As California regulators prepare for a major overhaul of the state’s signature climate plan, they are facing increased pressure from lawmakers and oil industry groups who warn it could increase already high energy costs.
Lawmakers voted last year to reauthorize the cap-and-trade program — formerly known as cap-and-trade — until 2045. The program gradually lowers the amount of greenhouse gas emissions allowed in the state, and allows gas producers to buy and sell unused emissions credits, or allowances. It is key to California’s climate strategy and brings in billions in state revenue each year.
While the plan has always been designed to reduce emitters, some lawmakers who support the extension say the framework unveiled by the California Air Resources Board could hit consumers and the energy industry hard at the wrong time.
Among the proposed revisions, the plan would tighten the cap on carbon emissions by 118 million tons by 2030. It would also overhaul the state’s free grant program, which has historically been given to oil refineries and other industrial facilities in hopes of keeping them in California. It would switch many of those free allowances from natural gas appliances to electric appliances.
A wave of public comments from lawmakers, oil companies, environmentalists and consumers flooded the state’s Air Resources Board ahead of this week’s deadline, and the agency will have until May to review the plan and put it to a final vote.
Among the most prominent critics are Democratic lawmakers who voted to extend the program last year. Others worry that the plan will drive up the cost of refineries, drive most of them out of California and leave the country more dependent on imported refined oil. Others are concerned that the plan is not doing enough to address high electricity costs.
In a letter to the Air Resources Board, a coalition of 15 Democratic members of the Assembly, including Majority Leader Cecilia Aguiar-Curry (D-Winters), warned that the plan is moving too quickly for exporters to keep up, which they say will destabilize California’s complex network of oil, gas and power utilities and push more refiners out of the state. Phillips 66 and Valero have already announced plans to close large plants in Los Angeles and Benicia.
“This proposed regulatory update could further burden an energy market that is already struggling on multiple fronts and infrastructure-related pressures that have penalized California consumers with some of the highest energy prices in the nation,” the lawmakers wrote.
Oil industry groups have raised similar concerns. Western States Petroleum Assn. which represents refiners, warned that their costs could rise by $1.5 billion a year by 2035.
Chevron CEO Andy Walz said the additional cost would translate to about $1.70 more per gallon of gasoline that year.
“Affordability is a major concern for Californians and Chevron, and these proposed amendments will exacerbate the high cost of living in the state,” Walz said.
But how much regulation affects the cost of gasoline in California is disputed. State Air Resources Board officials said the proposal largely preserves the existing status of the refineries. It includes “flexible conditions that support doing business in California and help ensure that the supply of liquid fuel remains reliable, affordable, and sustainable throughout the transition to carbon neutrality,” spokeswoman Lindsay Buckley said in an email.
The revised plan would also deliver $180.7 billion in national benefits, including $123 billion in avoided health costs due to cleaner air, and up to $485 billion in global savings due to avoided climate damage, Buckley said.
“The cap-and-invest program is the most cost-effective way for California to meet its legally mandated climate goals,” she said.
At the same time, some lawmakers and lawyers say that this proposal is burdening the electricity sector at a time when utility bills are growing rapidly.
Mrs. Jacqui Irwin (D-Thousand Oaks), who wrote the law extending the program last year, led by sayingdivide the book from more than a dozen Democratic Alliance lawmakers urging air officials to accelerate free subsidies for electric companies to “address near-term electricity availability.”
They are also concerned that the scheme will lead to a reduction in climate credits for consumers – double annual rebates that come directly from people’s electricity bills.
Policy analysts agree that the current system burdens utilities, which can translate into higher bills.
Still, the proposal is a “solid start” that can be carefully considered to reduce the emissions balance with ease of access, said Clayton Munnings, executive director of Clean and Prosperous California, an environmental economics nonprofit focused on investment and investment.
The California Air Resources Board “had a very strong start, but I think there’s a clear pattern of stakeholder feedback,” he said. “The goal here was to lower utility bills, and we have to deliver on that promise.”
On the fuel side, Munnings said the system was designed with refineries in mind, and regulators still have more tools to address their problems if needed. In addition, he said that the carbon market has strongly criticized the proposed removal of 118 million credits, and the cost of releasing one ton of carbon pollution is falling – indicating that strong reductions can be allowed.
Indeed, the analysis by the nonprofit Environmental Defense Fund and modeling firm Greenline Insights found that the state’s Air Resources Board could remove up to $180 million in subsidies from the market and continue to preserve home-affordability benefits.
Ensuring that the program achieves its promised reductions is critical, said Environmental Defense Fund California regional director Katelyn Roedner Sutter. The government is not in a position to meet its targets, which include reducing greenhouse gas emissions by 40% by 2030 and by at least 85% by 2045.
“Cap-and-invest is very important because it helps reduce emissions, brings in much-needed revenue, and is the most cost-effective way to reduce our greenhouse gas emissions,” he said.
The debate continues as global oil prices rise amid the US-Israeli war with Iran, which has disrupted shipping and shipbuilding in the Middle East. Crude prices briefly rose above $119 a barrel this week.
National gasoline prices averaged $3.60 a gallon Thursday, according to AAA, up from $2.94 one month ago. In California, gas averaged $5.37 a gallon, up from $4.55 last month.
But according to the California Energy Commission, only about 6 percent of the state’s retail gasoline price is due to the investment program, while about 37 percent comes from crude oil prices.
This is why the state must continue, says Roedner Sutter.
“The best thing California can do is lean on its cost-effective climate policy, invest in it, and continue to move the country away from fossil fuel dependence,” he said. “In the long run, that’s what’s going to protect Californians the most — not rely on this tight industry.”
The state Air Resources Board is expected to review the proposal in the coming weeks before it votes in May.
