California's landmark cap-and-trade program, one of the state's most critical vehicles for addressing climate change-related greenhouse gas emissions, faces the possibility of being discontinued unless the state legislature reauthorizes cap-and-trade policy. For more information on cap-and-trade and its relevance to the Sierra, download our California Cap-and-Trade Policy and Sierra Nevada Communities fact sheet.
What is cap-and-trade?
The California Global Warming Solutions Act of 2006 (AB 32), passed in 2006, requires California to reduce its GHG emissions to 1990 levels by 2020 — a reduction of approximately 15 percent below emissions expected under a “business as usual” scenario. This monumental legislation also led to California’s landmark cap-and-trade system and the subsequent Greenhouse Gas Reduction Fund (GGRF).
California’s cap-and-trade program, which began on January 1, 2013, is a crucial part of AB 32 and the state's 2020 emissions reduction goal. With cap-and-trade, the state sets a cap to limit emissions and auctions off permits that represent a designated quantity of allowed emissions. Companies that keep their emissions below the cap can “trade” emission credits to those companies exceeding their limit.
Revenue generated from sales of these permits is restricted to achieving GHG emission reductions and dedicated to the Greenhouse Gas Reduction Fund (GGRF). The distribution of the GGRF is determined every three years by the California Air Resources Board, the California Department of Finance, the Governor, and the Legislature. (See Sierra CAMP’s State of Cap-and-Trade Funding in the Sierra report for more information.)
Why reauthorize cap-and-trade?
AB 32 (2006) does not explicitly authorize cap-and-trade after 2020, creating uncertainty about the cap-and-trade system’s continuation. This uncertainty translates to fewer entities buying emissions permits, which in turn results in greatly reduced revenue for the GGRF. The functionality of the emissions trading system and the resulting funds are critical for continued statewide investment in GHG emissions reduction initiatives and investment in underserved communities. As such, it is imperative that cap-and-trade be reauthorized to reestablish certainty in the emissions trading market.
Climate Policy and the Sierra Nevada
The fate of the GGRF depends on whether cap-and-trade is reauthorized during the 2017 legislative season. While GGRF funding to the Sierra Nevada is currently limited, without it Sierra communities will lose critical access to potential funding for carbon sequestration and forest restoration with multiple co-benefits for the surrounding communities. Low-income rural communities face even greater challenges adapting to climate change impacts – especially wildfire and flooding – due to economic disadvantage, marginalization, isolation, and other factors. Current and future GGRF funding for forest and watershed management and sustainable economic development in rural communities depends on cap-and-trade’s reauthorization.
Check out our California Cap-and-Trade Policy and Sierra Nevada Communities fact sheet to learn more about the importance of the cap-and-trade system to the Sierra.