California’s cap-and-trade program withstood a battle in court, and now the Legislature is proposing changes to the controversial program.  Senator Bob Wieckowski (Democrat – District 10), Chair of the Environmental Quality Committee, has authored Senate Bill 775 (“SB 775”) which would extend the cap-and-trade program to 2030 with modifications.  The existing cap-and-trade program, established under Assembly Bill 32 (2006) or the California Global Warming Solutions Act (“Act”), expires in 2020.  The Act requires the State Air Resources Board (“ARB”) to approve a statewide greenhouse gas emissions limit equivalent to 1990 greenhouse gas emissions level to be achieved by 2020, and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030, as outlined in Senate Bill 32 (2016).

SB 775 proposes a market-based compliance mechanism.  The bill would require ARB to adopt a regulation establishing a market-based program of emissions limits for covered entities, and would set the initial minimum reserve price of $20 per allowance, and an initial auction offer price of $30 per allowance when auctioning allowances.  The minimum reserve price would increase each quarter by $1.25 plus any increase in the Consumer Price Index, and the auction offer price would increase each quarter by $2.50 plus any increase in the Consumer Price Index.  SB 775 would also establish the Economic Competitive Assurance Program to ensure that importers that sell, supply, or offer for sale in the state a greenhouse gas emission intensive product have economically fair and competitive conditions and to maintain economic parity between in-state and out of state producers.

Notably, the bill would create three new funds to provide for future infrastructure and planning, among other goals.  SB 775 establishes the California Climate Infrastructure Fund, the California Climate Dividend Fund, and the California Climate and Clean Energy Research Fund in the State Treasury.  According to the bill’s author, the Climate Infrastructure Fund would provide for climate adaptation programs.  The purpose of the Climate Dividend Fund is to “return some of the money generated to the consumer, to ease the increased direct costs that we anticipate,” stated Senator Wieckowski.

SB 775 follows the April decision of the Third District Court of Appeal, which held that the cap-and-trade program is not an illegal tax and found that carbon auctions are within ARB’s statutory authority.  This decision will likely be appealed to the California Supreme Court.