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California’s Cap-and-Trade Program Survives Legal Challenge

Last week, California’s Cap-and-Trade Program to reduce carbon emissions was handed a victory when a state appeals court ruled that program’s auction of emissions permits does not constitute an illegal tax because the program is voluntary and the emissions permits have value. In a 2–1 vote, the Court of Appeal for the Third Appellate District upheld the cornerstone piece of California’s climate change policy, siding with the program’s operator, the California Air Resources Board (CARB), by finding that the auction revenues are more akin to regulatory fees than a tax. The court ruled against the California Chamber of Commerce, a tomato processor, and the National Association of Manufacturers, all of whom alleged that CARB lacked legislative authority to create the auctions and that the emissions allowances amounted to a tax that would have required a two-thirds vote of the legislature.

California created the Cap-and-Trade Program as part of its program to meet its targets of reducing carbon emissions to 1990 levels by 2020 and to 40 percent below 1990 levels by 2030. The program requires factories, power plants, and other companies to buy permits to emit greenhouse gases. By putting a cap on carbon emissions and by creating a market for emissions permits, which covered entities can bank and sell if they don’t need them, the program aims to encourage pollution reduction at the least possible cost. Specifically, it allows businesses to determine whether their most cost-effective compliance option is to reduce their emissions or to pay to pollute, a flexibility that figured in the appeals court decision.

“Reducing emissions reduces air pollution, and no entity has a vested right to pollute,” the court wrote. “The purchase of allowances is a voluntary decision driven by business judgments as to whether it is more beneficial to the company to make the purchase than to reduce emissions.”

The court decision frees California to continue holding auctions through 2020 but does not eliminate all the uncertainty that has dampened demand for permits and reduced state revenues that have been used for programs linked to emissions reductions. Although the decision immediately gave carbon markets a boost, an oversupply of permits has kept them inexpensive at roughly $12.50 or $13.50 a metric ton. Experts say that price needs to reach $30 to $40 to properly incentivize new pollution control investments.

Whether emissions permits in a cap-and-trade system should be given away or sold by the government has long been debated by scholars, reports Inside Climate News. California companies had wanted permits to be handed out for free, but California chose to auction them and to use the revenue to help finance spending on energy efficiency and other parts of its climate agenda.

State lawmakers are presently debating whether to extend the Cap-and-Trade Program past 2020 to eliminate any additional uncertainty about the program.

U.S. Power Sector Shrinks Carbon Footprint in Record-Breaking Way

A continuing drop in coal use, along with relatively mild winter temperatures, drove a second consecutive year of reductions in U.S. power sector carbon dioxide emissions, according to figures released by the Energy Information Administration (EIA) on Monday. The EIA reported that those emissions dropped 1.7 percent, compared with the previous year. That reduction was largely attributed to an 8.6 percent drop in coal-related emissions, which was offset by increases in emissions from oil (1.1 percent) and natural gas (0.9 percent). Those figures added up to a record-breaking decrease in the power sector’s carbon intensity, a measure that relates carbon emissions to economic output.

“Overall, the data indicate about a 5 percent decline in the carbon intensity of the power sector, a rate that was also realized in 2015,” the EIA said. “Since 1973, no two consecutive years have seen a decline of this magnitude, and only one other year (2009) has seen a similar decline.”

“These recent decreases are consistent with a decade-long trend, with energy-related CO2 emissions 14 percent below the 2005 level in 2016,” the EIA added.

Whether the trend will continue will depend on several factors. Climate Central reports that utilities’ increasing switch from coal to less carbon-intensive natural gas is not a panacea for climate change, because extraction processes for natural gas emit methane, a greenhouse gas 34 times stronger than carbon dioxide over 100 years. Moreover, it’s unclear how the Trump administration’s push for fossil fuels development will play out. It may only delay the closure of coal-fired power plants slated for retirement if natural gas prices remain low. But carbon emissions could begin to rise again in the United States if demand for electricity and gasoline increases and if the average fuel economy of new vehicles does not increase.

The EIA reported that the only U.S. sector in which carbon emissions increased last year was transportation. Emissions directly from motor gasoline increased 1.8 percent. Notably, overall transportation sector emissions were higher than power sector emissions, a trend the EIA expects to continue until at least 2040.

Gorsuch Sworn in as Supreme Court Justice

After being confirmed Friday by a 54-to-45 vote—following Republicans’ invocation of the so-called nuclear option, which lowered the threshold on Supreme Court nominations to a simple majority vote—Colorado appeals court judge Neil M. Gorsuch took his oaths to be the Supreme Court’s 113th justice Monday. Gorsuch breaks the court’s perceived 4-4 ideological split since the February 2016 death of conservative stalwart Justice Antonin Scalia.

During his federal appeal court tenure, Gorsuch mirrored Scalia’s originalist approach to the law, interpreting the Constitution according to the meaning understood by its drafters. But he could envision his job in more “muscular” terms than his predecessor, according to The Economist. Of particular importance to climate policy is Gorsuch’s evident skepticism of the Chevron deference, whereby judges defer to an agency’s reasonable interpretation of federal laws when the law is ambiguous. The Chevron deference, as a principle, stems from a decision in a 1984 case that Chevron brought against the Environmental Protection Agency regarding its reading of the Clean Air Act. In last year’s Gutierrez-Brizuela v Lynch, notes The Economist, Gorsuch called into question the Chevron principle, writing that it allows agencies to “swallow huge amounts of core judicial and legislative power” and that it “concentrate[s] federal power in a way that seems more than a little difficult to square with the constitution of the framers’ design.” He suggested that it might be time to fundamentally rethink the Chevron principle.

The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.