On July 25, California Governor Jerry Brown signed into law Assembly Bill 398, an extension of California’s greenhouse gas (GHG) cap-and-trade program through 2030. Eight days after being introduced, AB 398 passed the California Legislature with a two-thirds majority vote of 55-22 in the Assembly and 28-12 in the Senate. AB 398 implements California’s goal of reducing GHG emissions to 40 percent below 1990 levels by 2030, which was codified in SB 32, a bill signed by Governor Brown last year.
AB 398 extends California’s existing cap-and-trade program, which was passed in 2006, in which the California Legislature committed to cutting the state’s GHG emissions to 1990 levels by 2020, a 30 percent reduction from 2006 levels. AB 398 includes several important provisions that were key to obtaining bipartisan support, including directing the California Air Resources Board (“CARB”) to establish allowance price ceilings and cost containment measures, prohibiting local air districts from implementing CO2 reduction rules for stationary sources that are subject to the cap-and-trade program, and adding sales tax exemptions for certain electric generation, storage, and distributed resources.
Under the 2006 program, CARB is charged with creating and implementing a market-based GHG cap-and-trade program. The program applies to carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and other fluorinated greenhouse gases, including nitrogen trifluoride (NF3). The requirements apply to covered sources with annual emissions equal to or more than 25,000 metric tons GHG, as measured in CO2 equivalent. Covered sources include fuel production facilities, electricity generating facilities, and suppliers of natural gas, among others.
In conjunction with AB 398’s passage, Assembly Bill 617 also passed the California Legislature with a two-third majority (50-24 in the Assembly and 27-13 in the Senate). AB 617 responds to environmental groups’ criticisms that the cap-and-trade program has not done enough to address local and disadvantaged community concerns. As a result, AB 617 requires CARB to address local environmental concerns by establishing new reporting and enhanced monitoring programs for criteria pollutants and developing criteria-pollutant emissions reductions plans for disadvantaged communities in coordination with local air districts. Significant questions remain as to how CARB will implement these new requirements and it will be important for the regulated community to closely track the agency’s progress in developing both the monitoring and reporting programs as well as the emission reduction plans.