a much more active enforcement program than we had in the early days.

When the governor travels around the world, or meets with delegations from other countries, he always says that what gives California the right and the responsibility to talk to others about how to deal with the crisis of climate change is the fact that we have successfully addressed air pollution since the 1970s—and we did it in a way that not only didn’t harm our economy, but that actually helped us to achieve the levels of innovation and investment that we have today.

Let’s pivot to CARB’s recent approval of the first phase of expenditures under the VW settlement, and how it impacts CARB’s prioritizing investment for the electrification of the transportation sector.

As they’ve now said in a number of different forums, Volkswagen is phasing out all investment in diesel passenger cars. They are planning on bringing into the market at least four different versions of electric vehicles within the next five years. And they’ve spun off a new company, Electrify America, that is going to make $2 billion worth of investments in public awareness and infrastructure for electric vehicles. This is the largest single infusion of funds into electric transportation ever—by anybody, private or public. It’s a big deal.

Under the consent decree, the plan has to be approved by CARB for California, and by EPA for the other 49 states, before Volkswagen can claim to have fulfilled its commitment. At the federal level, their plan was approved almost instantaneously. But in California, we took quite a long time (to the company’s intense frustration), and insisted on some changes to what they were originally proposing to do.

We were motivated not by a desire to punish or humiliate the company about this—which I don’t think is very effective anyhow—but by a desire to make this money go as far as possible. We spent a lot of time talking to the company about what we see in the emerging electric vehicle market, and where we thought they could do the most good.

They had ideas of their own, of course; they didn’t come in with a blank slate. But we certainly pushed them further than they wanted to go in terms of making sure that the investments, especially in the infrastructure area, are visibly targeted toward low-income and disadvantaged communities, and didn’t just skim off the cream of the market. The plan we ultimately approved is much more reflective of a near-term future in which electric vehicles are not just a trickle-down product, but are available to everybody.

The city of Los Angeles unveiled an EV car-sharing service for low-income residents last year, and the City of Sacramento was just awarded $44 million from the VW settlement funds to build a “Green City.” Share how you foresee, or hope to see, new sources of EV infrastructure funding being expended in the future.

CARB used funding from the Greenhouse Gas Reduction Fund to help jumpstart the city of Los Angeles’s BlueLA project. Matt Petersen, then LA’s chief sustainability officer, approached me as I was getting ready to go to Paris in preparation for the UN Conference of Parties. The company with the contract is based in Paris, so I visited it, met their staff, and looked at how they operated there. I was very impressed with their approach. We’ve been following LA’s project with great interest, and are excited about making EVs available to anybody who wants a ride, as opposed to being in the market for a car.

The Sacramento program is quite different; it was a Volkswagen/Electrify America idea. They wanted to work with a community on a whole range of different projects and programs aimed at raising the visibility of electric vehicles in that particular community. They looked at many demographic factors before selecting Sacramento as their first Green City, probably the most important of which was past investment in electric vehicles and the existence of a market.

Another important factor was a land-use pattern in which neighborhoods with likely buyers of EVs were located near neighborhoods where people would likely not be in the market to buy one, but who would be interested in other ways of accessing them—like ride-sharing. Sacramento came out at the top of their list, and the city, of course, is very excited about that.

A new non-profit, Veloz—a successor to the Plug-in Electric Vehicle Collaborative—has been created to help scale the EV market. Why? 

I was the godmother to the Plug-in Electric Vehicle Collaborative, which was a completely voluntary organization—not even a non-profit, just an association of car manufacturers, environmental groups, local air districts, and state agencies that have a stake in electric transportation. Eventually it became clear that we needed something more formal and focused to raise the level of EV purchases to the point where they would really take off.

We spun off Veloz as a non-profit organization—not something run by state agencies or owned by car companies, but a completely freestanding entity. Its mission is to market electric vehicles as a transportation solution in a way that does not rely on public service ads about how good they are for the environment, but that makes people aware of their advantages from the consumer’s perspective.

Most important are its charter and its board, which is a mix of utilities, auto companies, and sustainability experts. It officially launched this summer, and we’re in the process of raising funds for the first big marketing campaign.

Included in this month’s TPR is an interview of SCE president Ron Nichols about transportation electrification. In your view, what is the value-add of investor-owned utilities to this effort to scale the EV market?

The investor-owned utilities will play a critical role in developing public charging. Private companies already build and deploy chargers for individual homes. But when it comes to the kind of visible network that’s needed to give consumers confidence that electric cars are usable for all their transportation needs, there isn’t any entity other than the utilities that are capable of putting in infrastructure at that scale. And they’re very committed to this.

Let’s close with your perspective on California’s international leadership on climate action: the Under 2 MOU, America’s Pledge, Western Climate Initiative, and more. Comment on what will come of Ontario’s entry to the cap-and-trade regime and Governor Brown’s recent trip to China.

Our trip to China was more successful than it might have been for a sad reason: the announcement, on the eve of our departure, that the United States was pulling out of the Paris Accord. We were received as more than just old friends or good partners; our visit coincided with their alarm and deep unhappiness about losing the United States as a real, full partner in the greenhouse gas reduction effort.

But even if that had not happened—even if the governor had attended the Clean Energy Ministerial with the notion that the United States would be involved and would continue Obama-era policies—we still would have had an important role to play working with the subnational organizations. There’s just so much work to be done, and so much of the policy and implementation gets done at the state level in China, as well as here. We would have had plenty to talk about anyhow.

The Western Climate Initiative is also coming along. We’ve completed the groundwork for linking with Ontario; we have a formal report due out in November, and the final signing of a linkage will happen in January 2018.