CALIFORNIA’S LEADERS this month expanded the nation’s most significant operating climate policy, the state’s groundbreaking greenhouse-gas cap-and-trade program. The state could have departed from its market-based climate plan in favor of much worse ideas. Instead, Gov. Jerry Brown (D) and two-thirds of the legislature, with the support of several Republicans, crafted a grand compromise to tighten it up. In so doing, they have ensured the policy will be at the center of the state’s effort to slash planet-warming emissions by 40 percent from 1990 levels by 2030. This achievement will not be immediately replicable many other places in the country. But it could provide guidance when more states come around to dealing with climate change.
The biggest lesson is that greenhouse-gas policies do not have to be dictated by left-wing activists who want to curb market forces. Emissions can be cut with proper sensitivity to the economic consequences — and that becomes much easier when industry and Republicans accept that emissions must go down.
California’s system involves setting a statewide emissions limit — the cap — which is enforced by requiring businesses to buy permits in order to pollute a certain amount inside the limit. There are only as many permits as there is space under the cap. Businesses can buy and sell the permits, creating a market price on greenhouse-gas emissions. Those for whom it is easy to cut back on emissions do so, and those for whom it is harder buy permits.
Some environmentalists balked at California’s bill, charging that lawmakers “covered themselves in an oily sheen.” Indeed, big players in the electricity industry backed the measure publicly, and the oil industry did so informally, according to the Los Angeles Times. But these businesses had a point. Climate policy is better when it is consistent, predictable and flexible, allowing for industry to plan ahead and reduce its carbon footprint in a variety of ways. A cap-and-trade program forces industry to reduce emissions with a clear schedule but without dictating exactly how.
Some environmentalists want more micromanagement. But the goal should be to cut emissions at minimal cost — not in exactly the way those environmentalists would prefer. Maybe it would be cheaper for two factories to each cut their emissions in half. Maybe it would be cheaper for one factory to keep operating as usual and for the other to shut down. As long as emissions decline, California should leave these decisions to the market.
To the extent California’s climate policies are deficient, it is because the state does not leave enough of them to private actors, instead supplementing the cap-and-trade program with other superfluous regulations requiring emissions cuts in specific sectors and in specific ways. After restraining this instinct in their latest move, state lawmakers might make this mistake if they follow up their cap-and-trade bill with one requiring 100 percent renewable electricity by 2045, an expensive mandate that California’s cap-and-trade program renders unnecessary.
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