Updates with final vote and details throughout
The California Air Resources Board (CARB) late Friday adopted amendments to the state's cap-and-invest program, though not without first reaching a compromise on the next steps for a contentious proposal to help industry reduce emissions.
The 9–4 board vote begins the process of implementing the long-awaited changes to the program that sets a declining limit on greenhouse gas (GHG) emissions from sources like power plants and transportation fuels. The board approved its decision resolution after hours of debate, largely focused on a proposed decarbonization incentive program for industry, potential impacts on state revenues and the timeline for implementation.
"When I was appointed chair, it was a few weeks after governor Gavin Newsom signed the cap-and-invest extension into law, and this was one of the items I was most looked forward to deliberating on," CARB chair Lauren Sanchez said. "Little did I know ... how difficult the trade-offs would be."
One element that drew the most scrutiny was a CARB staff proposal to take 118.3mn metric tonnes of carbon allowances originally slated for removal and instead use them as industrial incentives under the proposed Manufacturing Decarbonization Investment (MDI) program.
The MDI program was part of an updated amendments package staff released in April, which also proposed increasing allowance allocations to state utilities and industrial entities from the original January draft.
At least four board members questioned whether the program would deliver guaranteed emissions reductions and they raised concerns about its potential impact on state revenues that fund emissions-reduction programs.
"I'm looking not just for teeth, but bigger and sharper teeth in terms of making sure that this program does what it's supposed to do," former assembly member Miguel Santiago (D) said.
However, removing the MDI program — or reverting to the agency's January proposal — would trigger additional regulatory requirements under state law, according to CARB deputy executive director Rajinder Sahota.
Both options would require a new 15-day public comment period and could necessitate further analysis under the California Environmental Quality Act (CEQA) and other state laws. That extra time would make the agency's planned 1 September implementation deadline unattainable.
If the board had decided to remove the MDI, the allocation levels for industry, utilities and auctions would have stayed consistent with the April proposal — meaning there would not be any increase to the proposed number of allowances for state auctions, Sahota said. However, reverting to the January version would cut free allocations to utilities and industrial sectors.
"Which would result in impacts to utilities and industrial entities that they were very opposed to in the January proposal," CARB executive officer Steven Cliff said.
Balacing politics, economics
Staff have framed the April amendments as a response to mounting political and economic pressure, aimed at ensuring the cap-and-invest program delivers emissions reductions while reducing the risk of industries relocating to less-regulated states.
Sanchez said she had some concerns with the proposal as well, but sought a compromise with members on language for the board's resolution that would allow for development of MDI guardrails.
The final resolution directs staff to return to the board prior to issuing MDI allowances. That step will allow for additional analysis of board and public concerns and further deliberations, which could inform a future rulemaking for changes to MDI regulations, Sanchez said.
Much of the day's debate focused on whether to move forward now to provide regulatory certainty and stabilize allowance values, or to take more time to evaluate the latest staff proposal, including the MDI program, and risk running out the one-year clock on finishing the rulemaking. Or, alternatively, take a path that straddles both options, and allows board members to retain authority over the design of the MDI.
Despite the revisions to the resolution, four board members voted against the proposal, citing public concerns raised by speakers on Thursday about the MDI program and the limited ability to influence the final amendment package.
"I don't think we should be backed into a corner and expected to vote ‘yes' on something we have serious reservations about and lots of unanswered questions about," board member Lynda Hopkins, a Sonoma County supervisor, said before casting her "no" vote.
Ultimately, the measure passed not because of overwhelming support for the amendments, but due to concerns that further delays could undermine market certainty and disrupt industry planning if the agency had to start over.
"I am going to support moving forward," said board member John Balmes, a professor of medicine at the University of California, San Francisco. "As much as I'd like to dump MDI — and, if it were up to me, I would."
