Lower greenhouse gas emissions might be cause for celebration in many parts of the world, but in California, this drop could hurt the state’s fight against climate change. Many of the state’s green initiatives are funded through a cap-and-trade system and the sale of permits to businesses that release gases into the atmosphere. With decreased emission levels due to the pandemic, state revenue from selling permits may face challenges. To learn more, read “Cleaner Air Is Actually Hobbling California’s Climate Fight.”

Key Takeaways:

  • Launched in 2012, California’s cap-and-trade system serves as a primary weapon to achieve the state’s goal of reducing economy-wide emissions to 40 percent below 1990 levels within the next decade.
  • Here’s how the cap-and-trade system works: 
    • Each year, the state sets a limit on emissions across its economy and requires businesses to buy a permit for each ton of greenhouse gases they emit.
    • Businesses can buy their permits either at quarterly state-run auctions or on a secondary market, where companies trade them like any other financial instrument.
  • The International Energy Agency recently estimated overall U.S. emissions fell 9 percent in the first quarter of 2020.
  • Current prices on the secondary market for permits are hovering just below the auction floor, and some environmentalists worry the low emissions will sap demand.
  • Despite this concern, the state hasn’t stepped back from its ultimate climate goal: to be carbon-neutral by 2045. Cap-and-trade is essential to achieving that.

Path to 100% Perspective:

Even if the pandemic puts new pressure on the budget for new climate-change efforts, most analysts are not worried that California will be unable to meet its carbon-neutral commitment by 2045. Stakeholders believe the state should keep funding clean-energy programs and projects that simultaneously cut emissions and provide jobs, such as making homes more energy efficient.