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July 17, 2017



AB 398’s use of excess carbon credits instead of real reductions



California Governor Jerry Brown is urgently calling for a price on carbon to cost-effectively drive emissions reductions in the state. But the bill he is promoting is not designed to create the carbon price needed to drive California’s reductions down to its 2030 target, and as designed, will claim more reductions than it actually achieves.


The California legislature is expected to vote today on AB 398, a bill that would extend the state’s cap-and-trade program beyond 2020. This extended cap-and-trade program would be one part of a broad suite of regulations aimed at reducing the state’s emissions by 40% from 2020 to 2030.


Cap-and-trade programs have two important goals. They create a price on carbon that drives emissions reductions. They also generate revenues that can be used to fund other emission reduction measures and/or be passed back to citizens to counterbalance higher costs of electricity, fuels, and other products.


The cap-and-trade program California is considering today could largely be met with excess credits instead of real reductions.


First, the cap-and-trade program includes a carbon offset program that could make up the majority of the effect of the cap-and-trade program on emissions.1 Offsets allow regulated emitters to pay for reductions outside of the capped sectors in lieu of reducing their own emissions. California’s offset program generates more credits than reductions it actually achieves.2


Second, the cap-and-trade program allows for a large quantity of excess carbon credits left over from the pre-2020 period to carry forward for use in 2020-2030.3 The quantity of this credit over-supply could equal the full effect of the cap-and-trade program on emissions.4


Further, if ACA-1 passes and becomes law, a bill introduced on Friday that would require 2/3 approval from each house of the Legislature on the disbursement of cap-and-trade revenues, California’s cap-and-trade program could also fail to provide a reliable revenue source for policies and programs that reduce emissions.


As California aims to create a model climate policy, it is important to be clear what this policy does and does not do. California’s cap-and-trade program, as currently designed, is unlikely to achieve all of the reductions it claims, and also may not create the carbon price needed to drive California’s reductions down to its 2030 target.


1.  Fact Sheet: The Size of California’s Carbon Offset Program, prepared by Barbara Haya

2.  Fact Sheet: California’s U.S. Forest Offset Protocol Over-credits Reductions: prepared by Barbara Haya

3.  Letter from the LAO date June 26, 2017 referenced here:; See also Chris Busch. 2017. Recalibrating California's cap-and-trade program to acount for oversupply. Energy Innovation report.

4.  Hot air and offsets in California’s post-2020 carbon market, prepared by Danny Cullenward