Cap-and-trade has been criticised in California for allowing big emitters to pay their way out of reducing emissions and cause pollution. It’s become a social justice issue as poorer communities tend to be located near where the pollution is being created. James Bushnell at the Energy Institute at Haas warns that such clashes are being caused by the mistaken view that climate policy should be a major tool for reducing inequality. In fact, some climate policies – on their own – will inevitably work against social justice. Just think of the jobs lost when gas refineries close down. Or subsidies for EVs that, overwhelmingly for now, benefit affluent buyers. Bushnell strongly asserts that social justice should be addressed with its own policy tools. If this is not understood, good policies like cap-and-trade (which raises California billions in revenues) are in danger of being sidelined. Worse, any failure climate policies have in reducing inequality could lead to disillusionment and acrimony over the new green agenda.
Around mid-December reports emerged that the candidacy of former California Air Resources Board (ARB) chair Mary Nichols to head the Biden EPA was dead, in part due to opposition from some of the organisations that are focused on environmental justice (EJ) issues.
One basis to the objections, according to reports, was Nichols’ prominent role overseeing the implementation of California’s cap-and-trade program for greenhouse gasses (GHG). For several years, EJ activists have argued that California’s GHG cap-and-trade program has not done enough to reduce local pollutants in disadvantaged communities.
Hostility from the left toward Cap-and-Trade. Why?
This episode is one of the recent examples of hostility from the left toward cap-and-trade, a powerful environmental regulatory tool that has been effective at lowering the cost of reducing pollutants from lead in gasoline to SO2 to NOx, and, in the case of California’s GHG cap-and-trade, has raised tens of billions of dollars.
In the climate policy sphere, the problem is the tension between battling a global problem like climate change and addressing the local pollutants that impact environmental justice. Cap-and-trade has been the main target of criticism. As a popular narrative goes, carbon pricing has dominated conversations about climate policy, and has historically been the focus of Democratic policy (to the exclusion of all others) to incentivise GHG reductions by raising the cost of emitting carbon.
This laser-like focus on carbon pricing has allowed well-funded and politically connected industries to either “buy their way out” of reducing emissions or lobby for free permits. The result of this dogmatic embrace of carbon pricing, it’s argued, is a climate policy that has been both broadly unpopular and has alienated those focused on Environmental Justice issues.
By rejecting Nichols, the Biden administration has learned from past mistakes and plans to move away from carbon pricing and focus on more popular climate policies, namely standards and investment through clean-energy. A popular, new acronym is “SIJ,” representing a policy that will minimise reliance on carbon pricing and focus on Standards, Investment, and Justice.
Standards and Investment. A better way?
There are a couple gaping holes in this narrative. First, in California, it is not clear that low income families and communities of colour have fared worse than others under the state’s climate policy.
Second, and more relevant for the incoming administration, if disadvantaged communities have been disproportionately harmed, this would constitute a failure of the very policies that the new administration is now apparently embracing as its climate policy, as much as it would a failure of carbon pricing.
On the first point, much of the basis for the case that cap-and-trade is failing disadvantaged communities comes from an analysis by Cushing, et al., and also an article by Lisa Song. Both of these articles utilise facility-level GHG emission data posted by ARB and collected as part of the cap-and-trade program, along with other sources of local pollutant data. Those data show that GHG emissions within several California “smokestack” industries (many located in disadvantaged communities) were higher in 2013-15 than in 2011-12.
These facts are indisputable. The tougher question is what they imply about cap-and-trade, as well as about local air quality (which is harmed by pollutants other than CO2). The answer appears to be, “it’s hard to say”.
You can’t isolate Cap-and-Trade for blame
My main point is that an accounting of emissions trends over time does not distinguish the role of cap-and-trade from that of other policies- let alone that of the economic recovery – in driving outcomes. Imagine a hypothetical vaccine trial that gave everyone four vaccines at the same time, while also closing all the bars and restaurants. The ability to “identify” the causal impact of one “treatment” is lost because it can’t be isolated from other factors.
Identifying the effect of cap-and-trade is such a challenge because California did not in fact focus exclusively, or even primarily, on cap-and-trade as its main policy tool.
Distrust of cap-and-trade is nothing new in California, and because of this policymakers always planned for most GHG reduction to come from other policies such as mileage standards for automobiles, a low-carbon fuel standard for transportation fuels, and a renewable portfolio standard for electricity generation. California also went big on tax credits for EVs, funding for public transportation, and a slew of other investments funded with cap-and-trade revenue.
Under Nichols’ leadership, cap-and-trade, much to the chagrin of some environmental economists, was relegated to a “backstop” role – designed to plug any holes that may have appeared in the other programs and to raise funds. Viewed in this light, the low carbon prices produced by the cap-and-trade program reflect the success of standards and subsidies (as well as a global recession) in reducing statewide CO2, making the backstop unnecessary.
So, if climate policy has indeed failed disadvantaged communities in California, it has been a failure of all of the policies working together, not just the fault of cap-and-trade. In other words, there was a whole lot of the “S” (standards) and “I” (investment) in California, and yet we are perceived (at least by some) as having failed at the “J” (justice). This is important because many of these policies are at the forefront of the Biden climate agenda. Many of these policies, like subsidies for electric vehicles and for rooftop solar, are also highly regressive.
If the Biden administration is going to pursue such policies, it needs to take a holistic view of their implications for environmental and economic inequality while maintaining as broad a coalition as possible.
It is not an easy task. The second-most common complaint I’ve heard about California’s climate policy is that it hasn’t reduced output from California gasoline refineries enough (i.e., too much gasoline!). The most common complaint, however, is that climate policy has raised gasoline prices (i.e., not enough gasoline!). It is tough to keep everyone onboard.
Don’t leave Social Justice to Climate Policy!
The real lesson may be that it is misleading, even politically dangerous, to promote climate policy as the best vehicle for solving most EJ issues. The “climate policy will solve many problems” narrative seems to be a position being embraced by the incoming administration.
It was also something stressed early in California’s policy development. In order to ensure the support of those focused on EJ issues, California’s original climate legislation, AB 32, was billed not just as a mechanism for reducing GHG emissions but also as a vehicle for addressing environmental inequality and even as a means of driving economic growth. As California’s climate success has been viewed as not producing enough progress on local pollution, the result has been internecine fights within the environmental community.
Good climate policies can put a strain on local Social Justice
The problem is that many of the most effective climate policies reduce GHG emissions in ways that may not do much to reduce the co-pollutants that create local issues. In the climate policy community, much of the focus is on how to reduce CO2 emissions as much as possible while mitigating the negative economic impacts on local producers and consumers. In other words, trying to prevent the “leakage” that can result when local industries move to states or countries with less strict climate policies.
…and good Social Justice can be of little help to global emissions
Conversely, some of the most effective ways of addressing urban pollution can have little effect on global carbon emissions. The offshoring of industrial production, especially gasoline refining, would achieve the local “direct emissions reductions” sought by the EJ community, but I suspect is not what the Biden administration has in mind.
Social Justice needs its own policy tools
Climate change and environmental inequality are both important, pressing challenges, and the new administration has committed to addressing both. This is nothing new in policy. There are always multiple perspectives and interests that need to be brought into the process in order to build a broad enough coalition to make change.
The key, as I see it, is understanding the difference between forming a coalition willing to tackle both climate and justice with distinct policies, as opposed to trying to address both through climate policy. Each issue requires its own distinct set of policy tools focused directly on solving each specific problem. Trying to solve both problems through climate policy alone is likely to lead to the same disillusionment and acrimony that has put a sad coda on Mary Nichols’ impressive tenure at the California ARB.
James Bushnell is a Professor of Economics at the University of California at Davis and writes for the Energy Institute at Haas
This article is published with permission
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Some valid arguments Prof. Bushnell. I couldn’t be more in tune with your apology of market based solutions like cap-and-trade (by the way, have you ever heard of the all-of-society version of it, cap-and-share, I think it’s promising?) on pure economics level (as an environmental economist myself). But we can’t deny here that the low price/tCO2 signal is a failure first and foremost of the cap-and-trade policy design itself: too many (free?) permits, a cap too high, very few industries admitted (like an elite club), year-to-year stackable surplus, inherent reward of speculative behaviour, ecc. I’m not familiar with California CaT model, but the aforementioned are the common critics addressed to EU CaT. CaT systems are okay, but they need to be reformed and expanded to be more inclusive and less speculative: a carbon market geographically limited to California heavy-emitting industries is just a trivial exercise, if I may.
Where I definitely don’t agree is on the necessity of compartimentalize climate and SJ policies. Note that I’m not even an advocate of the “climate action will solve everything” kind of narrative. But certainly climate action mainstreaming in EVERY policy and act is necessary. A sound climate policy should be socially just intrinsically. I would encourage a more holistic, cross-cutting approach to policy making, especially in a post-pandemic world.