Cap and trade: With program in limbo, farmers look at impacts


Issue Date: June 14, 2017
By Kevin Hecteman

With the drive to extend a cap-and-trade program stalled in the state Legislature, California farmers and businesses that bring agricultural products to market are left to wonder what's next.

The program arose out of Assembly Bill 32, enacted in 2006, which set a goal of reducing California greenhouse gas emissions to 1990 levels by 2020. Last year, Gov. Jerry Brown signed Senate Bill 32, which seeks a 40 percent reduction below 1990 levels by 2030. The ultimate goal is an 80 percent reduction from 1990 levels by 2050.

Cap and trade, according to the state Air Resources Board, sets limits on the sources of 85 percent of California's greenhouse gas emissions and sets a price signal to drive long-term investments in cleaner fuel and energy efficiency. The program gives allowances for businesses meeting certain energy-efficiency goals. Trading of a limited number of allowances takes place through auctions.

Cynthia Cory, director of environmental policy for the California Farm Bureau Federation, described the cap-and-trade program as a "flexibility provision" that allows businesses to achieve reductions at locations other than their industrial source.

"They can go to other places that might be cheaper and easier to get their reductions," Cory said.

As an example, she said, a business could pay to install a methane digester at a dairy farm.

"That way, they can reduce the methane on a dairy at a much cheaper, easier cost than they can at a cement factory," Cory said.

For many industrial businesses, the technology to reduce greenhouse gas emissions is "not just sitting on the shelf," she said.

That can be especially true for food processors, said John Larrea, director of government affairs for the California League of Food Processors in Sacramento.

"One of our big issues as food processors is that we have a large thermal process that runs through most of our members who are covered by cap-and-trade," Larrea said. "When you use big boilers, there's really no new technologies right now out there to help us to be able to reach those particular goals. We can't just slap on brand-new technology that will reduce our emissions by 15 to 20 percent."

Larrea added that he'd like to see increased awareness of the need for new technology and a willingness to invest cap-and-trade proceeds into research. Without new technology, he said, the only viable means to reduce emissions would be to reduce production, which would be bad news for farmers.

Many Central Valley food processors, aside from cheese makers and dairies, operate seasonally, Larrea said.

"Most fruit and vegetable canning operations only operate 100 days to 110 days out of the year," he said. "To look at us as a problem, and to take away or somehow restrict our ability to be able to utilize cap-and-trade to its fullest, would not be in the best interests of either the valley economics or the disadvantaged communities (in the valley)."

Allowances are critical, Larrea said, to prevent "leakage"—in other words, to prevent businesses from leaving California for economic reasons. Without the allowances, "from a competitive point of view, I think you would see companies who would no longer wish to expand," Larrea said. "They would seek to expand outside the state, and you would put a real damper on the economy in the state."

Cory said that would be a lose-lose for everyone, businesses and environmentalists alike.

"If we force our industrial sources out of the state, all they'll do is move and then bring the finished products back in, which does nothing to decrease your carbon footprint," she said, adding that with the increased transportation needs, the footprint would actually get larger.

Two bills relating to cap-and-trade reached the Assembly floor during the week after Memorial Day: AB 151, coauthored by Assemblymembers Autumn Burke, D-Inglewood, and Jim Cooper, D-Elk Grove; and AB 378, authored by Assemblymember Cristina Garcia, D-Bell Gardens. But when AB 378 was narrowly defeated, AB 151 was not brought up for a vote. The deadline for legislation to pass out of its house of origin was June 2, meaning that no means of extending the program is active.

Gov. Brown has indicated he considers extending cap-and-trade beyond 2020, with a two-thirds vote of the Legislature, to be a top priority. The two-thirds vote would insulate the program against legal challenges calling it a tax.

"Frankly, we kind of like the program the way it is, and really feel it only needs a few tweaks going forward," Larrea said. "We're comfortable with this program. It's shown that it does work, and I believe our industry would be supportive of a program that resembled the current one as closely as possible."

For food processors, he said, timing is crucial. Movements and expansions take years, due to planning and market studies, judging the return on investment and raising the money.

"Our industry is looking for the certainty that would be associated with having a program that we can depend on, (that) will be here from 2020 to 2030 without too many changes," Larrea said.

Without cap-and-trade, Cory and Larrea said, the likeliest alternative appears to be "command and control," wherein agencies would impose specific reductions on a per-facility basis.

"The reason that cap-and-trade works so well is it allows businesses to continue to meet their compliance obligation without harming, to a large degree, their market competitiveness," Larrea said. "Command and control does not do that. It just orders reductions. The monies associated with the purchases of the allowance and the auction would disappear. There would be no money coming in to the state under a command-and-control regime."

Extending the program is critical to farmers, Cory said.

"We need the food processors to add value to our food," she said, "and we can't operate without electricity and fuel. So if (energy companies are) increasing their prices, we're the ones that have to pay it."

(Kevin Hecteman is an assistant editor of Ag Alert. He may be contacted at khecteman@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.