Can Climate Efforts Be the “Everything Policy Store”?
Do Standards + Investment = Justice?
Around mid-December reports emerged that the candidacy of former California Air Resources Board chair Mary Nichols to head the Biden EPA was dead, in part due to opposition from some of the organizations 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.
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 incentivize 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 minimize reliance on carbon pricing and focus on Standards, Investment, and Justice.
There are a couple gaping holes in this narrative. First, in California, it is not clear that low income families and communities of color 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 utilize 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”.
California: Cap-and-Trade in the Back Seat
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.
Can a Lower Carbon Tide Raise All Boats?
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.
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.
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.
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.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Bushnell, James. “Can Climate Efforts Be the ‘Everything Policy Store’?” Energy Institute Blog, UC Berkeley, January 19, 2021, https://energyathaas.wordpress.com/2021/01/19/can-climate-efforts-be-the-everything-policy-store/
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The best intersect policy to address climate and equity is spelled out in the Economists Statement at econstatement.org. It is a steadily escalating fee with revenues distributed equally across households to facilitate the transition. The Treasury Department study shows that the bottom 2/3 of households come out ahead or are held harmless. https://home.treasury.gov/system/files/131/WP-115.pdf
The maldistribution of benefits and costs of most regulatory and subsidy programs do not measure up in terms of equity (per Borenstein and Davis https://www.journals.uchicago.edu/doi/full/10.1086/685597)
It is useful to recall the final recommendations of the Environmental Justice Advisory Committee (EJAC) to the CARB during the last cap and trade scoping plan: move away from cap and trade to a fee and dividend with regulations to address the local pollution.
One aspect that the EJAC did not understand in its statement is that the distribution of emissions will largely be the same under cap & trade and as under fees & dividends. For those facilities where emission reductions are more costly, or profits per ton of emission are higher will continue to emit more than facilities where the opposite is true. For GHG emissions where the impacts are global, not local, this is not problematic. The real local solutions require locally focused actions, not a broad brush.
Robert, even calling fee-and-dividend a “carbon tax” is off-putting to Republican anti-tax hawks. Although most understand what “revenue-neutral” means, they’re skeptical – and arguably, with good reason.
British Columbia’s fee-and-dividend has been widely regarded as a success, lowering province-wide carbon consumption by 16% within the first three years since its inception (2008). What B.C. missed was the necessity of making it a simple cash rebate. For some citizens it was a tax deduction. Special interests were either awarded or penalized, based on what they’re always based on: influence peddling. B.C., unsurprisingly, discovered simply creating a level playing field was a matter of debate.
Most analysts believe such a tax, in the U.S., has as good a chance of passage as any other carbon tax, i.e. “none”. Why? Not because it wouldn’t be effective, but because it would. Even defining “greenhouse gas” has become a matter of debate, making a simple majority in Congress likely insufficient for passage. HR 763, the current flavor, comes out of the gate with several carve-outs for special interests. But worse: the tax is calculated from the “greenhouse gas content of the fuel multiplied by the carbon fee rate”. That includes biomass, ethanol, and virtually all other dispatchable liquid fuels that are considered “renewable”. Representatives on both sides of the aisle from Nebraska and other Midwestern corn-producing states are expected to blackball it.
The Cato, Heartland, and other conservative foundations have hammered previous attempts at a revenue-neutral carbon tax (there have been at least two), and have the solid backing of the world’s largest industry to fund them. Conservative foundations tend to consider “equity” in a different context, however.
A very good analysis. I feel there is a flaw from cap and trade in that fees for the trade are not necessarily spent on the best mitigation measures. For example, 25% of carbon cap and trade revenues are being spent on California High Speed Rail (CHSR). CHSR has so far managed to pour tens of thousands of tons of concrete producing large amounts of CO2 with no realistic business plan or possibility of ever reducing CO2 emissions in a meaningful or cost-effective way. Just taxing CO2 emissions and then letting the revenues be used for pet projects that are not cost effective for reducing the CO2 imposes extra unnecessary costs on society affecting social justice. A better way would seem to be to use a carbon fee and dividend system, where carbon is taxed with minimum overhead at the source, and the proceeds divided equally among the everyone in the nation.
This is a good summary of problems ahead in addressing climate change. We may be faced with the question of whether we want to reduce emissions or focus on fairness. The prime example I can think of is whether we buy out the fossil fuel resources so that they remain in the ground. The problem is that corporate shareholders will be the beneficiaries and those concerned about fairness may not be willing to accept that they will need to address that through a different path or mechanism. The distraction of solving local environmental conditions with a globally targeted policy could bring down the attempt to solve the bigger threat. We see this when localities reject projects because they have GHG and other air emissions without realizing that the project will just move down the road to another community more willing to accept it. Often gaining local control is more beneficial globally even with the local consequences.
I’ve been working on tradeable permits of which cap & trade is one form for decades. The idea is attractive in its apparent simplicity and the focus on controlling quantities of the pollutant while letting the price of the permits or allowances float. Markets are best at deriving mutually agreeable prices for a given quantity. But my research and experience through observation of these markets is that they face significant hurdles in a broad market with heterogeneous participants. The biggest problem in cap & trade is defining who’s covered and how are emissions accounted for. This is the same problem as in setting regulatory standards, so the transactions costs are high creating lots of friction in the market.
So I’ve come around to the idea that a form of a carbon tax is better (including trade tariffs as one form.) Setting a price administratively through a tax will lot guarantee arriving at a particular target, but it can be much more pervasive with relatively little administrative drag. We have relatively good metrics on GHG emissions from the small set of sources that are the upstream source of emissions–fuel and cement production, and livestock raising. We can tax right at the source and let that spread through the economy. We will have to think about compensating people in those industries, and that gets back to fairness, but that’s a secondary issue. If we’re willing to impose a carbon tax we should be willing to provide compensation too.
“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.”
Agree James, with particular relevance to the confusion of cause with effect with local pollution near refineries and gas power plants.
Are low-income residents living near refineries the victims of exploitative industrial priorities, or the beneficiaries of low housing prices near refineries? I suspect the answer is both, but I don’t know what the mix would be, and don’t know if it even matters. No one should be forced to live amidst pollution from a refinery, but especially if they bought their home before the refinery was built. From their vantage point it’s a local pollution issue. When homes are bought because low-income families need a place to live and it’s their only option, it can be viewed as more of a fundamental social justice issue.
California’s solar mandate disadvantages low-income residents in several ways, especially with our current housing shortage. Higher prices for new homes put them further out of reach. The gas backup required by solar forces residents near gas plants to bear the brunt of added SO2 and NOX emissions in their communities, and they’re required to cross-subsidize grid maintenance costs avoided by net-metered solar customers.
I’ll disagree with your belief California’s cap-and-trade program is “a powerful environmental regulatory tool.” Like exporting emissions to other Western states, it’s little more than a shell game that raises money at the expense of meeting concrete environmental goals:
“ProPublica analyzed state data in a way the state doesn’t often report to the public, isolating how emissions have grown within the oil and gas industry. The analysis shows that carbon emissions from California’s oil and gas industry actually rose 3.5% since cap and trade began. Refineries, including one owned by Marathon Petroleum and two owned by Chevron, are consistently the largest polluters in the state. Emissions from vehicles, which burn the fuels processed in refineries, are also rising.”
https://www.propublica.org/article/cap-and-trade-is-supposed-to-solve-climate-change-but-oil-and-gas-company-emissions-are-up
An insightful, relevant and important analysis. I’m only sorry it didn’t come soon enough to affect the decision to deny Mary the EPA Administrator position.
During a very interesting guest lecture from Michael Mendez (UC Irvine) last quarter, he said the EJ community was more supportive of a carbon tax because it’s more transparent than the credit market. Maybe something for EJ advocates and economists to work on together.