California could give Big Oil billions in free climate permits

from Alejandro LazoCalMatters

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California is considering giving oil refineries and other big polluters billions of dollars in free emissions allowances, just as the state says carbon reductions must come faster than ever.

In the past six months, two refineries have shut down and gas prices have exceeded an average of $6 a gallon as the war between Iran and Israel sent the oil markets into turmoil. The oil and gas sector spent $10.3 million lobbying in Sacramento in the first three months of the year, according to lobbying filings, with the Western States Petroleum Association and Chevron accounting for most of it.

The result is new offer to the California Air Resources Board, which will provide up to $4 billion in new free emissions permits to companies, half of which go to the fossil fuel industry, in exchange for commitments to invest in clean energy.

Environmentalists warn the proposal is a gift to Big Oil that would weaken California’s cap-and-invest program, just as the state relies on it to cut emissions and fund climate, housing and other programs. Anthony Martinez, a spokesman for Gov. Gavin Newsom, said the changes are needed to keep the state’s carbon market “sustainable” and “affordable” amid increasing refinery closings.

The fight over California’s carbon market exposed the political tensions at the heart of Newsom’s energy transition agenda. California is trying to maintain its climate ambitions while keeping gasoline affordable for drivers who already face the highest prices in the country. Critics say the air board’s proposal achieves neither goal.

“We’re really concerned that this will significantly hinder the program,” said Chloe Ames, policy advisor at NextGen Policy.

Weakening of the backstop

California’s 13-year-old carbon market requires big polluters to buy permits for every ton of greenhouse gases they emit, with the state capping total emissions year after year. Each permit costs real money, and companies can sell the ones they don’t use. The program is considered California’s climate backstop — the only state policy that sets a hard limit on greenhouse gas emissions.

At the heart of the dispute with environmentalists is a proposed subsidy program carved out of this carbon market. The airboard, if any approves the proposal on May 28 will create a new set of free pollution permits for refineries, cement plants and other large companies that pledge to invest in clean energy and efficiency projects.

The pool would be capped at 118.3 million permits — the same number the Air Board says must exit the market for California to meet its climate goal by 2030. Environmentalists say the proposal risks wiping out those reductions.

Berkeley energy economist Meredith Fowley, who chairs an independent commission that oversees the carbon market, writes in a recent analysis that the project would give eligible refiners more free permits than they need to cover their emissions.

“One can use the word generous,” Fowley said.

Rajinder Sahota, an air board official overseeing the program, said the proposal would provide a reduction in emissions. The new permits, she said, would only go to companies undertaking clean energy and efficiency projects, and would be limited, temporary and revoked if companies misused them. The plan is intended to help refiners operate in California during a time of uncertainty, she added.

“We want to make sure there is reliable and affordable fuel for California consumers while demand continues,” Sahota said.

But environmentalists say the air board has built in little to no accountability for how companies invest in these projects. Katelyn Roedner Sutter, state director of the Environmental Defense Fund, said the proposal “is based on a proposed investment, not a guaranteed reduction.”

“It’s a red flag,” she said.

Climate finance crisis

Quarterly auction revenue for state programs could drop from roughly $4 billion a year to about $2 billion under the proposal, according to Office of the Legislative Analyst.

Sen. John Lairdthe state Senate budget chairman and co-author of California’s original 2006 climate law, warned the Hearing on May 6 that the proposal “contradicts a lot of things we agreed on last fall” with the governor and could put the carbon market deal “back on the table.”

Not all legislators are critical. members of the assembly Jackie Irwin and Coty Petrie-Norriswho respectively chair the climate and energy committees, said the proposal “reflects the Legislature’s focus on affordability” and urged the board to proceed “without delay.”

They pointed to the increase in the climate credit, the twice-yearly rebate that the carbon market funds on Californians’ utility bills; UC Santa Barbara analysishowever, it found that the new subsidy could reduce the credit by up to $1.7 billion under the proposal.

separate, bipartisan group including MP David AlvarezDemocrat, and Sen. Suzette Valladares, Republican, say the purpose of the carbon market is to reduce emissions, not raise money for programs.

Newsom struck an eleventh-hour deal with lawmakers last year expanded the state’s carbon market by 2045 and set the order which government programs get money from the auction first.

Under that plan, California’s high-speed rail project gets $1 billion a year ahead of many other programs. Lawmakers also set aside a $1 billion annual fund for priorities they control, but Newsom in January proposed that that money be earmarked for wildfire spending and other programs.

Last in line are the programs lawmakers have spent years building in California’s climate agenda: affordable housing and transit-oriented development designed to reduce driving and climate pollution, rail and bus service, wildfire resilience, clean drinking water in poor communities and neighborhood pollution monitoring.

Newsom unveiled a revised state budget on May 14 that does not reflect the potential drop in carbon market revenue. Laird said in an interview that the administration has told him the revenue decline won’t appear in the next fiscal year.

Laird said he plans to “substantiate the truth” of that assessment in the coming weeks. The hit “continues to be a big hit in the year beyond this fiscal year,” he added.

Big Oil’s biggest target

California’s carbon market has become a central focus of the oil industry’s lobbying efforts since the air board released a proposal in January that sharply cuts free pollution permits for the industry.

Seven of the top 10 spenders oil and gas lobby groups in California pushed state officials to the proposal, state documents show. The petroleum association and Chevron mounted some of the industry’s most aggressive lobbies, pressuring lawmakers, the governor’s office, the air board and the California Energy Commission about the plan.

The April plan raised free permits for most industries through 2030 over the January version, but deferred decisions on permits after 2030 for future rulemaking.

Jim Stanley, a spokesman for the petroleum association, said the group is pressing lawmakers, regulators and the governor’s office about “the potential consequences of a poorly structured cap-and-trade program.”

Chevron spokesman Ross Allen declined to comment beyond the letters Chevron submitted to the air board. Chevron initially warned the proposal threatened the California refinery’s survival. After last month’s revisions, the company is continuing to push for additional protections.

Zach Leary, a lobbyist for the oil association, said California should go even further than its latest proposal. He wants California to lock in a higher level of free permits permanently.

“The state recognizes that affordability and ambition are not very well understood right now,” Leary said.

Eddie Ann, executive director of Brightline Defense, oversees public air sensors in San Francisco’s Tenderloin, Mission and South of Market neighborhoods funded through the state’s Community Air Defense Program. That program is among those that could lose government money if carbon market auctions are cut under the proposal.

“If the funding is cut, getting groups of people together on a monthly basis — that’s gone,” Anne said. “This means frontline communities are being left out of environmental policy.”

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.