Cap-and-Trade Extended: What Do AB 398 and AB 617 Mean for Climate Change and Air Quality Regulation in 2018?

by Marne Sussman^*

Governor Jerry Brown once again tackled climate change head-on in 2017, approving two new laws, one that extends and refines the existing cap-and-trade program, set to expire in 2020, and one that addresses local air quality. Assembly Bill 398 (E. Garcia) and Assembly Bill 617 (C. Garcia), both adopted on July 25, 2017, represent a heavily negotiated agreement amongst environmental justice organizations, industry, policy-makers, and NGOs. In addition to extending and modifying the cap-and-trade program, the new laws reflect the recent trend to link regulation of climate change and regulation of air quality in California. While climate change is a global issue that needs global solutions, it has been viewed recently through the lens of air quality regulation more appropriate for regulating local and regional pollutants such as toxic air contaminants and criteria pollutants. The passage of AB 398 and AB 617 as a package continue this trend of regulating with a mind towards both traditional air pollutants and greenhouse gases. This article provides a general background on California’s cap-and-trade program and the changes that will be implemented under AB 398, describes the local air quality programs and requirements created by AB 617, and examines the regulatory actions that will occur in 2018 and beyond.

I. OVERVIEW OF CALIFORNIA’S CAP-AND-TRADE PROGRAM

California’s cap-and-trade program was adopted by regulation in 2010 as part of the California Air Resources Board’s ("ARB") suite of measures to ensure compliance with Assembly Bill 32 (2006), which required reduction of California’s greenhouse gas ("GHG") emissions to 1990 levels by 2020. A subsequent bill, SB 32 (2016) required the state to further reduce GHG emissions to 40 percent below 2020 levels by 2030. To reduce GHG emissions consistent with these requirements, the cap-and-trade program sets annual statewide declining caps on emissions from approximately 450 sources that collectively produce about 85 percent of California’s GHG emissions. "Covered entities," those who are included in the group of capped sources regulated by the program, must surrender compliance instruments to ARB totaling their GHG emissions for each compliance period, typically three years. Compliance instruments take the form of either allowances or offsets: