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Show Notes
In this episode, policy analyst Danny Cullenward of CarbonPlan talks about the disconnect between California’s ambitious climate goals and its actual practical plans for achieving them.
Text transcript:
David Roberts
California has long been known, nationally and internationally, as a leader on climate policy. The sheer scale of its economy and the stringency of its emissions targets have made it a model for other states with climate ambitions. As a role model, its successes (and failures) reverberate far beyond its borders.
So it matters a great deal whether California has a practical plan to meet its aspirations. This year offers something of an answer, and … it’s not great.
Volts is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Every five years, the California Air Resources Board (CARB) issues a “scoping plan,” laying out how it intends to meet the state’s targets.
The last one, in 2017, raised serious questions about whether the state’s cap-and-trade system could do the emission-reduction work that the state planned to require of it through 2030. This year’s draft scoping plan (there’s still time for public comment) answers none of those questions, and instead, looking out to 2045, raises new questions about whether carbon-dioxide removal (CDR) can do the work the state plans to require of it.
That’s a lot of questions. To hash through them, and get a sense of just how prepared California is to meet its climate targets, I called up Danny Cullenward, a long-time policy analyst in the state. (Volts fans will remember him from one of the very first Volts posts.) He is currently policy director at the nonprofit CarbonPlan and a research fellow at American University’s Institute for Carbon Removal Law & Policy.
Cullenward and I discussed what policies have worked to reduce emissions in California, whether the cap-and-trade program can do what’s asked of it, why the current scoping plan leans so heavily on CDR, and whether there’s still time to improve the plan before it’s locked in for five years.
Without any further ado, Danny Cullenward. Welcome to Volts. Thanks for coming.
Danny Cullenward
Thanks for having me on, Dave.
David Roberts
Danny, you were the first interview I ever did for Volts a couple of years ago. And as far as I know, now you're the first return guest.
Danny Cullenward
And the first to pivot to audio. This is fun.
David Roberts
Yeah, the first to pivot to audio. I'm sure this is the kind of accomplishment you used to dream about as a young man.
Danny Cullenward
If I were still an academic, it would be going on my CV.
David Roberts
Alright, so the purpose of our conversation here today is to get a handle on California and climate, sort of where it's been, where it says it's going, and whether it is in fact prepared to go where it says it's going. Before we get there, though, let's do just a little sort of scene setting, a little background. I think everybody hears about laws coming out of California all the time. California is doing this, doing that, and it becomes a little bit of a blur. So let's just sort of clarify what are the targets to which California is committed by statute, and sort of what are its other targets which are less statutory.
Danny Cullenward
I think that's the formal legal definition. That's great.
David Roberts
Semi statutory.
Danny Cullenward
Well, so there's a reason people talk about California and also why people, I think, sometimes get confused about exactly what's going on. And the reason that it matters is California was one of the first states to move forward on some of the macro climate policy issues, and many states are either copying or learning from its experience. So what it does turns out to matter a lot to sort of what other people start to do. I think the story begins in earnest in climate policy with the passage of AB 32. Our famous climate law back in 2006.
David Roberts
Under Arnold.
Danny Cullenward
Under Arnold Schwarzenegger, and a progressive Democratic legislature came together, found common ground on this bill, did a couple of things.
It set a target to reduce emissions back down to 1990 emissions, by the year 2020. And it empowered the climate regulator, the California Air Resources Board, with the authority to undertake new regulations, including a cap-and-trade program, as well as to coordinate with other agencies, like our clean energy regulators that had already been pushing on renewables in the past. And that sort of set up the meta-framework and delegated the planning exercise to this regulator. So that's target number one. Target number two is about a decade later. In fact, one of the same principal legislators, then-Senator Fran Pavley, led a bill called SB 32, which codified a target of 40% below 1990 levels by the year 2030.
So both of those are statutory targets. They're legally binding. The regulator is obligated to plan to and meet those targets. And then in 2018, we had the passage of SB 100, our zero-carbon grid bill. That was much celebrated. At the signing ceremony for that bill, Governor Jerry Brown issued an executive order that said, let's go carbon neutral by the year 2045 on a statewide basis as well. And it's under the auspices of that executive order, and some more recent executive order and direction activity from the current governor, Gavin Newsom, that the state of California is thinking about its long-term climate goals.
So we have statutory target for 2030, and we have non-binding aspirational executive orders for the post-2030 period.
David Roberts
So, just to be clear, those executive orders are hotatory. Is that the word? They're meant to inspire action, but they have no legal force, there's no penalty.
Danny Cullenward
That's right. You can't create new policies or programs from those executive orders that aren't separately authorized by existing law. And it's really easy to say, "That that's dumb. It means they're nothing." On the other hand, the statutory targets we have followed from earlier executive orders, so there's a history in this state, and in many other jurisdictions, you set the aspirational goal and you codify the parts of it you can, you sort of push ahead and you iterate in ratchet. So I don't want to discount the importance of that. But the practical takeaway is that nothing can be done to implement those targets other than talking and using existing authorities.
You can't create new law with an executive order.
David Roberts
Right, so the legislature will have to follow up on that. So the first target you mentioned was by 2020, that was returned to 1990 levels. Did California hit that?
Danny Cullenward
Not only hit it, hit it a few years early. So it's a good story. And getting down to 1990 levels, maybe two things to say for your listeners. 1990 is a baseline that was really common to talk about 15, 20 years ago. We now talk about baselines like 2005, that's just sort of an artifact of when people locked into all of this. It doesn't sound like a particularly impressive target, in some respects, that's true, but at the time it was set, we were looking at emissions going ever up, and the idea that they would flatline and come back down a little bit was actually really ambitious at the time.
And the state met it a couple of years early, which is great. Could talk about why. We got a little lucky. We also worked really hard, and we got there a couple of years early.
David Roberts
Let's briefly talk about it. So I'd like to get a sense of sort of — there's these two families of policies in California that have been passed in pursuit of these targets. There is the cap-and-trade system that was set up, as you say, by the Arnold Bill. And then alongside that, there's this sort of more sector-specific rules and regulations and investments, sort of, I guess what you would group under "industrial policy". So you have this sort of price-based mechanism on one hand, and then these sort of more old-fashioned regulatory tools on the other hand.
So what has worked to put California ahead of schedule for its 2020 goal?
Danny Cullenward
Maybe the other thing to mention here is for these macro state targets, like the 2020 target and the 2030 target, AB 32, that original climate law asked the regulator to come up with what's called a "Scoping Plan". So every five years, the regulator is supposed to put together an official strategy. We're in the middle of a process for updating that strategy. And so you can look to those strategy documents to answer your question. And the first such document that was put together, basically, said that the expectation was that about 80% of the work to get to our 2020 target would be done by regulations and what today we now call things like industrial policy.
David Roberts
That was in what year the first Scoping Plan came out?
Danny Cullenward
It should have been December of 2008, end of 2008.
David Roberts
Got it.
Danny Cullenward
And the state said 80% regs 20% cap-and-trade. And that's a combination of policies that I think reflects the historical role that traditional sector-specific regulations and industrial policy have played in cutting emissions. Think renewable portfolio standard, think CARB's leadership on mobile source emissions, trying to set rules for cleaner cars. Those are the kinds of efforts that have historically delivered the tons. And the initial plan was about 80% in that traditional route and put on top of that an economy-wide carbon price that would do some of the lifting, but maybe not the lion's share.
David Roberts
And did that prediction, I guess, in 2008, turn out to more or less accurately reflect what happened through 2020?
Danny Cullenward
That's a place where I think there's a little bit of nuance. So if you look at the data in terms of how we actually got to our target early, it turns out that there was a substantial boost from the financial crisis, right? So, like, the world economy collapsed, and people stopped driving. We didn't have like a boom time, and that exogenously pushed emissions lower. When you look at the sectors where the work has been done, it turns out that we struggled to keep pace in the transportation sector, struggled to keep pace in the industrial sector, but our electricity sector decarbonized much more quickly than even the optimistic plans in the original Scoping Plan suggested.
And that's a combination of the fact that renewables and efficiency have performed in some respects better than we thought and moved faster than we hoped. It's also a reflection of the fact that at the time the plans were set, California was importing a lot of coal power. And it's a long story, but they eventually created a process by which the utilities in the state stopped importing that coal power. So we shed that liability from our books, and it's that electricity sector transition, moving off coal and starting to move on to clean energy, which is just beginning to really show up in the inventory.
That's where the real progress has come. The rest of the sectors have struggled and electricity is most of the work.
David Roberts
Got it. And so you hit the 2020 target early. The 2030 target is 40% below 1990 levels by 2030. Is California on track to hit that target?
Danny Cullenward
I don't think there's a case to be made that we're anything close to it right now. I think it's entirely feasible and doable, but I don't think we're on that track right now. And part of the reason why reflects a pretty big shift in the state's official strategy for its climate policy. So I told you that the first Scoping Plan in 2008 said 80% regulations, 20% markets.
David Roberts
Right.
Danny Cullenward
To make a long story short, there was a crisis in the cap-and-trade program starting in about 2016. The program was only authorized through the end of 2020. There was a crisis about the state of supply and demand in the program, the upcoming expiration of its clear legal authority, and that was ultimately resolved with a bill that passed in 2017 to extend the cap-and-trade program to 2030. So now we have the authority for cap-and-trade aligned to our state goal.
David Roberts
Right. I remember that fight. That was Brown, wasn't it? Who?
Danny Cullenward
That was right. And I think it's fair to say Governor Brown had a singular role in that bill and that approach. So the bill passes and extends the authority it requires for state constitutional reasons. It needed a two-thirds vote, which is extraordinarily difficult to pull off anywhere.
David Roberts
Even in California.
Danny Cullenward
Even in — anywhere.
And it led to a number of concessions to industry. So it shut down the ability of our local air pollution regulators to regulate CO2. It shut down the ability, at least temporarily, of the state climate regulator to regulate CO2 emissions from the oil and gas sector, including refining and production, other than through existing policies and the cap-and-trade program. And it led to a compromise in the implementation of the cap-and-trade program that made it a not particularly strict policy. Now, if you want to make a plan that's 80% regs and 20% cap-and-trade, a "not particularly strict policy" can maybe deliver that right.
But that's not what the climate regulator decided to do. So they decided in 2017, in their most recent Scoping Plan.
Like just in the wake of the program being renewed through 2030, right?
That's right. So the cap-and-trade legislation said, "You got to finish your Scoping Plan, and here's some of the constraints on that planning process." And in that plan, the regulator adopted a set of policies, or a set of strategies, that would put that emphasis much closer to 50/50 for the year 2030. So it was a pretty big departure. And if you ask an economist that sounds like a good thing. If you ask a political scientist, or somebody in the policy scene, "What's going on?" There's a lot more questions.
David Roberts
Right. This is a classic real-world running of this sort of experiment, this long-running sort of dispute. I'm sure listeners are probably familiar with the basic outlines, but then you sort of have economists who are like, "Pricing is the most efficient way, über alles. Absolutely. The cheapest way to do this, and most effective." And then you have sort of people from the political realm, you might say a political scientist, who point to, "Well, in the past, what has worked? And in the past what has worked are these more blunt weapons, these sort of regulations and mandates and investments," and things like that.
So it's interesting that California is really running a real-time experiment. So now in 2017, for its Scoping Plan, it says, we're going to put these on more or less 50/50 basis.
Danny Cullenward
Let me pause you right there. Yes. And then, here's maybe the most interesting part of this. So the plan is settled at the end of 2017, the rulemaking to implement the program doesn't finish till 2018. So ask me in 2017 what I think about this. I say, "I might have some concerns about the balance. I don't know if that's the wisest approach, but you can absolutely design a program to deliver in that way if that's what you want to do."
David Roberts
Right.
Danny Cullenward
And we can come back to this, to the extent this is interesting, but the design of the program in 2018 was a pretty universal sort of shift in a direction of not really addressing the supply-demand balance in the program very explicitly. And I think it's fair to say some decisions were made that led to consequences, and these consequences were warned about. A bunch of us in the either academic or nonprofit world raised concerns about there being too many allowances in the program to get to our goal. My colleague Chris Bush and Justin Gillis even had an op-ed in the New York Times, like, for you to get an op-ed in the New York Times about cap-and-trade minutiae.
David Roberts
Yeah. Allowance numbers.
Danny Cullenward
It's a pretty rarefied thing. Make a long story short, the critics who raised concerns about this said, "Wow, we've modeled the program. We think it's going to end up with too many allowances."
David Roberts
And so just wait, just pause there. Just to spell that out a little bit for listeners, you need an allowance to emit a ton of carbon. And the idea is, if you get too many allowances in the system, they just become cheap. You can start buying them up and hoarding them. Basically, if there are too many allowances flooding the system, it removes what incentive there is to reduce emissions. And instead, you can just start buying and hoarding cheap allowances to protect yourself, and because, to steal a little bit of your thunder here, but because California allows banking, which is buying allowances and saving them for later, this opens the possibility that regulated entities in California can take advantage of these super cheap, oversupplied allowances.
Buy a bunch, create a big reserve of them, and then when or if prices ever go up, they're just going to have these giant stores of cheap allowances. So even if the price goes up, they'll still be sort of insulated from having to take action. That's the worry about too many allowances.
Danny Cullenward
Yeah, and I like to analogize it. I don't want to in any way cast aspersions on making these programs work right. Which, again, I think is something that is a nice idea, and I work on every day, despite writing a book about why it's unlikely to work. But think about it as a cap-and-trade game, as a game of musical chairs. And so the players that's the pollution, the chairs, that's the number of allowances in the program. And players can exit the game if regulations are successful or technology improves. And the question is, how many chairs should you have in the game?
And if the regulator guesses wrong or gets the number wrong, for whatever reason, you can end up with too many chairs. And the basic rule of a cap-and-trade program is a player's got to have a chair at the end of every period. You got to have the right number of allowances to match your emissions. And if you don't, you're out. You got to figure out a way to close that circle. So it's really hard, turns out, to estimate how many emissions you think are going to need to be covered in a cap-and-trade program.
You have to guess at the future of the economy. You have to guess at the performance of each sector. You got to guess at macroeconomic conditions. You got to guess how fast you think the grid is going to decarbonize. It's hard to do right.
David Roberts
Let's pause here to make a note that the original economic attraction of cap-and-trade, and of pricing carbon generally, is supposed to be that you don't have to guess those things, that the price will do the work for you, that the price will sort of reflect our aggregated information about those things if it's just allowed to run. But it turns out, as you point out in your book, and as many other people have pointed out, if you've got a big system that covers the energy sector, you're not going to take chances. In practice, you're not going to let it do whatever the market does to it, right?
It's energy. It's too core to the economy to leave it up to that. So what ends up happening is regulators end up fiddling and fiddling and messing and shaping and capping, and they end up designing it to the point that it just becomes a sort of backdoor command and control mechanism, which was the whole point was to get away from that. So it's like you end up with the worst of both worlds somehow.
Danny Cullenward
Yeah, I want to tell you a positive story about how to fix it and all that at some point, but it is ridiculously complex. And I think the main insight is that when you ask an economist about this, they say, "Well, you don't have to worry about this." The reason is they're thinking as though you had this policy in isolation, in an idealized setting, and in the real world, you only ever see these instruments evolve alongside strong complementary policies. That's the label we use. We call the things that do most of our work "complementary policies" reflecting the sort of economist worldview on that.
But good economists have been thinking about this for a while. I mean, there's many to reference, but Severin Borenstein at UC Berkeley and his colleagues wrote a really great paper looking at the California program and saying, "Wow, I mean, there's so many policies that directly affect emissions subject to the program." There's only a small piece of the puzzle that is responsive to these prices, and you end up trading, as we say in the book, you end up trading the residual, and there's more volatility the more work these other policies are doing. There's also more political stability the more you rely on these other policies.
So everything kind of points into a direction where the program looks bigger than it is and is also really complicated to manage empirically and effectively. So I'm trying to be sympathetic here. Like, it's hard to do it right. I'm not saying, "Oh, everybody screws it up if they just listen to the smart people." It's actually really hard to do.
David Roberts
Yeah. Because you have all these other complementary policies that are reducing emissions, but every little bit that they reduce emissions has an implicit effect on the pricing in the cap-and-trade system. So you sort of have these two symbiotic things, one of which you're directly controlling and one of which you're sort of obliquely controlling. Yeah. And you end up having to — it just seems like, and you're right, we're perhaps being too negative too early here, but it just seems like ...
Danny Cullenward
Save it, Dave.
David Roberts
... A giant Rube Goldberg mechanism created just so you can say you did something market-like. The final product bears virtually no resemblance to any market or market mechanisms. But it's just like the symbolic value of saying, "We did a market thing," has prompted all this work and complexity just to make this thing appear to be playing a big role.
Danny Cullenward
Okay, I got to push back on you. That is both too cynical and not cynical enough. Here's the optimistic case for this. You actually want markets to work, if you want to deliver some cost-effective reductions. There's value in having markets discover cost-effective reductions. And in the real world, if you manage this carefully, given all of these constraints and all these concerns, there's actually value in that secondary supporting role. So you sort of articulated case, "Oh, this is all smoke and mirrors." It actually could be important to do this right, admittedly at a lesser scale than the textbook econ solution suggests more.
David Roberts
Explicitly as a "sopping up the remainder" policy rather than a sort of "main workhorse" policy.
Danny Cullenward
Yeah. And if politics improve over time, if industry wants to come to the table to talk about cost-effective ways to get things done, it becomes a venue where you could have that conversation and have that conversation potentially be real. The more cynical take, and this is something I expect we'll come back to, is that the presence of a market-based program that can be described as an idealized outcome also becomes a shield against reform.
David Roberts
Yes.
Danny Cullenward
And people will point to it, and they say, "You already have this economically efficient program that's designed to do all the work, so you don't need that next industrial policy. You don't need that higher ambition. Why would you remove allowances from the market and raise consumer prices when it's already designed perfectly?" It becomes a very dangerous thing when the idealized case is made, and that's typically made by industry and by regulators when they're sympathetic to either the concerns of industry or the challenges of reform that I think are practical and real.
David Roberts
Right. So if you have in place this system that you are claiming is an economically efficient way of mopping up emissions, and then you propose some further sector-specific industrial policy, it's very easy for industry to come along and say, "No, you don't need that. We already have — look, you already said you have this perfectly economically efficient plan in place. Why would you need to do anything else if you truly have this plan in place?"
Danny Cullenward
And just for a second, if they're right, if that program was designed perfectly and you're not worried about long-term dynamics, you just assume a relatively simple econ framework here, they might have a point. And the problem is the programs are rarely designed that sufficiently, and you also have all sorts of other market failures that sector-specific policies might want to address. But they do make a point which, again, is really compelling to lots of people and is worth paying attention to. If you did this right, it would take away some of the rationale for some of the sector-specific work.
And I think it's a mistake to say, "Oh, that's not a legitimate argument." From a certain point of view, it can make sense. The tell is that we've rarely designed programs that are strict enough to deliver on that outcome.
David Roberts
Yes, this is the key. I think you can imagineer a program that does all these things they say it does, but it doesn't seem like a coincidence that no one's been able to implement a program like that in the real world. In the real world, these programs are always compromised and oversupplied with allowances with all these blind spots. This is the whole sort of political economy point, right?
Danny Cullenward
Yeah. And just again, not to put too fine a point on it, but that's okay if you work with it and you understand it and you put it in the right size box and you say, this is the classic example, is, "would you rather California have a $30 price on carbon or a zero dollar price on carbon?" And I will take the 30, please. But I don't want to pretend that 30 gets me to net zero, and I want to hold both of those ideas in my head at the same time.
David Roberts
Right, okay. So this brings us to the present. California is, in 2017, sort of shifted its emphasis to a sort of half-and-half industrial policy and cap-and-trade program road to the 2030 target. It is not currently on track to that target because of some of the large and still unaddressed problems in the cap-and-trade side of things. That's where we stand now. So then into this situation enters the current Scoping Plan, which was just released. I guess they do it every five years. They did 2017. So the 2022 Scoping Plan was just released.
Danny Cullenward
Just to clarify, it's the draft that's been released, so this is the only opportunity for public comment. It's not locked in, but we'll talk about what's going on.
David Roberts
Right. That's important later. The draft Scoping Plan for 2022 has been released. Now, you might think, given what we've discussed so far, that the 2022 Scoping Plan would be singularly obsessed with whether the cap-and-trade program can in fact, do 50% of the work, can in fact, do what they want it to do. Given that a. there's a lot of long-standing, very loud, persistent critiques of that program. And two, that it doesn't seem to be working currently because they're not on track, you would think that the Scoping Plan would be preoccupied with "how can we tighten up cabin trade, so that it really, does this work we say it's going to do?"
That turns out not to be what the Scoping Plan does at all. In fact, the Scoping Plan, as you pointed out in a piece you just wrote last week, devotes all of six pages to the 2030 goal, which is currently not on track to be met. And as far as I can tell, does nothing to revise the basic shape of the cap-and-trade program and doesn't really, as far as I can tell, address any of the long-standing critiques of the cap-and-trade program.
In other words, this Scoping Plan tells us very little about how California is going to go from "not on track" to meeting 2030 to "on track". Is that fair?
Danny Cullenward
Yes, that's fair. So this is over 200-page planning document. There are six pages that address cap-and-trade and the 2030 target.
David Roberts
That's wild. That's wild. It's only eight years away, Danny.
Danny Cullenward
Yeah, I know. They don't even discuss, you reference the concerns and criticisms. Let me just give you just a couple of statistics. So if you look at the official greenhouse gas inventory by which we measure progress towards our various targets, the most recent pace of reductions is about 4.5 million tons per year we're reducing. And that's good, it's something to celebrate, but we need to increase that by almost a fourfold rate to get on track for 2030, to get to our existing statutory target.
David Roberts
So what, like 16? What's the target number?
Danny Cullenward
The target number, we're in the low 400s, 400 million tons CO2 equivalent per year. And we need to get down to about 259 million per year by 2030. We need to be falling at a rate, like, if you take our 2021 provisional estimate, we need to be falling at about 16.7 million tons per year, and we're falling sort of four to 5 million tons per year. So there's a gap there. That is absolutely in the technical world, that's an achievable. We can do that. We know how to do that if we really want to do that.
But there's a gap. Second thing I want to introduce is we actually have a lot of evidence. We talked about back when the cap-and-trade regulations were finalized in 2018, there was a big debate, and there was some criticism. So the people who wrote their numbers down in public documents who said, "Here's how many extra allowances we expect to see at the end of the third compliance period." We just got data six months ago on that. And based on those allowances, those extra allowances, we have concerns that the program maybe can't get us to 2030 on track with our goals.
So the people who did that, it turns out they got pretty much exactly right, and we saw the surplus allowances at those levels. So I'm the vice chair of the Advisory and Oversight Committee for this program, and speaking just in my personal capacity today with you, we in our annual report for the advisory report, looked at the number of extra allowances, and there are about 321 million that came into the post-2020 market. In the 2017 Scoping Plan, which did this first analysis of how to get to 2030 and how big the cap-and-trade needed to be to get there, they estimated around 236 million tons of reductions would need to come from cap-and-trade.
So we've banked more allowances, that is to say, private parties bought and are holding on to more allowances than the entire cumulative reductions expected from this program in the last plan. So when I tell you that only six pages sort of hint at this stuff, and they don't even reference the advisory reports, the data, the documents, the public peer-reviewed papers, that should really strike you.
David Roberts
So just to put a fine point on that, regulated entities could get all the way through 2030 using nothing but already banked allowances, not making any further reductions at all. Is that fair?
Danny Cullenward
That's a possible outcome. I don't want to say that's the most likely outcome. It depends on sort of your view about both the number of players in the game. We know the number of chairs and the regulations if we're thinking about this as the musical chairs game, and that is possible. And so my colleague Dallas Burtraw, who's the chair of the advisory committee, was quoted several times in the press saying, "That's a possibility." It's wickedly complicated to try and model it all, but basically, we're talking about a surplus of 321 million when you're looking at creating kind of a deficit of 236 million.
So it's the wrong direction for sure.
David Roberts
And even if they only do half the emission reductions needed, that's still super bad. I mean, ideally, you'd have few to none excess allowances floating around in your system, right?
Danny Cullenward
If you wanted emissions to fall roughly in line with program caps, you wouldn't expect to see very large banks emerge or at least you'd want to have some long-term continuity in the program. I want to flag the cap-and-trade program is only authorized through the end of 2030.
David Roberts
Right.
Danny Cullenward
We'll get to this like what's going on in Washington. Washington has authority to do both climate and cap-and-trade way out farther into the distance. And so there's some really interesting issues that come up. You might look at our market and say, "If we're just trying to solve for 2030, we have way too many allowances."
David Roberts
Right.
Danny Cullenward
You could also look at our market and say, "Well, if we were trying to solve for also 2045 or 2050, maybe it's appropriate to be in the kinds of conditions we're in." The problem with that statement is that we don't have the legal authority to do that, and we can talk about this, but it proved impossible to get a simple majority vote on just a climate target last year, and you need a two-thirds vote to make the cap-and-trade program also follow.
David Roberts
Yes. And given the sort of harrowing concessions Brown had to make to get that first two-thirds vote, one can only imagine what would be required to get it past 2030.
Danny Cullenward
Yeah, and it's tough because again, if you're a proponent of these systems — and again, I want to support, like using them well and right, that's a good thing. But you're probably also pretty challenged by what's increasingly sounding like double speak about this from the regulators. Because think of it this way, if this conversation gets deferred a couple of years, and we're having a conversation about what a two-thirds vote looks like in 2024 or 2025, that's going to be an even harder conversation. If there's a big bank of allowances and relatively low prices, and you say, "Well, what if we extended the program and massively increased prices?"
It's not like that challenge gets easier by putting it off.
David Roberts
Yeah, I mean, this is sort of another aspect of the political economy of these programs, is they need to be able to get more expensive. That needs to at least be an open option. They're not working correctly unless they occasionally get more expensive. But no politician wants to go out and propose a reform explicitly to raise prices on people.
Danny Cullenward
And that is also why when people declare victory on the backs of the idealized perception of these programs, it becomes even harder to advance climate progress. Because now you're not only stuck trying to convince a reformer to make that argument, but you have often the government, and usually major industries saying, "Actually, it's fine the way it is."
David Roberts
Right.
Danny Cullenward
So the number of people who are sort of against the climate reform trajectory increases, including political stakeholders who are just trying to think about staying in office or managing competitiveness, it's tough.
David Roberts
And so tell us also ... you found a discrepancy about how the sort of baseline emissions scenario is calculated, that also looks like it's padding the results slightly. Can you explain that real quick?
Danny Cullenward
Yeah, so if you want to model the role of the cap-and-trade program, and I told you that it was expected to require almost half of the work from cap-and-trade in the previous 2017 Scoping Plan, you need to model what you think business as usual emissions are going to be, given all of the other non-cap-and-trade policies. So what's the clean electricity policy, the vehicles policy? When you add that all up before you think about the effect of cap-and-trade, what does that all look like?
David Roberts
Right. So in other words, what is the remainder that cap-and-trade has to wipe up?
Danny Cullenward
If you just pretended we didn't have cap-and-trade, and you had a good model that could give you a crystal ball outlook for the emissions trajectory without cap-and-trade, these Scoping Plans, they say, "cap-and-trade will close the gap." You basically want to model what you've got without cap-and-trade, and whatever else you need to do, that's the role that's implicitly assigned to cap-and-trade. So if you model that, we can have a conversation about how big this needs to be. And so in the six pages, there's some discussion about, well, we've got a new scenario, a new version of that line for emissions, and it's lower, so we're not going to need as much from cap-and-trade.
David Roberts
So that's saying we're going to get more out of these conventional industrial policy policies than we thought.
Danny Cullenward
Yes. And to be clear, it's not like there's a bunch of new policies. There's a couple of things that have come online in the last few years, but it's not like they're proposing a bunch of new policies. They're sort of saying, "Since the last time we checked in, we have a few more policies, and the outlook looks pretty good." So that sounds like good news. And if it's true, it is. Vis-à-vis reducing the reliance on cap-and-trade. I want to flag, that does not fix the problem of having a lot of allowances when you want the program to cut emissions.
David Roberts
But the less work you're asking it to do ...
Danny Cullenward
The more manageable the problem becomes.
David Roberts
Right.
Danny Cullenward
So that sounds great. And so I decided, I download the spreadsheets because that's the kind of person I am. And I started looking at the spreadsheets, and I was like, "Something's not right here." And I pulled the inventory data, again, from the climate regulator. They say, "What's the pollution look like in our state from the climate side?" And the scenario that is being offered as evidence for we're doing better, our emissions are going to be lower, and so we're going to rely less on cap-and-trade. Don't worry.
That scenario is like 12, 15 all the way up to potentially 27 million tons per year lower than the actual inventory data where we have it. So the story is completely inconsistent with the regulator's own data, and it's worse. I dug into the sector-specific totals because you could imagine that the outlook for transportation is different post-pandemic. I work from home now, I didn't use it. No, the difference is in the building sector, which does not change, and the industrial sector.
David Roberts
Which is the one that's hardest to get at and slowest to change and has least policy aimed at it.
Danny Cullenward
So all the modeling in this plan is done with a proprietary analysis through consultants. There's not a lot of documentation, and on this scenario in particular, there's really nothing to clue us into what happened. So all I can do is sort of hold up a mirror and say that "the numbers are off." And the delta between the story and the inventory numbers is bigger than the purported improvement in 2030 that should make us comfortable that we don't have to worry about the cap-and-trade program anymore.
David Roberts
Right. The upshot of which is just that California is proposing to rely on cap-and-trade even more than it says it is, by a big chunk.
Danny Cullenward
I would summarize it slightly differently. We don't really know what's going on. Nothing has really changed in terms of the policy portfolio, and no one's proposing to make any changes now. The regulator, to their credit, they've said, "Hey, we're willing to have a conversation about the cap-and-trade program, we just like to have it next year." And so there's nothing here, and nobody's affirmatively changing. And it's not like the role is bigger, or something like that. It might be smaller, but we're still not having a conversation about "how do we more than triple our emission reductions, given a plan that relied about half on this program, and evidence that this program is not designed to perform in that way right now."
And again, for proponents, if you're somebody who wants to see this program play a bigger role and do a bigger job, you also know you got to think about a two-thirds vote in the legislature to extend it past 2030, which would fundamentally change the way you would answer those questions, right? If you're planning for 2030 versus for 2045 or 2050.
David Roberts
In retrospect, just making it ten years at a time was not great, was not smart, which Washington learned from. Before we move on to the other parts of the Scoping Plane, let's briefly talk about Washington, because Volts listeners will know that Washington has recently passed a whole raft of great clean energy and climate policies, a bunch of sector-specific stuff. But alongside that, Washington is proposing to create a cap-and-trade system more or less mirroring California's and to connect it to California's, to become part of California's market, which some folks might remember way back in the day when California was first setting up its market. This was always kind of the thought that it was going to be a big West Coast thing, that there were going to be all these players attached to California's market, but they sort of like dropped off one at a time, leaving California and Quebec now?
Danny Cullenward
That's right. Ontario later joined for a brief period
David Roberts
Very random, but then Ontario bailed too.
Danny Cullenward
But they're not there anymore. Yeah.
Right. So now it's California and Quebec, but Washington is proposing to join. So from my hometown point of view, the dysfunctions of California's cap-and-trade system very much matter for Washington. So spell that out a little bit. Like, what is the danger that Washington faces here?
There's a couple of things. So one thing to say is, again, there are a few sources of climate policy and climate institutional leadership at the subnational level in the United States. And California is one of the really big players in that space. And so even when people set out to do their own things, they often borrow or learn from and adapt various things we've done. So it's always important to think about what we're up to, not because we're the center of the universe, but because a lot of what's happening is either following or learning from things we're doing.
David Roberts
One of the reasons that smaller jurisdictions that come along and want to do something good on climate will copy California's work is that California, sort of legendarily, has a robust administrative capacity. One of our favorite subjects here at Volts, and specifically CARB is sort of unique. So maybe just say a quick word about why California ... ? What is it about California's system that enables it to put together these things out of scratch, such that other people sort of come along behind and want to copy it?
Danny Cullenward
I think that's exactly it. So we have large and reasonably well-sophisticated regulatory bodies in a number of spheres. And in fact, one of our problems is we have so many that coordination can be an important challenge. We'll come back to this actually because part of the flavor here is California — there was a debate when AB 32 was being set up in 2006. "Should we give one agency the quarterbacking role, the lead in all of this, or should we distribute it across agencies?" California went with the sort of quarterbacking model, where the Air Resources Board is primarily in charge of this, although, as we mentioned, a lot of the progress has been made in electricity. And you should be looking at our utilities regulator for that.
David Roberts
Yes, but it is worth saying that CARB is huge and powerful relative to virtually anything you find in almost any other state.
Danny Cullenward
Almost anywhere else. Right, exactly. And so there's scientists, there's engineers, there's lawyers, there's a big administrative capacity.
David Roberts
Which, like, Washington does not have, just doesn't have the size and money to replicate that.
Danny Cullenward
And that's exactly right. And so what's so interesting right now about subnational American politics is I think we're seeing much higher climate ambitions become popular at different times, and so you're seeing sort of higher watermarks for the level of policy goals and integrity. But many of the states, like Washington, where I would describe frankly, your current goals as better than California's, but you all don't have a regulator that has the same capacity. And so it's not just that people are looking for inspiration. Let me contrast this really quickly. California says, "Let's have a zero carbon electricity grid, a renewable portfolio standard with a technology-neutral back end. Let's amp that stuff up on steroids."
Many states have utility regulators that are capable and sophisticated enough to emulate those policies if they want so that policy can diffuse without worrying too much about institutional capacity.
David Roberts
Right.
Danny Cullenward
Not so with a cap-and-trade program, which is phenomenally complex. And I mean no disrespect to the regulators in Washington state, but there's just far fewer per capita in total. So the significance of this is that you literally need essentially hegemonic, regulatory actors to govern these systems. And this is the opposite — you and I've talked a little bit about the East Coast states and their cap-and-trade program called RGGi, where they're fairly egalitarian, and everybody sort of cooperates on an equal basis. This is really a centralized infrastructure that California is the biggest market by far.
The size of your emissions footprint is less than a 6th of our market. So you are a smaller player in economic terms. And that means both the capacity difference between the two states and the relative economic importance of our decisions and situation have enormous influence ove