New paper: State’s cap-and-trade program is falling short of goals
California regulators are overestimating the impact the state’s cap-and-trade system is having on reducing greenhouse gas emissions, according to a new policy brief from a researcher at UC Berkeley’s Center for Environmental Public Policy, part of the Goldman School of Public Policy.
In the paper, published Tuesday, research fellow Barbara Haya argues that the California Air Resources Board has made rosy assumptions about a program protecting forests that may only have accomplished 18% of the emission reductions it claims have been made.
The discrepancy could be as much as 80 million tons of carbon dioxide since 2013, which is equivalent to more than the total annual emissions from California’s entire electricity sector.
The issue is significant because California is designing its cap-and-trade and carbon offset programs to be a model for other jurisdictions, said Haya, who has spent the last eight years analyzing California’s program.
“But this program does much less than we say it does,” Haya says. “The worry is that we’re exporting policy that doesn’t do what we think it is doing.”
“We have to do this right if we want to hit our target of reducing greenhouse gas emissions 40% below 1990 levels by 2030,” Haya added, pointing to a state goal passed by the state legislature in 2016. “We are setting a standard that a lot of people are looking at.”
At issue is California’s U.S. Forest Projects offset protocol, an incentive program designed by the state to encourage forestland owners across the country to manage forests in ways that increase the amount of carbon stored in them.
These arboreal stores of carbon create credits that California’s industrial polluters, like power plants, can then buy to offset their own emissions.
‘We don’t stop building homes’
But the economy still requires lumber for housing or furniture and wood pulp for paper. And that’s where California’s system runs into trouble, Haya said.
Even when forestland owners change their logging practices, the demand for lumber or paper doesn’t decrease, it shifts to other forests.
“We don’t stop building homes or making wood furniture,” she said. “Those trees have to be cut down somewhere.”
California assumes that 20% of timber harvesting reduced by California’s forest offset protocol is done in forests that are not part of the cap-and-trade system to meet timber demand, and the state accounts for that when it issues carbon credits.
But that 20% figure, called a leakage rate, is not supported by academic literature, Haya found. It’s more accurate to say that, in California’s program, 80% of the reduction is shifted to other forests.
In other words, Haya said, California regulators are underestimating how many carbon-storing trees are actually being protected by the cap-and-trade program. As a result, greenhouse gas emissions are not falling as quickly as they should.
A question of timing
Another problem Haya’s analysis found was a question of when the effects of this leakage rate, whether it is 20% as the state claims or 80% as Haya argues, are accounted for.
Under the current policy, timber companies and other landowners get immediate credit in the cap-and-trade market for deciding to preserve their forests. But the deduction for all the trees still cut down because of demand for wood products — leakage — is applied over the next 100 years.
This system of early reward, Haya said, creates a cap-and-trade market flush with carbon credits that polluters can buy to avoid reducing their own emissions in the short term.
“It’s like getting a 100-year loan for emissions,” Haya said, drawing an analogy. “You get all the credits now but some portion of those credits are for deductions that need to be made over 100 years. We don’t have 100 years.”
The system should instead focus on the net reduction in emissions that is actually created each year, she said.
“We’re starting at deficit where we’re giving a lot of credits to the landowners,” Haya said. “The way the protocol should work is that, in the same year that landowners are being credited for not harvesting, they should be credited for their net effect on emissions.”
Still many positives
While the cap-and-trade program must be fixed, Haya said California emissions regulators are still doing an excellent job reducing the overall amount of greenhouse gas emissions being released in the state.
“We’re doing a lot of really good things to reduce our emissions, including our renewables portfolio standard, our efficiency standards and our support for electric vehicles,” Haya said. “We are a leader in climate change policy in the U.S. and the world, and we’re doing an incredible amount of really good work.”
That’s why structuring the state’s cap-and-trade program to actually reduce emissions is so important, she said.
“We are creating the cap-and-trade program as a model for the world,” she Haya said. “It’s really important that we get this right.”
• The complete policy brief, “The California Air Resources Board’s U.S. Forest offset protocol underestimates leakage,” can be found online here.