California's landmark cap and trade program faces uncertain future
By Rory Carroll
SAN FRANCISCO, June 14 (Reuters) - California's greenhouse gas reduction program is in a battle for its life, and uncertainty about its future has spooked buyers of its carbon permits
California in 2012 became the first U.S. state with a comprehensive cap and trade program for carbon emissions, which are implicated in global warming, and now finds the program sputtering.
The woes include a glut of pollution permits, a lawsuit that could invalidate the premise of the program and political differences over whether it should continue after 2020 when it is due to expire unless extended by the state legislature.
The latest round of bad news came on Tuesday when the state announced that it had raised just $10 million from the May carbon permit auction, more than $500 million less than it brought in during the February sale.
It also marked the first time that California failed to sell any of the permits it offered to cover 2016 emissions at an auction. (For a graphic of the California carbon market see: http://tmsnrt.rs/1sThH6S)
Oil companies, manufacturers and market speculators had little incentive to purchase permits from the state since they could be found on the secondary market at a discount.
Earlier this month, Governor Jerry Brown, the program's chief advocate, acknowledged uncertainty about the program's future and said he has yet to work out a deal with the legislature to extend it beyond 2020.
"The question is exactly what role the legislature will play, what role the Republicans will play. If not, what are the alternatives? Those are always available," he said.
Brown had tried to set a greenhouse gas reduction target for 2030 via executive order, but California's Legislative Counsel Diane Boyer-Vine said the governor overstepped his authority in doing so.
While Brown said the lack of demand for permits is an indication that the program is meeting emissions goals, Senate Republican Leader Jean Fuller said it is an indication that the business community may be losing confidence in the program.
"What is clear is that ambitious and expensive pet programs like high-speed rail may be on the chopping block if these auction results continue," Fuller told Reuters.
The carbon market, which has raised just over $4 billion so far, devotes 25 percent of its revenue to the $68 billion high speed rail project, a legacy project for Brown.
Democratic lawmakers like California Assembly member Adam Gray are eager to have a conversation about the future of the program and worry that its policy of accepting carbon offset credits generated by projects in other states is costing California money.