AB 32 Lawsuit: Assessing the Environmental Justice Arguments Against Cap and Trade

As Cara wrote yesterday, a California court has put AB 32 on hold temporarily on the grounds that in preparing its scoping plan, the California Air Resources Board failed to assess alternatives to its plan with appropriate detail.  In particular, the court took issue with CARB’s failure , under the California Environmental Quality Act, to assess carbon taxes as an alternative to an economy wide cap and trade scheme (though as both Cara and I have written, the court case should at worst delay AB 32’s implementation and the court rejected all of the plaintiffs’ substantive challenges to the scoping plan).

What is especially interesting about the court case, Associated Irritated Residents v. CARB, is that the plaintiffs who filed suit are environmental justice groups and individuals, not a euphemistically named industry group seeking to halt the state’s progress in cutting its greenhouse gas emissions.  Environmental justice groups in California have made no secret of their discomfort with cap and trade as a centerpiece of the state’s emissions reduction plan even though they are otherwise very supportive of AB 32’s strong climate change goals.   I confess at the outset that I disagree strongly with the environmental justice groups’ position.  Here’s why.

First, let me set forth the basis for environmental justice advocates’ concerns.  Principally, the groups worry that the cap and trade scheme will allow the state’s largest emitters of greenhouse gases — mainly utilities and refineries — to purchase their way to compliance rather than reducing their own emissions.  Here’s how.  Under a cap and trade scheme, the government sets a total amount of emissions that all of the sources of greenhouse gas emissions covered by the program can emit.  That total amount (the cap) is then divided into allowances (usually one allowance equals one ton) and distributed (or auctioned) to the polluters.  The polluters can comply with cap and trade in several ways.  They can cut their emissions to the total amount of allowances they have.  They can cut their emissions below the amount of allowances they have and then sell the extra allowances to polluters who need more.  They can emit more than they are allowed and buy extra allowances from sources that have extras.  Or they can buy a certain percentage of “offsets,” which are pollution reductions from sources not covered by the cap and trade program (see here for a detailed description of offsets).  The main idea behind cap and trade is to allow market forces to produce the cheapest emissions reductions instead of having the government decide which reductions will occur.  Cap and trade is especially popular for greenhouse gas emissions because the problem is a global one, not a local one.  A reduction in carbon dioxide in Ghana is just as good as a reduction in carbon dioxide in California.  So cap and trade, if it works effectively, should produce large carbon emissions reductions cost effectively.

So what’s the complaint from environmental justice groups?  Most of the large carbon emitters also emit conventional pollution like precursors to ozone pollution (garden variety smog).  And if those large carbon emitters reduce their carbon emissions, they are also likely in the process to reduce conventional pollutants:  as they use cleaner energy sources or burn less fuel they’ll not only emit less carbon but fewer traditional pollutants.   In environmental parlance, reductions in carbon emissions can produce co-benefits in the form of cleaner air.  Environmental justice groups worry that cap and trade will allow large polluters to continue polluting while buying their way into compliance under cap and trade.  They can do so either by purchasing additional allowances or purchasing offset credits (though the CARB cap and trade proposal limits offsets to 8 percent of covered emissions).

Rather than having cap and trade, e.j. groups propose two alternatives.  The state could directly regulate the carbon emissions of its largest polluters by, for example, telling them what kind of technology to install or giving them an individual plant limit and allowing the company to decide how to comply.  But the problem with this approach is that is likely to be much more expensive per ton of pollution reduced.   And for me, one of the puzzles of the environmental justice  position is that higher costs are likely to affect low income Californians disproportionately.  If utility bills have to go up in order to reduce carbon emissions, higher electricity prices will hit those on fixed incomes most heavily.   While I’m in favor of measures that both reduce greenhouse gases and air pollution all things being equal, all things may not be equal when comparing cap and trade to direct regulation.  If direct regulation produces greenhouse gas emissions at significantly higher cost than direct regulation, that cost should matter in figuring out the best way to regulate.  I’ll come back to the question of air pollution in a moment.

Environmental justice groups also suggest that CARB adopt a carbon tax instead of a cap and trade program.  The court listened to the environmental justice groups on this point.  The central basis for the court slowing down AB 32 in the Association of Irritated Residents case is that CARB should have analyzed in much more detail a carbon tax as an alternative to cap and trade (though the court decision doesn’t tell CARB it must adopt a carbon tax, only that it must analyze a tax as a potential alternative as required by CEQA).  But I honestly don’t understand why a carbon tax is preferable to cap and trade from an environmental justice perspective.  A carbon tax would be imposed on emitters of carbon, probably also on a per ton of emission basis.  Companies could avoid the tax by reducing their pollution but they could also just decide that the cost of the tax is worth paying and continue to pollute.  So a carbon tax seems just as likely to allow large polluters to continue to emit if it’s more cost effective to do so.  And a carbon tax doesn’t give the state the benefit of capping overall emissions:  if the state sets the tax too low and emitters decide it’s cheaper to pollute rather than reduce their emissions, the state won’t achieve its emissions reduction goals.  The debate over whether a carbon tax or cap and trade is more effective in reducing carbon emissions is admittedly a complicated one (though I’m always struck by the fact that the argument seems to be “lets compare an actually proposed cap and trade scheme, with all its messiness, with a pure and clean ideal carbon tax rather than what a carbon tax would actually look like — riddled with loopholes and exemptions — if it could ever be achieved politically).  But on environmental justice grounds about air pollution co-benefits, I just don’t see why a carbon tax is a superior alternative.

I should note that I’m quite sympathetic to concerns by environmental justice groups about reducing air pollution from large sources in California.  And in fact a number of the measures CARB has included in its scoping plan should help on the air pollution front:  aggressive moves to cut greenhouse gases from automobiles should also produce cleaner cars; the state’s requirement that utilities get 33 percent of their energy from renewable sources by 2020 should do the same.  But I also think that the focus of AB 32 should mainly be on reducing greenhouse gases.  Other statutes require very strict limits on air pollution, including both the federal Clean Air Act and the state’s own air pollution laws.  Those are the statutes that should be used to regulate air pollution directly.  CARB should have as much flexibility as possible to implement AB 32 with a focus on reducing greenhouse gases as cost effectively as possible. If it can do so by also maximizing co-benefits like air pollution they should do so but the board’s central focus should remain greenhouse gas emission reduction.

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Reader Comments

12 Replies to “AB 32 Lawsuit: Assessing the Environmental Justice Arguments Against Cap and Trade”

  1. I guess these people are the left-wing equivalent of the tea party: ideological zealots who don’t really care about the practical effects of what they do.

  2. Dan, your comment is unwarranted and offensive.

    Ann, historically, cap and trade is not effective. Among many flaws, in other cap and trade programs, when it comes time for a shave to lower the “cap,” industry steps in, makes economic threats, and the amount of the shave is drastically reduced; or else, in market-based environmental programs, when the offset credits become too expensive, regulators find ways to increase the number of credits available. Furthermore, the argument that direct regulation would increase utility prices on consumers is not borne out by evidence, and unfortunately, as the court noted, because of ARB’s failure to evaluate a carbon fee, we have no real evaluation of how either type of regulation would compare to cap and trade. Finally, regarding local impacts, emitting GHGs in Ghana is not the same as emitting them in Wilmington. As Mark Jacobson’s 2010 study shows, place matters, even for carbon dioxide. http://news.stanford.edu/news/2010/march/urban-carbon-domes-031610.html. With respect to co-pollutants, we absolutely think about the practical consequences of our lawsuit. While we strongly support some of the measures you mentioned, many have already been the targets of industry attempts to weaken their efficacy. One of many examples is that refineries are lobbying to have electric co-generation count as alternative energy under the Renewable Portfolio Standard.

    Maya Golden-Krasner
    Staff Attorney, Communities for a Better Environment
    UCLA Law ’01

  3. Wow, it’s a tough week to be a UC grad — first that racist post about Asians in the library, now I’m being called a tea-partier for taking the position that CARB should at a minimum consider something other than cap and trade (which I believe, not without ample historic basis, is not the most effective way to reduce emissions.) I mean I guess if you think corporate profit is more important than efficacy of regulation, you might prefer not to see an alternative to cap and trade analyzed. But really Dan, that puts me in the same world as the tea party?!

    Shana Lazerow
    Communities for a Better Environment
    UCLAW ’97

  4. First, Dan, I don’t view the position of the environmental justice plaintiffs as tea party-equivalent at all. I think the positions the EJ community has taken are thoughtful and indeed quite useful — CARB should be pushed on the positions it takes and not just from the interests that will be regulated under AB 32. Cap and trade is not without controversy and being forced to think about alternative forms of regulation may strengthen, not weaken, CARB’s regulatory efforts even if the agency ultimately rejects some of the arguments.

    With that said, Maya and Shana, I’m obviously more optimistic about the efficacy of cap and trade. Part of my optimism comes from the experience with cap and trade in the regulation of ozone first in the northeast and then as part of the NOX SIP call more broadly to include the southeast and midwest. I also don’t understand the more general optimism about a carbon tax. The arguments always seem to me to be based on a realistic view of what cap and trade might look like if adopted v. an ideal carbon tax. But we’ve got ample experience watching even aggressive tax reform efforts like the Tax Reform Act of 1986 being completely undermined by subsequent Congresses. So Maya if you want to argue about caps being shaved and offsets being expanded you’ve also got to contend with taxes being riddled with exemptions and loopholes and being gamed by those subject to them.
    With respect to the localized effects of carbon dioxide, I’m not arguing that localized regulation of carbon dioxide wouldn’t have localized benefits. But from a climate change perspective reducing one ton of carbon has the same effect regardless of where it occurs. And AB 32 in my view should focus on combatting greenhouse gas emissions to reduce the harms of climate change. Other statutes should be used to tackle air pollution.
    Finally, I think the position of the environmental justice community in deciding to sue over its disagreements raises a conundrum many environmental groups have faced: should you sue an agency attempting to accomplish environmental goals with which you agree when you don’t agree with the means the agency is adopting? I think I would have made a different choice here assessing things like the ultimate likelihood of success, political realities and CARB’s overall reputation as a pretty effective regulatory body. But reasonable people can differ about these things.

  5. I don’t disagree with you about a carbon tax and, while that’s clearly what the judge found compelling, it is not what we necessarily view as the best solution. I also understand your argument that AB 32 should only be used to address climate change, however AB 32 requires that CARB work with the environmental justice community and consider localized impacts in communities that are already adversely harmed by air pollution in coming up with its plan. AB 32 therefore requires CARB to look at more than just overall GHG reductions. Nevertheless, CARB ignored the environmental justice community’s comments, and punted considering the localized impacts to sometime in the future, when it will be too late to really change course. Finally, while I appreciate that you would have made a different choice vis-a-vis the environmentalists’ conundrum (and the mainstream environmental groups made that choice), our job is to look out for the disproportionately impacted communities, and our decision was made easier by the fact that we do not believe that cap and trade works. We want AB 32 implemented effectively: in a way that actually reduces carbon emissions and protects low-income communities of color. In our view, the Scoping Plan did neither, and as you noted above, CARB should have, at the very least, considered other types of regulation.

  6. Ann

    Re “I honestly don’t understand why a carbon tax is preferable to cap and trade from an environmental justice perspective.”

    I think one reason is, as you stated, is that “The main idea behind cap and trade is to allow market forces to produce the cheapest emissions reductions …” This goal is contrary to the AB-32-mandated goal of achieving “the maximum technologically feasible and cost-effective greenhouse gas emission reductions …” A carbon tax is better suited to the latter objective because it establishes a stable carbon price and motivates maximum emission reductions within that price limit. Cap-and-trade systems, by contrast, are characteristically susceptible to price collapse because their goal is maximum price reductions, not maximum emission reductions.

    Carbon taxes can be much more economically efficient than cap-and-trade (e.g., by a factor of five) because of their price stability. (http://www.cbo.gov/ftpdocs/89xx/doc8934/toc.htm) But taxes and cap-and-trade are not mutually exclusive alternatives. An intermediate policy option would be cap-and-trade with a price floor and/or ceiling, which would operate effectively as a carbon tax if allowances are trading at the limit level. Some such alternative might find support with industry interests that are not as concerned about minimizing prices as they are about maintaining price stability.

    If the priority objective of tax policy is to reduce an industry’s emissions, as opposed to extracting revenue from the industry, then an effective regulatory model is that represented by the Swedish “Refunded Emission Payment” program for stationary-source NOx emissions. (http://www.airclim.org/acidnews/2000/AN2-00.pdf)

    Ken Johnson

  7. After it is all said and done, the good news is that AB 32 has been stopped cold and may never come back to life, thanks in part to a little radiation from Japan. We should celebrate the triumph of intellectual honesty in California and pray for the people of Japan.

  8. Dear Friends,
    One, I think Dan was joking. Two, the book “The Case for a Carbon Tax” by Shi-Ling Hsu sets out a persuasive argument for the carbon tax over cap and trade and has been read (I suspect) by many of the plaintiffs. I recommend it highly. Best solution, in my opinion: federal carbon tax (revenues redistributed to household, border adjustment to protect American industry against industry from jurisdiction which lack a price on carbon) supplemented by a variety of local initiatives, including CA cap-and-trade.

    Cheers,
    Ross

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Ann Carlson

Ann Carlson is the Shirley Shapiro Professor of Environmental Law and the co-Faculty Director of the Emmett Institute on Climate Change and the Environment at UCLA School…

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