California's cap-and-trade program, the crucial mechanism for California's fight against climate change, is facing stiff headwinds.
The California Chamber of Commerce filed a lawsuit against the program years ago, challenging the program's legality because it functions like a tax but did not receive a two-thirds vote in the state Legislature. That lawsuit is still working its way through the courts.
Meanwhile, the state has struggled to find the right fiscal balance between the demands of selling permits and easing businesses into the need to pay for their greenhouse gas emissions.
The state has given away free permits and struggled to sell large percentages of the permits in recent auctions. And while companies enjoy the ability to purchase offset credits for green projects like forest preservation, in exchange for their emissions, environmental activists in the state's most polluted areas say the program hasn't done nearly enough to help them.
So state Senate Democrats, led by Sen. Bob Wieckowski, D-Fremont, and President Pro Tem Kevin de León, D-Los Angeles, are considering a new proposal, SB775, to fix some of the program's problems.
Will it be enough?
SB775 would address cap and trade's struggles in a variety of ways. It would eliminate the program's free permits and raise the prices for permits - to a point.
Following a suggestion from the state's nonpartisan legislative analyst, the bill would also put a ceiling on the price of emission permits.
The idea here is to allow businesses to plan for their low-carbon investments, such as switching to solar power.
The idea is also to avoid the possibility of price spikes, which businesses would be likely to pass on to customers.
"The proposal makes sure that everyone who sells carbon-intensive products in the state is treated fairly," said Jeff Barbosa, Wieckowski's communications director. "It provides businesses market certainty by placing a cap on carbon price, so they can plan ahead more effectively."
In a bow to concerns about how cap and trade is affecting residents in California's more polluted communities, SB775 would also get rid of the offset program. (There's separate legislation in the state Assembly to target specific pollutants that affect public health.)
These changes should bring more fairness and stability to the cap-and-trade system.
Charging set, certain amounts for emission permits, for example, is what California should have done from the beginning. It might have been more initially disruptive for businesses, but it also would have created economic certainty for them and set the state system on a firm fiscal footing.
But now a fair, smart bill that's designed to correct some of the problems that have emerged with the cap-and-trade system has a very high threshold to pass.
In an effort to extend the cap-and-trade system to 2030, and to ward off the Chamber of Commerce's lawsuit, SB775 has to muster a two-thirds vote. It's not going to be an easy lift in the state Legislature, but nothing that's important is an easy lift there. SB775 is a tough but fair fix.