Why Do Environmental Justice Advocates Oppose Carbon Markets? Look at California, They Say

California’s carbon market could be hurting the state’s chances of meeting its ambitious climate goals, while at the same time exacerbating pollution in already overburdened communities, two new reports warn.

Advocates for environmental justice call the reports the latest evidence of poor climate policy that market-driven solutions are making.

In a report released earlier this month, a state-appointed panel of experts, known as the Independent Emissions Market Advisory Committee, warned that California could miss its legally binding target of reducing greenhouse gas emissions by 40 percent below 1990 levels by 2030, largely as a result of the design of the state’s complex “cap-and-trade” market.

University of Southern California researchers published a second report on Feb. 15. It found that communities with higher concentrations of people of color, and more households below the federal poverty level, were less likely to see pollution reductions and to live near polluting facilities that participated in cap-and-trade.

These reports are the latest in a growing body that supports the idea that cap-and-trade programs can reduce global emissions but can also inadvertently perpetuate, or even worsen, environmental disparities by allowing polluting businesses, which are often located within Black and Brown neighborhoods, essentially to buy their way out. 

California’s cap-and-trade program, which began in 2013, provides incentives for private companies to voluntarily reduce their greenhouse gas emissions by making the price of releasing those emissions more expensive over time. 

Companies must pay a penalty if they don’t keep their emissions below a limit—or “cap”—set by the state. Companies pay more for exceeding that cap as the cap falls over time. But companies can also “trade” by buying pollution “allowances” in place of reducing their emissions. The state is informed by the allowances that even though a company may have not reduced its emissions, they did reduce their emissions elsewhere. This could be because some companies have reduced their emissions below the threshold, and then sold the credits to other companies. It could also be that a company invested in a carbon offset program that, at the very least, reduced emissions by planting trees in Amazon rainforest.

California requires that at most 35 percent of cap-and-trade revenues be invested in disadvantaged communities.

However, the trading component of the program has allowed some sectors to not only reduce their emissions, but in some cases, increase them, according to Amee Raval (research and policy director at the Asian Pacific Environmental Network).

For example, California’s total greenhouse gas emissions have dropped by at least 30 million metric tons of CO2 equivalent since the state’s cap-and trade program began, according to state data. The USC study shows that emissions from the oil-and-gas industry have increased at the same time. This finding is consistent with a 2018 study published by PLOS Medicine. It found that greenhouse gas emissions increased for 52 percent of cap and trade regulated facilities between 2013 and 2015.

The USC study’s finding also tracked with a 2019 investigation by ProPublica, which found that carbon emissions from California’s oil and gas industry have risen 3.5 percent since the cap-and-trade program began. The oil and gas facilities’ operations also produce harmful pollutants such as nitrogen oxide and soot, which have been tied to increased risk of asthma and cardiovascular and lung diseases, and an increased risk of premature death.

That’s an especially big deal for environmental justice communities, which are disproportionately located near those facilities, Raval said. Raval cited the Chevron oil refinery at Richmond, California, as an example. The refinery is the state’s single largest contributor to greenhouse gas emissions and is located in a city where people of color make up more than 60 percent of the population, and nearly 15 percent of households fall below the federal poverty line, according to census data.

“The reality is cap-and-trade is really letting California’s business polluters off the hook, concentrating pollution in working class communities of color and undermining the credibility of our climate policy,” Raval said.

The California Air Resources Board, which manages the state’s cap-and-trade program, said in an email that the board appreciates the work done by the USC researchers, but added that a separate analysis done by the state came to a different conclusion.

That report, published Feb. 3 by the state’s Office of Environmental Health Hazard Assessment, found that communities of color and disadvantaged communities—determined by the state’s screening tool—were the “greatest beneficiaries of reduced emissions” from facilities subject to the cap-and-trade program, resulting in a shrinking of California’s environmental disparities. The report did note that the disparities are still large and that more must be done.

The air resources board also said California’s program was designed to anticipate times of low and high demand for allowances and had mechanisms built in to help ensure that allowances don’t jeopardize the state’s climate goals. Although this could mean taking some allowances off of the market, industry has strongly opposed it.

However, the Independent Emissions Market Advisory Committee stated in its report that allowance trading could prevent California from achieving its 2030 climate goal. 

One allowance equals one metric ton of carbon dioxide equivalent emission emissions. This is roughly equivalent to the amount released into atmosphere when a car travels 2,500 miles. But according to the committee’s report, “some 321 million allowances were banked into the market’s post-2020 period, equal to more than the emissions reductions expected from the program over the coming decade,” with more than 80 percent of those allowances coming from forestry offset projects.

That means that instead of reducing their emissions, many of California’s biggest companies stockpiled allowances by paying for projects that planted or protected trees—the idea being that those trees would help sequester carbon from the atmosphere. But many climate activists have criticized that approach, saying there’s no way to guarantee that offset projects actually do what they intend to do. For example, an estimated 153,000 acres of forests that are part of California’s carbon-offset program burned in wildfires last summer, but companies can still claim those forests as allowances.

The recent reports sparked renewed calls from activists, urging California officials to review how cap and trade impacts the state’s climate goals. But at a legislative hearing Wednesday, the state’s top regulator said California wouldn’t be making changes to the program anytime soon.

Environmental justice activists have warned governments not to rely too heavily upon carbon markets in their efforts against climate change. They claim they could compromise long-term emission reduction goals and increase the burden on vulnerable communities. Instead, activists argue that governments should adopt stronger regulation that requires direct emissions reductions by industries before relying upon market incentives.

New York and New Jersey activists helped to kill the Transportation Climate Initiative. The Transportation Climate Initiative was a regional carbon market that would have set a limit for tailpipe emissions and required fuel producers to pay a penalty, or to buy similar allowances.

The program was meant to mirror the Regional Greenhouse Gas Initiative and its creators hoped it would encourage Mid-Atlantic and New England states to join. The project was approved by Washington, D.C., Maryland, Rhode Island, and Connecticut. The program was heavily opposed by a coalition o environmental justice organizations in New Jersey and New York. They claimed that the fuel companies would charge low-income drivers more for pollution reduction and less access to electricity.

“Folks with access to cleaner cars are not going to be paying those gas taxes much, and then those gas taxes go to pay for cleaner cars and electric vehicle infrastructure,” said Melissa Miles, executive director of the New Jersey Environmental Justice Alliance. “That’s a problem if the structural issues, such as high front-end costs remain a barrier for low-income people as they continue to get shut out of the benefits while still paying the entrance fee.”

As governors expressed concern about the program raising gasoline prices in their states, Connecticut, Maryland, and Rhode Island pulled out of the proposal last January. The initiative was effectively dead by December.

Some in the environmental community say they still believe carbon markets can be operated equitably, especially if they’re paired with regulation that directs the revenue generated by the programs to vulnerable populations. For example, a 2018 report from the Tax Policy Center and Columbia University’s Center for Global Energy Policy found that while a carbon tax alone could be regressive, adding a rebate could offer low-income households an average annual tax cut of about 4.4 percent.

Washington passed its first carbon market legislation in the last year, despite a decade-long battle between environmental justice activists. The state’s Climate Commitment Act established what its proponents call a cap-and-invest program, since it includes a provision that—similar to California—requires at least 35 percent of the revenue raised by the program to be spent in vulnerable communities, with an additional 10 percent for tribal lands.

California activists have pressured state officials to use the revenues to install solar panels on affordable housing, boost energy efficiency programs, and increase access to public transit and ridesharing.

But those benefits don’t make up for the fact that pollution is rising in poor communities and California is on track to blow its climate goals, Raval said. “Cap and trade will not generate the emissions reductions we need, and the stakes are too high to double down on a failed policy,” she said.