Volts podcast: Danny Cullenward on California's shaky climate plans

In this episode, policy analyst Danny Cullenward of CarbonPlan talks about the disconnect between California’s ambitious climate goals and its actual practical plans for achieving them.

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(Active transcript)

Text transcript:

David Roberts

California has long been known, nationally and internationally, as a leader on climate policy. The sheer scale of its economy and the stringency of its emissions targets have made it a model for other states with climate ambitions. As a role model, its successes (and failures) reverberate far beyond its borders.

So it matters a great deal whether California has a practical plan to meet its aspirations. This year offers something of an answer, and … it’s not great.

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Every five years, the California Air Resources Board (CARB) issues a “scoping plan,” laying out how it intends to meet the state’s targets.

The last one, in 2017, raised serious questions about whether the state’s cap-and-trade system could do the emission-reduction work that the state planned to require of it through 2030. This year’s draft scoping plan (there’s still time for public comment) answers none of those questions, and instead, looking out to 2045, raises new questions about whether carbon-dioxide removal (CDR) can do the work the state plans to require of it.

That’s a lot of questions. To hash through them, and get a sense of just how prepared California is to meet its climate targets, I called up Danny Cullenward, a long-time policy analyst in the state. (Volts fans will remember him from one of the very first Volts posts.) He is currently policy director at the nonprofit CarbonPlan and a research fellow at American University’s Institute for Carbon Removal Law & Policy.

Cullenward and I discussed what policies have worked to reduce emissions in California, whether the cap-and-trade program can do what’s asked of it, why the current scoping plan leans so heavily on CDR, and whether there’s still time to improve the plan before it’s locked in for five years.

Without any further ado, Danny Cullenward. Welcome to Volts. Thanks for coming.

Danny Cullenward

Thanks for having me on, Dave.

David Roberts

Danny, you were the first interview I ever did for Volts a couple of years ago. And as far as I know, now you're the first return guest.

Danny Cullenward

And the first to pivot to audio. This is fun.

David Roberts

Yeah, the first to pivot to audio. I'm sure this is the kind of accomplishment you used to dream about as a young man.

Danny Cullenward

If I were still an academic, it would be going on my CV.

David Roberts

Alright, so the purpose of our conversation here today is to get a handle on California and climate, sort of where it's been, where it says it's going, and whether it is in fact prepared to go where it says it's going. Before we get there, though, let's do just a little sort of scene setting, a little background. I think everybody hears about laws coming out of California all the time. California is doing this, doing that, and it becomes a little bit of a blur. So let's just sort of clarify what are the targets to which California is committed by statute, and sort of what are its other targets which are less statutory.

Danny Cullenward

I think that's the formal legal definition. That's great.

David Roberts

Semi statutory.

Danny Cullenward

Well, so there's a reason people talk about California and also why people, I think, sometimes get confused about exactly what's going on. And the reason that it matters is California was one of the first states to move forward on some of the macro climate policy issues, and many states are either copying or learning from its experience. So what it does turns out to matter a lot to sort of what other people start to do. I think the story begins in earnest in climate policy with the passage of AB 32. Our famous climate law back in 2006.

David Roberts

Under Arnold.

Danny Cullenward

Under Arnold Schwarzenegger, and a progressive Democratic legislature came together, found common ground on this bill, did a couple of things.

It set a target to reduce emissions back down to 1990 emissions, by the year 2020. And it empowered the climate regulator, the California Air Resources Board, with the authority to undertake new regulations, including a cap-and-trade program, as well as to coordinate with other agencies, like our clean energy regulators that had already been pushing on renewables in the past. And that sort of set up the meta-framework and delegated the planning exercise to this regulator. So that's target number one. Target number two is about a decade later. In fact, one of the same principal legislators, then-Senator Fran Pavley, led a bill called SB 32, which codified a target of 40% below 1990 levels by the year 2030.

So both of those are statutory targets. They're legally binding. The regulator is obligated to plan to and meet those targets. And then in 2018, we had the passage of SB 100, our zero-carbon grid bill. That was much celebrated. At the signing ceremony for that bill, Governor Jerry Brown issued an executive order that said, let's go carbon neutral by the year 2045 on a statewide basis as well. And it's under the auspices of that executive order, and some more recent executive order and direction activity from the current governor, Gavin Newsom, that the state of California is thinking about its long-term climate goals.

So we have statutory target for 2030, and we have non-binding aspirational executive orders for the post-2030 period.

David Roberts

So, just to be clear, those executive orders are hotatory. Is that the word? They're meant to inspire action, but they have no legal force, there's no penalty.

Danny Cullenward

That's right. You can't create new policies or programs from those executive orders that aren't separately authorized by existing law. And it's really easy to say, "That that's dumb. It means they're nothing." On the other hand, the statutory targets we have followed from earlier executive orders, so there's a history in this state, and in many other jurisdictions, you set the aspirational goal and you codify the parts of it you can, you sort of push ahead and you iterate in ratchet. So I don't want to discount the importance of that. But the practical takeaway is that nothing can be done to implement those targets other than talking and using existing authorities.

You can't create new law with an executive order.

David Roberts

Right, so the legislature will have to follow up on that. So the first target you mentioned was by 2020, that was returned to 1990 levels. Did California hit that?

Danny Cullenward

Not only hit it, hit it a few years early. So it's a good story. And getting down to 1990 levels, maybe two things to say for your listeners. 1990 is a baseline that was really common to talk about 15, 20 years ago. We now talk about baselines like 2005, that's just sort of an artifact of when people locked into all of this. It doesn't sound like a particularly impressive target, in some respects, that's true, but at the time it was set, we were looking at emissions going ever up, and the idea that they would flatline and come back down a little bit was actually really ambitious at the time.

And the state met it a couple of years early, which is great. Could talk about why. We got a little lucky. We also worked really hard, and we got there a couple of years early.

David Roberts

Let's briefly talk about it. So I'd like to get a sense of sort of — there's these two families of policies in California that have been passed in pursuit of these targets. There is the cap-and-trade system that was set up, as you say, by the Arnold Bill. And then alongside that, there's this sort of more sector-specific rules and regulations and investments, sort of, I guess what you would group under "industrial policy". So you have this sort of price-based mechanism on one hand, and then these sort of more old-fashioned regulatory tools on the other hand.

So what has worked to put California ahead of schedule for its 2020 goal?

Danny Cullenward

Maybe the other thing to mention here is for these macro state targets, like the 2020 target and the 2030 target, AB 32, that original climate law asked the regulator to come up with what's called a "Scoping Plan". So every five years, the regulator is supposed to put together an official strategy. We're in the middle of a process for updating that strategy. And so you can look to those strategy documents to answer your question. And the first such document that was put together, basically, said that the expectation was that about 80% of the work to get to our 2020 target would be done by regulations and what today we now call things like industrial policy.

David Roberts

That was in what year the first Scoping Plan came out?

Danny Cullenward

It should have been December of 2008, end of 2008.

David Roberts

Got it.

Danny Cullenward

And the state said 80% regs 20% cap-and-trade. And that's a combination of policies that I think reflects the historical role that traditional sector-specific regulations and industrial policy have played in cutting emissions. Think renewable portfolio standard, think CARB's leadership on mobile source emissions, trying to set rules for cleaner cars. Those are the kinds of efforts that have historically delivered the tons. And the initial plan was about 80% in that traditional route and put on top of that an economy-wide carbon price that would do some of the lifting, but maybe not the lion's share.

David Roberts

And did that prediction, I guess, in 2008, turn out to more or less accurately reflect what happened through 2020?

Danny Cullenward

That's a place where I think there's a little bit of nuance. So if you look at the data in terms of how we actually got to our target early, it turns out that there was a substantial boost from the financial crisis, right? So, like, the world economy collapsed, and people stopped driving. We didn't have like a boom time, and that exogenously pushed emissions lower. When you look at the sectors where the work has been done, it turns out that we struggled to keep pace in the transportation sector, struggled to keep pace in the industrial sector, but our electricity sector decarbonized much more quickly than even the optimistic plans in the original Scoping Plan suggested.

And that's a combination of the fact that renewables and efficiency have performed in some respects better than we thought and moved faster than we hoped. It's also a reflection of the fact that at the time the plans were set, California was importing a lot of coal power. And it's a long story, but they eventually created a process by which the utilities in the state stopped importing that coal power. So we shed that liability from our books, and it's that electricity sector transition, moving off coal and starting to move on to clean energy, which is just beginning to really show up in the inventory.

That's where the real progress has come. The rest of the sectors have struggled and electricity is most of the work.

David Roberts

Got it. And so you hit the 2020 target early. The 2030 target is 40% below 1990 levels by 2030. Is California on track to hit that target?

Danny Cullenward

I don't think there's a case to be made that we're anything close to it right now. I think it's entirely feasible and doable, but I don't think we're on that track right now. And part of the reason why reflects a pretty big shift in the state's official strategy for its climate policy. So I told you that the first Scoping Plan in 2008 said 80% regulations, 20% markets.

David Roberts

Right.

Danny Cullenward

To make a long story short, there was a crisis in the cap-and-trade program starting in about 2016. The program was only authorized through the end of 2020. There was a crisis about the state of supply and demand in the program, the upcoming expiration of its clear legal authority, and that was ultimately resolved with a bill that passed in 2017 to extend the cap-and-trade program to 2030. So now we have the authority for cap-and-trade aligned to our state goal.

David Roberts

Right. I remember that fight. That was Brown, wasn't it? Who?

Danny Cullenward

That was right. And I think it's fair to say Governor Brown had a singular role in that bill and that approach. So the bill passes and extends the authority it requires for state constitutional reasons. It needed a two-thirds vote, which is extraordinarily difficult to pull off anywhere.

David Roberts

Even in California.

Danny Cullenward

Even in — anywhere.

And it led to a number of concessions to industry. So it shut down the ability of our local air pollution regulators to regulate CO2. It shut down the ability, at least temporarily, of the state climate regulator to regulate CO2 emissions from the oil and gas sector, including refining and production, other than through existing policies and the cap-and-trade program. And it led to a compromise in the implementation of the cap-and-trade program that made it a not particularly strict policy. Now, if you want to make a plan that's 80% regs and 20% cap-and-trade, a "not particularly strict policy" can maybe deliver that right.

But that's not what the climate regulator decided to do. So they decided in 2017, in their most recent Scoping Plan.

Like just in the wake of the program being renewed through 2030, right?

That's right. So the cap-and-trade legislation said, "You got to finish your Scoping Plan, and here's some of the constraints on that planning process." And in that plan, the regulator adopted a set of policies, or a set of strategies, that would put that emphasis much closer to 50/50 for the year 2030. So it was a pretty big departure. And if you ask an economist that sounds like a good thing. If you ask a political scientist, or somebody in the policy scene, "What's going on?" There's a lot more questions.

David Roberts

Right. This is a classic real-world running of this sort of experiment, this long-running sort of dispute. I'm sure listeners are probably familiar with the basic outlines, but then you sort of have economists who are like, "Pricing is the most efficient way, über alles. Absolutely. The cheapest way to do this, and most effective." And then you have sort of people from the political realm, you might say a political scientist, who point to, "Well, in the past, what has worked? And in the past what has worked are these more blunt weapons, these sort of regulations and mandates and investments," and things like that.

So it's interesting that California is really running a real-time experiment. So now in 2017, for its Scoping Plan, it says, we're going to put these on more or less 50/50 basis.

Danny Cullenward

Let me pause you right there. Yes. And then, here's maybe the most interesting part of this. So the plan is settled at the end of 2017, the rulemaking to implement the program doesn't finish till 2018. So ask me in 2017 what I think about this. I say, "I might have some concerns about the balance. I don't know if that's the wisest approach, but you can absolutely design a program to deliver in that way if that's what you want to do."

David Roberts

Right.

Danny Cullenward

And we can come back to this, to the extent this is interesting, but the design of the program in 2018 was a pretty universal sort of shift in a direction of not really addressing the supply-demand balance in the program very explicitly. And I think it's fair to say some decisions were made that led to consequences, and these consequences were warned about. A bunch of us in the either academic or nonprofit world raised concerns about there being too many allowances in the program to get to our goal. My colleague Chris Bush and Justin Gillis even had an op-ed in the New York Times, like, for you to get an op-ed in the New York Times about cap-and-trade minutiae.

David Roberts

Yeah. Allowance numbers.

Danny Cullenward

It's a pretty rarefied thing. Make a long story short, the critics who raised concerns about this said, "Wow, we've modeled the program. We think it's going to end up with too many allowances."

David Roberts

And so just wait, just pause there. Just to spell that out a little bit for listeners, you need an allowance to emit a ton of carbon. And the idea is, if you get too many allowances in the system, they just become cheap. You can start buying them up and hoarding them. Basically, if there are too many allowances flooding the system, it removes what incentive there is to reduce emissions. And instead, you can just start buying and hoarding cheap allowances to protect yourself, and because, to steal a little bit of your thunder here, but because California allows banking, which is buying allowances and saving them for later, this opens the possibility that regulated entities in California can take advantage of these super cheap, oversupplied allowances.

Buy a bunch, create a big reserve of them, and then when or if prices ever go up, they're just going to have these giant stores of cheap allowances. So even if the price goes up, they'll still be sort of insulated from having to take action. That's the worry about too many allowances.

Danny Cullenward

Yeah, and I like to analogize it. I don't want to in any way cast aspersions on making these programs work right. Which, again, I think is something that is a nice idea, and I work on every day, despite writing a book about why it's unlikely to work. But think about it as a cap-and-trade game, as a game of musical chairs. And so the players that's the pollution, the chairs, that's the number of allowances in the program. And players can exit the game if regulations are successful or technology improves. And the question is, how many chairs should you have in the game?

And if the regulator guesses wrong or gets the number wrong, for whatever reason, you can end up with too many chairs. And the basic rule of a cap-and-trade program is a player's got to have a chair at the end of every period. You got to have the right number of allowances to match your emissions. And if you don't, you're out. You got to figure out a way to close that circle. So it's really hard, turns out, to estimate how many emissions you think are going to need to be covered in a cap-and-trade program.

You have to guess at the future of the economy. You have to guess at the performance of each sector. You got to guess at macroeconomic conditions. You got to guess how fast you think the grid is going to decarbonize. It's hard to do right.

David Roberts

Let's pause here to make a note that the original economic attraction of cap-and-trade, and of pricing carbon generally, is supposed to be that you don't have to guess those things, that the price will do the work for you, that the price will sort of reflect our aggregated information about those things if it's just allowed to run. But it turns out, as you point out in your book, and as many other people have pointed out, if you've got a big system that covers the energy sector, you're not going to take chances. In practice, you're not going to let it do whatever the market does to it, right?

It's energy. It's too core to the economy to leave it up to that. So what ends up happening is regulators end up fiddling and fiddling and messing and shaping and capping, and they end up designing it to the point that it just becomes a sort of backdoor command and control mechanism, which was the whole point was to get away from that. So it's like you end up with the worst of both worlds somehow.

Danny Cullenward

Yeah, I want to tell you a positive story about how to fix it and all that at some point, but it is ridiculously complex. And I think the main insight is that when you ask an economist about this, they say, "Well, you don't have to worry about this." The reason is they're thinking as though you had this policy in isolation, in an idealized setting, and in the real world, you only ever see these instruments evolve alongside strong complementary policies. That's the label we use. We call the things that do most of our work "complementary policies" reflecting the sort of economist worldview on that.

But good economists have been thinking about this for a while. I mean, there's many to reference, but Severin Borenstein at UC Berkeley and his colleagues wrote a really great paper looking at the California program and saying, "Wow, I mean, there's so many policies that directly affect emissions subject to the program." There's only a small piece of the puzzle that is responsive to these prices, and you end up trading, as we say in the book, you end up trading the residual, and there's more volatility the more work these other policies are doing. There's also more political stability the more you rely on these other policies.

So everything kind of points into a direction where the program looks bigger than it is and is also really complicated to manage empirically and effectively. So I'm trying to be sympathetic here. Like, it's hard to do it right. I'm not saying, "Oh, everybody screws it up if they just listen to the smart people." It's actually really hard to do.

David Roberts

Yeah. Because you have all these other complementary policies that are reducing emissions, but every little bit that they reduce emissions has an implicit effect on the pricing in the cap-and-trade system. So you sort of have these two symbiotic things, one of which you're directly controlling and one of which you're sort of obliquely controlling. Yeah. And you end up having to — it just seems like, and you're right, we're perhaps being too negative too early here, but it just seems like ...

Danny Cullenward

Save it, Dave.

David Roberts

... A giant Rube Goldberg mechanism created just so you can say you did something market-like. The final product bears virtually no resemblance to any market or market mechanisms. But it's just like the symbolic value of saying, "We did a market thing," has prompted all this work and complexity just to make this thing appear to be playing a big role.

Danny Cullenward

Okay, I got to push back on you. That is both too cynical and not cynical enough. Here's the optimistic case for this. You actually want markets to work, if you want to deliver some cost-effective reductions. There's value in having markets discover cost-effective reductions. And in the real world, if you manage this carefully, given all of these constraints and all these concerns, there's actually value in that secondary supporting role. So you sort of articulated case, "Oh, this is all smoke and mirrors." It actually could be important to do this right, admittedly at a lesser scale than the textbook econ solution suggests more.

David Roberts

Explicitly as a "sopping up the remainder" policy rather than a sort of "main workhorse" policy.

Danny Cullenward

Yeah. And if politics improve over time, if industry wants to come to the table to talk about cost-effective ways to get things done, it becomes a venue where you could have that conversation and have that conversation potentially be real. The more cynical take, and this is something I expect we'll come back to, is that the presence of a market-based program that can be described as an idealized outcome also becomes a shield against reform.

David Roberts

Yes.

Danny Cullenward

And people will point to it, and they say, "You already have this economically efficient program that's designed to do all the work, so you don't need that next industrial policy. You don't need that higher ambition. Why would you remove allowances from the market and raise consumer prices when it's already designed perfectly?" It becomes a very dangerous thing when the idealized case is made, and that's typically made by industry and by regulators when they're sympathetic to either the concerns of industry or the challenges of reform that I think are practical and real.

David Roberts

Right. So if you have in place this system that you are claiming is an economically efficient way of mopping up emissions, and then you propose some further sector-specific industrial policy, it's very easy for industry to come along and say, "No, you don't need that. We already have — look, you already said you have this perfectly economically efficient plan in place. Why would you need to do anything else if you truly have this plan in place?"

Danny Cullenward

And just for a second, if they're right, if that program was designed perfectly and you're not worried about long-term dynamics, you just assume a relatively simple econ framework here, they might have a point. And the problem is the programs are rarely designed that sufficiently, and you also have all sorts of other market failures that sector-specific policies might want to address. But they do make a point which, again, is really compelling to lots of people and is worth paying attention to. If you did this right, it would take away some of the rationale for some of the sector-specific work.

And I think it's a mistake to say, "Oh, that's not a legitimate argument." From a certain point of view, it can make sense. The tell is that we've rarely designed programs that are strict enough to deliver on that outcome.

David Roberts

Yes, this is the key. I think you can imagineer a program that does all these things they say it does, but it doesn't seem like a coincidence that no one's been able to implement a program like that in the real world. In the real world, these programs are always compromised and oversupplied with allowances with all these blind spots. This is the whole sort of political economy point, right?

Danny Cullenward

Yeah. And just again, not to put too fine a point on it, but that's okay if you work with it and you understand it and you put it in the right size box and you say, this is the classic example, is, "would you rather California have a $30 price on carbon or a zero dollar price on carbon?" And I will take the 30, please. But I don't want to pretend that 30 gets me to net zero, and I want to hold both of those ideas in my head at the same time.

David Roberts

Right, okay. So this brings us to the present. California is, in 2017, sort of shifted its emphasis to a sort of half-and-half industrial policy and cap-and-trade program road to the 2030 target. It is not currently on track to that target because of some of the large and still unaddressed problems in the cap-and-trade side of things. That's where we stand now. So then into this situation enters the current Scoping Plan, which was just released. I guess they do it every five years. They did 2017. So the 2022 Scoping Plan was just released.

Danny Cullenward

Just to clarify, it's the draft that's been released, so this is the only opportunity for public comment. It's not locked in, but we'll talk about what's going on.

David Roberts

Right. That's important later. The draft Scoping Plan for 2022 has been released. Now, you might think, given what we've discussed so far, that the 2022 Scoping Plan would be singularly obsessed with whether the cap-and-trade program can in fact, do 50% of the work, can in fact, do what they want it to do. Given that a. there's a lot of long-standing, very loud, persistent critiques of that program. And two, that it doesn't seem to be working currently because they're not on track, you would think that the Scoping Plan would be preoccupied with "how can we tighten up cabin trade, so that it really, does this work we say it's going to do?"

That turns out not to be what the Scoping Plan does at all. In fact, the Scoping Plan, as you pointed out in a piece you just wrote last week, devotes all of six pages to the 2030 goal, which is currently not on track to be met. And as far as I can tell, does nothing to revise the basic shape of the cap-and-trade program and doesn't really, as far as I can tell, address any of the long-standing critiques of the cap-and-trade program.

In other words, this Scoping Plan tells us very little about how California is going to go from "not on track" to meeting 2030 to "on track". Is that fair?

Danny Cullenward

Yes, that's fair. So this is over 200-page planning document. There are six pages that address cap-and-trade and the 2030 target.

David Roberts

That's wild. That's wild. It's only eight years away, Danny.

Danny Cullenward

Yeah, I know. They don't even discuss, you reference the concerns and criticisms. Let me just give you just a couple of statistics. So if you look at the official greenhouse gas inventory by which we measure progress towards our various targets, the most recent pace of reductions is about 4.5 million tons per year we're reducing. And that's good, it's something to celebrate, but we need to increase that by almost a fourfold rate to get on track for 2030, to get to our existing statutory target.

David Roberts

So what, like 16? What's the target number?

Danny Cullenward

The target number, we're in the low 400s, 400 million tons CO2 equivalent per year. And we need to get down to about 259 million per year by 2030. We need to be falling at a rate, like, if you take our 2021 provisional estimate, we need to be falling at about 16.7 million tons per year, and we're falling sort of four to 5 million tons per year. So there's a gap there. That is absolutely in the technical world, that's an achievable. We can do that. We know how to do that if we really want to do that.

But there's a gap. Second thing I want to introduce is we actually have a lot of evidence. We talked about back when the cap-and-trade regulations were finalized in 2018, there was a big debate, and there was some criticism. So the people who wrote their numbers down in public documents who said, "Here's how many extra allowances we expect to see at the end of the third compliance period." We just got data six months ago on that. And based on those allowances, those extra allowances, we have concerns that the program maybe can't get us to 2030 on track with our goals.

So the people who did that, it turns out they got pretty much exactly right, and we saw the surplus allowances at those levels. So I'm the vice chair of the Advisory and Oversight Committee for this program, and speaking just in my personal capacity today with you, we in our annual report for the advisory report, looked at the number of extra allowances, and there are about 321 million that came into the post-2020 market. In the 2017 Scoping Plan, which did this first analysis of how to get to 2030 and how big the cap-and-trade needed to be to get there, they estimated around 236 million tons of reductions would need to come from cap-and-trade.

So we've banked more allowances, that is to say, private parties bought and are holding on to more allowances than the entire cumulative reductions expected from this program in the last plan. So when I tell you that only six pages sort of hint at this stuff, and they don't even reference the advisory reports, the data, the documents, the public peer-reviewed papers, that should really strike you.

David Roberts

So just to put a fine point on that, regulated entities could get all the way through 2030 using nothing but already banked allowances, not making any further reductions at all. Is that fair?

Danny Cullenward

That's a possible outcome. I don't want to say that's the most likely outcome. It depends on sort of your view about both the number of players in the game. We know the number of chairs and the regulations if we're thinking about this as the musical chairs game, and that is possible. And so my colleague Dallas Burtraw, who's the chair of the advisory committee, was quoted several times in the press saying, "That's a possibility." It's wickedly complicated to try and model it all, but basically, we're talking about a surplus of 321 million when you're looking at creating kind of a deficit of 236 million.

So it's the wrong direction for sure.

David Roberts

And even if they only do half the emission reductions needed, that's still super bad. I mean, ideally, you'd have few to none excess allowances floating around in your system, right?

Danny Cullenward

If you wanted emissions to fall roughly in line with program caps, you wouldn't expect to see very large banks emerge or at least you'd want to have some long-term continuity in the program. I want to flag the cap-and-trade program is only authorized through the end of 2030.

David Roberts

Right.

Danny Cullenward

We'll get to this like what's going on in Washington. Washington has authority to do both climate and cap-and-trade way out farther into the distance. And so there's some really interesting issues that come up. You might look at our market and say, "If we're just trying to solve for 2030, we have way too many allowances."

David Roberts

Right.

Danny Cullenward

You could also look at our market and say, "Well, if we were trying to solve for also 2045 or 2050, maybe it's appropriate to be in the kinds of conditions we're in." The problem with that statement is that we don't have the legal authority to do that, and we can talk about this, but it proved impossible to get a simple majority vote on just a climate target last year, and you need a two-thirds vote to make the cap-and-trade program also follow.

David Roberts

Yes. And given the sort of harrowing concessions Brown had to make to get that first two-thirds vote, one can only imagine what would be required to get it past 2030.

Danny Cullenward

Yeah, and it's tough because again, if you're a proponent of these systems — and again, I want to support, like using them well and right, that's a good thing. But you're probably also pretty challenged by what's increasingly sounding like double speak about this from the regulators. Because think of it this way, if this conversation gets deferred a couple of years, and we're having a conversation about what a two-thirds vote looks like in 2024 or 2025, that's going to be an even harder conversation. If there's a big bank of allowances and relatively low prices, and you say, "Well, what if we extended the program and massively increased prices?"

It's not like that challenge gets easier by putting it off.

David Roberts

Yeah, I mean, this is sort of another aspect of the political economy of these programs, is they need to be able to get more expensive. That needs to at least be an open option. They're not working correctly unless they occasionally get more expensive. But no politician wants to go out and propose a reform explicitly to raise prices on people.

Danny Cullenward

And that is also why when people declare victory on the backs of the idealized perception of these programs, it becomes even harder to advance climate progress. Because now you're not only stuck trying to convince a reformer to make that argument, but you have often the government, and usually major industries saying, "Actually, it's fine the way it is."

David Roberts

Right.

Danny Cullenward

So the number of people who are sort of against the climate reform trajectory increases, including political stakeholders who are just trying to think about staying in office or managing competitiveness, it's tough.

David Roberts

And so tell us also ... you found a discrepancy about how the sort of baseline emissions scenario is calculated, that also looks like it's padding the results slightly. Can you explain that real quick?

Danny Cullenward

Yeah, so if you want to model the role of the cap-and-trade program, and I told you that it was expected to require almost half of the work from cap-and-trade in the previous 2017 Scoping Plan, you need to model what you think business as usual emissions are going to be, given all of the other non-cap-and-trade policies. So what's the clean electricity policy, the vehicles policy? When you add that all up before you think about the effect of cap-and-trade, what does that all look like?

David Roberts

Right. So in other words, what is the remainder that cap-and-trade has to wipe up?

Danny Cullenward

If you just pretended we didn't have cap-and-trade, and you had a good model that could give you a crystal ball outlook for the emissions trajectory without cap-and-trade, these Scoping Plans, they say, "cap-and-trade will close the gap." You basically want to model what you've got without cap-and-trade, and whatever else you need to do, that's the role that's implicitly assigned to cap-and-trade. So if you model that, we can have a conversation about how big this needs to be. And so in the six pages, there's some discussion about, well, we've got a new scenario, a new version of that line for emissions, and it's lower, so we're not going to need as much from cap-and-trade.

David Roberts

So that's saying we're going to get more out of these conventional industrial policy policies than we thought.

Danny Cullenward

Yes. And to be clear, it's not like there's a bunch of new policies. There's a couple of things that have come online in the last few years, but it's not like they're proposing a bunch of new policies. They're sort of saying, "Since the last time we checked in, we have a few more policies, and the outlook looks pretty good." So that sounds like good news. And if it's true, it is. Vis-à-vis reducing the reliance on cap-and-trade. I want to flag, that does not fix the problem of having a lot of allowances when you want the program to cut emissions.

David Roberts

But the less work you're asking it to do ...

Danny Cullenward

The more manageable the problem becomes.

David Roberts

Right.

Danny Cullenward

So that sounds great. And so I decided, I download the spreadsheets because that's the kind of person I am. And I started looking at the spreadsheets, and I was like, "Something's not right here." And I pulled the inventory data, again, from the climate regulator. They say, "What's the pollution look like in our state from the climate side?" And the scenario that is being offered as evidence for we're doing better, our emissions are going to be lower, and so we're going to rely less on cap-and-trade. Don't worry.

That scenario is like 12, 15 all the way up to potentially 27 million tons per year lower than the actual inventory data where we have it. So the story is completely inconsistent with the regulator's own data, and it's worse. I dug into the sector-specific totals because you could imagine that the outlook for transportation is different post-pandemic. I work from home now, I didn't use it. No, the difference is in the building sector, which does not change, and the industrial sector.

David Roberts

Which is the one that's hardest to get at and slowest to change and has least policy aimed at it.

Danny Cullenward

So all the modeling in this plan is done with a proprietary analysis through consultants. There's not a lot of documentation, and on this scenario in particular, there's really nothing to clue us into what happened. So all I can do is sort of hold up a mirror and say that "the numbers are off." And the delta between the story and the inventory numbers is bigger than the purported improvement in 2030 that should make us comfortable that we don't have to worry about the cap-and-trade program anymore.

David Roberts

Right. The upshot of which is just that California is proposing to rely on cap-and-trade even more than it says it is, by a big chunk.

Danny Cullenward

I would summarize it slightly differently. We don't really know what's going on. Nothing has really changed in terms of the policy portfolio, and no one's proposing to make any changes now. The regulator, to their credit, they've said, "Hey, we're willing to have a conversation about the cap-and-trade program, we just like to have it next year." And so there's nothing here, and nobody's affirmatively changing. And it's not like the role is bigger, or something like that. It might be smaller, but we're still not having a conversation about "how do we more than triple our emission reductions, given a plan that relied about half on this program, and evidence that this program is not designed to perform in that way right now."

And again, for proponents, if you're somebody who wants to see this program play a bigger role and do a bigger job, you also know you got to think about a two-thirds vote in the legislature to extend it past 2030, which would fundamentally change the way you would answer those questions, right? If you're planning for 2030 versus for 2045 or 2050.

David Roberts

In retrospect, just making it ten years at a time was not great, was not smart, which Washington learned from. Before we move on to the other parts of the Scoping Plane, let's briefly talk about Washington, because Volts listeners will know that Washington has recently passed a whole raft of great clean energy and climate policies, a bunch of sector-specific stuff. But alongside that, Washington is proposing to create a cap-and-trade system more or less mirroring California's and to connect it to California's, to become part of California's market, which some folks might remember way back in the day when California was first setting up its market. This was always kind of the thought that it was going to be a big West Coast thing, that there were going to be all these players attached to California's market, but they sort of like dropped off one at a time, leaving California and Quebec now?

Danny Cullenward

That's right. Ontario later joined for a brief period

David Roberts

Very random, but then Ontario bailed too.

Danny Cullenward

But they're not there anymore. Yeah.

Right. So now it's California and Quebec, but Washington is proposing to join. So from my hometown point of view, the dysfunctions of California's cap-and-trade system very much matter for Washington. So spell that out a little bit. Like, what is the danger that Washington faces here?

There's a couple of things. So one thing to say is, again, there are a few sources of climate policy and climate institutional leadership at the subnational level in the United States. And California is one of the really big players in that space. And so even when people set out to do their own things, they often borrow or learn from and adapt various things we've done. So it's always important to think about what we're up to, not because we're the center of the universe, but because a lot of what's happening is either following or learning from things we're doing.

David Roberts

One of the reasons that smaller jurisdictions that come along and want to do something good on climate will copy California's work is that California, sort of legendarily, has a robust administrative capacity. One of our favorite subjects here at Volts, and specifically CARB is sort of unique. So maybe just say a quick word about why California ... ? What is it about California's system that enables it to put together these things out of scratch, such that other people sort of come along behind and want to copy it?

Danny Cullenward

I think that's exactly it. So we have large and reasonably well-sophisticated regulatory bodies in a number of spheres. And in fact, one of our problems is we have so many that coordination can be an important challenge. We'll come back to this actually because part of the flavor here is California — there was a debate when AB 32 was being set up in 2006. "Should we give one agency the quarterbacking role, the lead in all of this, or should we distribute it across agencies?" California went with the sort of quarterbacking model, where the Air Resources Board is primarily in charge of this, although, as we mentioned, a lot of the progress has been made in electricity. And you should be looking at our utilities regulator for that.

David Roberts

Yes, but it is worth saying that CARB is huge and powerful relative to virtually anything you find in almost any other state.

Danny Cullenward

Almost anywhere else. Right, exactly. And so there's scientists, there's engineers, there's lawyers, there's a big administrative capacity.

David Roberts

Which, like, Washington does not have, just doesn't have the size and money to replicate that.

Danny Cullenward

And that's exactly right. And so what's so interesting right now about subnational American politics is I think we're seeing much higher climate ambitions become popular at different times, and so you're seeing sort of higher watermarks for the level of policy goals and integrity. But many of the states, like Washington, where I would describe frankly, your current goals as better than California's, but you all don't have a regulator that has the same capacity. And so it's not just that people are looking for inspiration. Let me contrast this really quickly. California says, "Let's have a zero carbon electricity grid, a renewable portfolio standard with a technology-neutral back end. Let's amp that stuff up on steroids."

Many states have utility regulators that are capable and sophisticated enough to emulate those policies if they want so that policy can diffuse without worrying too much about institutional capacity.

David Roberts

Right.

Danny Cullenward

Not so with a cap-and-trade program, which is phenomenally complex. And I mean no disrespect to the regulators in Washington state, but there's just far fewer per capita in total. So the significance of this is that you literally need essentially hegemonic, regulatory actors to govern these systems. And this is the opposite — you and I've talked a little bit about the East Coast states and their cap-and-trade program called RGGi, where they're fairly egalitarian, and everybody sort of cooperates on an equal basis. This is really a centralized infrastructure that California is the biggest market by far.

The size of your emissions footprint is less than a 6th of our market. So you are a smaller player in economic terms. And that means both the capacity difference between the two states and the relative economic importance of our decisions and situation have enormous influence over whatever you all decide you want to do.

David Roberts

Right. Washington doesn't have the administrative capacity to cook up a system like this from scratch. But does it have the administrative capacity even to manage a mirror of California's?

Danny Cullenward

I don't want to comment directly on that because I don't think there's any reason to doubt it. And I also personally couldn't run one of these by myself, so I don't want to sort of stick myself in their shoes. Look, copying the DNA of the structure of the market should be feasible. The system is called the Western Climate Initiative, and there's actually a private corporation called WCI Inc that runs a lot of the things, like the auction platform, the various mechanics and pieces of this. Those are services that can be contracted for reasonable costs.

So I think there's a case to be made that a lot of this can be done. The question is, do people want to design around a common program? Do they want to design around similar programs that are managed separately? And there's a lot of politics that go into that. I don't think that administrative capacity is necessarily the biggest problem. I would not say it would be fair to say out of whole cloth, with no example to learn from, could the relatively small Washington Department of Ecology stand up a program completely on their own? In a vacuum, that would be a much bigger lift. But the question of what might they design, given the example, experience, text and operating experience of all of the different players, including California, that have worked with these systems, I think is very different.

David Roberts

Right. So then let's get back to the substance, which is if California's program is flooded, is oversupplied with allowances such that it has this incredible slack in it, what is the danger for Washington if it hooks up with that program?

Danny Cullenward

So the danger is that there are potentially too many allowances here, such that — if Washington were to design a strict standalone cap-and-trade program, it would be a more robust program. It would almost certainly have higher prices. And so if you're a regulated industry in Washington, you're probably pretty pro-market link because that means you can hook into our market and try and buy some of those surplus allowances which will tend to raise our prices, but will tend to depress the prices up in Washington, so it'd have the political benefit of reducing prices. It would have the environmental consequence of potentially our excess allowances, rendering your program unable to meet your own goals, depending on how carefully those issues are balanced.

And that's why this link issue, which I want to be very careful not to prejudge, it's so complicated because the design questions all interact with the decision around, "do you link to California, and does California either reform or extend its program or not?"

David Roberts

Right. And is the size of Washington's market enough to materially impact that level of oversupply, or are we kind of a drop in the bucket there?

Danny Cullenward

It's a great question. I've seen some initial efforts to start to model the program, but I haven't seen anybody directly grapple with that question. So given several hundred million surplus allowances and statewide emissions on the neighborhood of 60 million tons per year up there, what kinds of deltas and credit flows would lead to consistent outcomes or inconsistent outcomes? I get the sense people are studying that privately, but I haven't seen a lot of good public-facing analysis on that.

David Roberts

Right. So the danger here is just Washington replicates California's system, and then thereby inadvertently replicates California's inability to hit its target because of the weak cap-and-trade system.

Danny Cullenward

Yes. So that's the climate nightmare. And then the super cynical, scary version of this is, "Isn't this better than nothing?" And I think the answer to that question is still, "Yes." So where in that spectrum of better than nothing and actually on track with what we're all trying to do, can we land this thing?

David Roberts

That's where the whole climate space lives, isn't it? That delta between what we ought to do and what we can do.

Danny Cullenward

Yeah.

David Roberts

What's better than nothing versus what's needed?

Danny Cullenward

And I think what's so complicated about this is, like, we've probably lost two-thirds of your listeners just talking about cap-and-trade. And here you actually have to get this far. We're almost to the point you're going to have a conversation about what your opinion should be about this.

David Roberts

Right.

Danny Cullenward

And that's really different than, like, I would like 100% clean electricity or zero-emission vehicles. Where putting aside the fact we've had a lot of problems trying to actually do that well and robustly and in a big tent fashion, it's a lot easier to tell a regular person who's motivated to fix climate what direction they should be pushing in here.

David Roberts

Right. Or just more EVs?

Danny Cullenward

Like EV good, clean energy, good.

David Roberts

Yeah, exactly. These sectoral policies are very sellable or explicable in a way that cap-and-trade is not.

Danny Cullenward

Yeah, and again, I think if we were orienting this conversation around, trying to have a more honest conversation about what are the options and the consequences, it might be easier to do some of that. And part of what we're dealing with right now is just the complete inability to just speak plainly about what's going on, which only makes it harder to have the sort of pro-climate conversation.

David Roberts

Right. So now that we've lost two-thirds of listeners, let's leave behind cap-and-trade momentarily and talk about the rest of this Scoping Plan. Returning to the Scoping Plan, so there's 200 pages of it. Six of those pages deal with the looming 2030 deadline, for which the state is not on track. So then there's all the rest of it. So a lot of the rest of the Scoping Plan turns to this aspirational 2045 target of carbon neutrality. And it proposes to get to carbon neutrality not exclusively, but a big chunk of getting to carbon neutrality in 2045 it proposes to do via carbon dioxide removal, CDR.

So tell us a little bit about the scale of CDR that is being sort of proposed here in this Scoping Plan.

Danny Cullenward

So carbon dioxide removal is a very scary monster that is coming to take your children away, and you should — I'm joking because it's this ... I've been working on carbon dioxide removal pretty hard for the last couple of years and people say, "why are you wasting your time on that? We need to cut emissions and deploy solar and wind and efficiency and storage and EVs and build the national grid." Those things are all true. But one of the reasons I focus on it is because it's like this perfect prism for refracting all of climate politics into its factional squabbles.

And I want to again say two things that are almost the polar opposite of one another and both true. There's almost nothing that exists today that's real, that's permanent, that's delivering carbon storage that is even remotely comparable to the atmospheric and oceanic consequences of burning fossil fuels.

David Roberts

Yes.

Danny Cullenward

And we're also going to need way more than, I think, easily a gigaton per year globally by mid-century. We can spend too much time fighting about those numbers. But it needs to get very big very quickly from approximately zero, which applies a very big scaling. And so you can look at any long-term net zero plan and say, "There's none of this, it can't possibly be real to rely on any of these carbon removal technologies," which I think is a huge overreach. And you can also look at these kinds of plans and say, "Wow, you're relying so heavily on an idea."

David Roberts

Yeah, theoretical future technology.

Why are you not making equally heroic assumptions about cutting emissions and doing other things right?

Or about the falling prices of solar or the falling prices of batteries? Like, if you want to get your heroic assumptions in there, why not make heroic assumptions about the stuff that's actually reducing emissions?

Danny Cullenward

So if I told you that somebody and a big important player had put out a plan that relies, pretty substantially, for almost a quarter of its net zero goal, on a sort of speculative set of technologies with no detail on what they are, how to deploy them, and was taking no near=term action and deferring this conversation on the basis of some incomplete modeling, you'd say, "that sounds like an oil company." And it also sounds like, I want to be really clear, I want this to be better, but it's also a perfectly fair description of the draft Scoping Plan. So we have here, these are numbers that I think are meaningless to people who aren't in net zero land, but we've got some pretty massive reliance on carbon removal, maybe up to 100 million tons per year assumed by 2045.

That equates to something on the order of a 75%/25% split. We're about 75% reductions in emissions and about 25% carbon removal to get us to net zero. Just to compare this, when people talk about net zero, the state of New York has codified a 2050 climate goal that says at least 85% reduction, so higher than our 75%.

David Roberts

Is it also proposing to mop-up the remainder with CDR? Like, is there a little bit of CDR mop up in all these state ambitions?

Danny Cullenward

Yeah. And this is part of I mean, again, if you think about this from a physical climate science perspective, we don't know how to get everything to zero.

David Roberts

Yeah, right.

Danny Cullenward

And even just N2O emissions from the agricultural sector, that alone is reason enough to think about carbon removal. So yes, there's always going to be some, and we need to rip that band-aid off and stop being scared of it. We also need to be able to say that and say when is way too much.

David Roberts

Right? You want a goldilocks amount of CDR in your long-term plan? Not none, but not too much. So New York has very little, it's going 85% reductions at least in 15% remainder by 2050.

Danny Cullenward

The California legislation that tried to codify our 2045 net-zero goal would have said at least 90%, 9-0. And your state, Washington, has a codification of at least 95%. So compare that to the approximately 75%, 76% that's in the preferred scenario. And that should give you some sense. Like this is not aiming for the moon. In fact, this is airing pretty heavily on not cleaning up the mess first.

David Roberts

Right. So ironically, Washington and New York have more ambitious emission reduction goals, long term-emission reduction goals than California. California's is commensurately lower emission reductions and commensurately much higher reliance on CDR.

Danny Cullenward

At least in this draft plan. Yes.

David Roberts

I guess I just want to know why. Because if Washington's setting this goal and New York setting this goal and all these states are coming along setting these goals, I mean, they feel confident that the technology will be there for those things, or at least see a pathway to those technologies. Why is California ending up the most cautious in its long-term plan? Just like, what explains that?

Danny Cullenward

So I don't want to over-index on the outcome because I think, first of all, it's hard. And I think anybody who's closer to putting pen to paper, and where the rubber meets the road, is going to run into challenges that these bills, which are just sort of codifying targets, haven't had to fully address. So I want to, on the one hand, defend the challenge here, and on the other hand, the reason that the number comes out so much different in California is that the California regulator literally did not include a scenario that resembles any of those others. So they didn't even look at, like, "Well, what if we tried to get to where Washington wants to go or New York wants to go?" And they could say, "Oh, we looked at it, and here's why it's not so good."

And we could have a conversation there. But just sort of like reforming the cap-and-trade program, they didn't talk about about it.

David Roberts

So there's no sort of numerical or analytical explanation for why they didn't do this. There's no modeling of an alternative scenario where there are higher emission reductions.

Danny Cullenward

There are four scenarios that are studied, alternatives one through four. The first two alternatives look at a 2035 net zero target, which is we can get into this if you want, but is so aggressive. It's, I think, not a realistic conversation. And I worry.

David Roberts

That's a little weird. That they like why they do that.

Danny Cullenward

Well, I worry that this is kind of the cynical versions of your Goldilocks story because they picked a scenario that's right in the middle, by choosing a couple of scenarios that realistically nobody was going to implement.

David Roberts

You choose your ends and you can determine what your middle looks like, right.

Danny Cullenward

And Alternative 4, the one, they didn't pick, they picked Alternative 3 in the draft. Alternative 4 has even more carbon dioxide removal and even fewer emission reductions at the end. So they didn't study a 2045 target that resembles the New York, the Washington, or even the proposed legislative California version. So they just literally didn't look. And that's an area where, again, I should mention that the posture of this document this is drafted by staff after a series of public engagement opportunities. It will go before the board of the Air Resources Board, which is the politically appointed decision makers who oversee the staff.

And it's one of the things the board could say is "Hey, why don't you include a new alternative or modify one of your alternatives, so that it looks like one of the other climate leaders that's out there?"

David Roberts

So California has released a Scoping Plan that says very little about the 2030 target, despite the fact that there are extremely well-documented concerns, about whether that 2030 target is in reach or whether current policy can get there. Says virtually nothing about that. Then says about the 2045 target kind of this other magic asterisk, like, we'll get 75% of the way there, and then CDR will do the rest. When we talked earlier, you sort of made this point that, in a sense, CDR is playing the same role for the 2045 target that the cap-and-trade program is playing for the 2030 target, i.e. it's just sort of like hand waving away the remainder without a very close look at how it's supposed to happen.

So it seems like this is not a solid basis upon which California can launch its extremely ambitious coming years, crucial coming years. It seems like this needs revising. It seems like what you'd want is a beefed-up consideration of 2030, and at least an effort to model greater emission reductions, through 2045, rather than so much CDR. So let's just talk a little bit then about the sort of mechanics here. This is a draft Scoping Plan. There's going to be a public review comment process, and then what happens?

In other words, if Californians of goodwill want this to be revised and improved, what should they do, and what is the hope, and who has the power to cause it to be revised? How would it all work?

Danny Cullenward

I think I'm supposed to say vote in November. Isn't that the standard answer to all?

David Roberts

Get out and vote!

Danny Cullenward

Get out and vote.

David Roberts

Oh my God.

Danny Cullenward

Well, I mean, if you're concerned about these issues, there is a public comment period open. You can quickly Google the California Air Resources Board 2022 Scoping Plan. You should find information about that pretty quickly. But the process here is that for the next several weeks into sometime in mid, late June, the comment period will be open. And then at that point the board will hear the program, they'll hear from the staff about what's in the proposal, they'll start to review feedback, and a number of things could happen. So the staff have indicated that they want to see a vote on this program by the end of the year, to clear this up and move on to the next priorities.

In theory, the board could say, "Hey, we've heard some concerns here. We think some of these concerns are well founded. We'd like you to go back," and, for example, include a scenario that talks about deeper emission reductions by 2045, or include more than six pages on 2030. Or align your planning, say, of the electricity sector to some really great work that's ongoing joint between CARB and the Public Utilities Commissioner and the Energy Commission, where they're trying to grapple, I think, in much more technical detail, with how to actually develop a clean grid that builds out the energy needs we need as we electrify everything.

So maybe instead of assuming we should expand our gas capacity, which is what the draft plan proposes, maybe we should think about the more careful modeling to figure out what likely gas prices are going to be in a world that has a war with Ukraine. And does it make sense to build that out right now or not? So the board could provide direction to the staff to revisit.

David Roberts

So the board has the power to say to CARB staff, "Go take another whack at this with these specific things in mind." It has the authority to do that.

Danny Cullenward

Yes, they have the authority to do that, that's for sure. And the plan doesn't become final until the board votes on it. And so I think the board's reaction to what happens in the next several weeks, month or two, is going to be really important as to whether this thing gets kind of rubber stamped or there's a chance to align it.

David Roberts

And if you were God King of the CARB board, are those the two specific things you would tell them? a. tell me something about 2030. Please reassure me about 2030. And then second, model more emission reductions through 2040. Are those the two big things, or are there other things you would instruct them to do?

Danny Cullenward

I think those are two of the really important things. The third, I might add, is the one I mentioned about let's really plug into the detailed modeling work that's trying to ask what that zero carbon grid should look like, because that may be more robust than what we're doing. That may be a way to help us get to the lower emission scenario. But I think those are two or three concrete actions that, they don't require you to invent a new plan out of whole cloth, but I think they'd be really constructive. I'll be honest, the 2030 question is so hard because we spent five years not talking about it.

And that was frankly, one of the lowest moments for me as a professional is realizing when that deal was done, we were going to lose five years because the technical people could see the consequences, and it would take a long time before they manifest, and now the problem has gotten harder, not easier. So I don't know how to solve that.

David Roberts

And if you complain back then, you're supposed to let it play out. And like you said earlier, industry can just come in and say, "No we settled this." Right? Like if you're going in and pushing for reforms during those five years, industry just comes in and says, "no we settled this. We got the cap-and-trade thing in place, we don't need any more of this stuff." So it not only sort of you not only go quiet about cap-and-trade, you end up suppressing discussion of other stuff too.

Danny Cullenward

And this is why it's really important for other people to pay attention because — I'm glad we still have a cap-and-trade program. I'm going to try and upset everybody here, like, it's good we have one, it's better than nothing. We can make it stronger. It can play an important role. I don't think it can ever play the idealized role that some academics think it should and industry proponents cynically use to manipulate to their political advantage. But I also think the sort of emerging Leftist critique that all markets are bad and everything is evil is not particularly helpful on this either.

Although I also want to recognize, like when I talk to my friends in the environmental justice community, they are the ones who bear the brunt of people saying, "cap-and-trade solve this problem."

David Roberts

Right.

Danny Cullenward

And that's real.

David Roberts

Because those refineries that the local air pollution authorities are now no longer allowed to regulate because of cap-and-trade are located in those communities.

Danny Cullenward

Yeah, when it comes to CO2, they can no longer regulate them. That's right. So we've shifted so much attention away from air quality to climate, which is good for climate and if we could use climate policy to solve both problems it'd be a win for everybody. But the practical reality on the ground is when we say cap-and-trade will do more than it's capable of doing politically, we sacrifice both the climate impacts and the political priorities of disempowered communities, who basically don't get the airtime and nobody's talking about the local pollution permitting.

David Roberts

California has a large and robust environmental justice movement. Are they losing their minds in response to the Scoping Plan? Because it really seems like their nightmare for CDR to be given this giant role and for cap-and-trade to be utterly unreformed. It just seems like, are they on the war-path about this?

Danny Cullenward

So I want to let the environmental justice community speak for itself on this. But I think talking to them I learned something a long time ago. You might remember the first time we worked together was when you were covering some of my research on how these electricity imports, letting our coal imports out of the cap-and-trade program, sort of shedding liability. It was called resource shuffling. And it was kind of an inside deal to make it easier to meet our targets and potentially lose some outcomes. And I went from being somebody who was fairly welcome on the inside of these policy conversations to being told to take a hike.

And I looked around and I realized it was me and the EJ folks. And I stopped for a minute and I listened. And I don't mean that I'm like some woke, White climate guy who gets all this, but I mean, I actually listened to what are they saying. And it has been striking for all of the criticism that EJ groups get about being technically unsophisticated about issues X, Y, or Z. There's no question if you compare a community group against the world's leading chemical engineer, that the chemical engineer will have more particular things to say about carbon removal.

But time and time again, they're noticing process flaws that are designed to shunt the conversation to particular political outcomes. And they were the first people in the early part of the Scoping Plan process to say, "We can't get anybody to disclose the modeling assumptions. We don't have the capacity to review them or the time. They've given us three weeks to respond to basically the draft technical analysis, and we can't discourage the assumptions."

David Roberts

Well, if there's any community in the US that has good reason to be alert to procedural shenanigans, retrofitted to achieve particular political ends, it's them.

Danny Cullenward

But I think we've ignored that in this broader conversation. And I'm doing my part to listen, including when they say things that are totally counterintuitive because sometimes it turns out they figured it all out. And I'm just really struck by that. I mean, I worked — very recently, there was a story that came out yesterday on the role of dairy digesters and the low-carbon fuel standard that Jessica Foo wrote for Grist. And it was this phenomenally complex piece of reporting. She brought me all these moving parts, and I read u,p and I was trying to follow her at every twist and turn.

And it turns out, the EJ groups had fully documented it in comment letters weeks before I had come to it. And the number of times that happens, and it's not, like, visible in the elite, technocratic circles, is really striking. And I think, I think that's something to reflect on, and also to let the EJ groups speak for themselves. They have an advisory committee that has public positions they're developing on this, and we should take a listen.

David Roberts

Yeah, it'll be interesting when they come out with something. I can only imagine. So what do we know about the, in terms of what you can say maybe publicly, but what do we know about the CARB board and its political sort of orientation? Is there appetite for reform of the kinds you're talking about on the board?

Danny Cullenward

I'm hopeful. You know, that's ultimately a question for for the board members to decide for themselves. But but I think what's been kind of interesting is that you know that the previous chair of the Air Resources Board, Mary Nichols, is is a singular figure in climate policy history. And I think it's fair to say, during her second tour of duty as board chair under Governor Schwarzenegger and Brown, she had a fairly clear sense of what she wanted to do. And the agency moved ... there was a very clear sense of cohesion around that. And in some respects, the staff are many of the same individuals from that era.

But there's a different board, there's a different board chair, and a number of the newer board members have a strong either progressive climate or environmental justice orientation. So they need to decide what it is they want to do and why. And it's not for me to speak for them, but I do think there are different board members now than there were five or ten years ago, and that tension is there.

David Roberts

If there were a time to sort of try to insert into the process and change the course CARB is on, the sort of Nichols path-dependent course it's on, it would be now, right? I mean, this would be the time to do it.

Danny Cullenward

I don't want to make it into it like a personality issue. I think the main point I was trying to suggest is that for an outside observer to talk about CARB as a fairly singular entity. That was a sensible description of seven years ago. And I do think that there are important voices that are emerging on the board that may be different sometimes than what staff want and potentially more aligned with other stakeholder groups on the outside. I think that's a good thing as it relates to the possibility to improve the outcome here and not simply set up ...

My big worry is we'll have a non-binding plan for net zero, that will sort of socialize a very heavy reliance on carbon removal, that will socialize not cutting as many emission reductions as we want, and declares, sort of in passing, that 2030 is solved. And now, does it matter if there's a non-binding plan to that effect? You could say, "Oh, it's just a non=binding plan." Well, what happens when somebody brings that to the utility regulator and says, "Why are you guys pushing this hard? Here's this plan to do even more than you're doing? Says we're fine."

And I just worry that people underestimate the impact for those sorts of things, and I worry it will underestimate our credibility for doing real actions. And I just want to highlight maybe a couple of things that are going on in the state since we've been really critical.

David Roberts

But let me just jump in here. Yes, this is my final wrap-up question, and you've touched on it in a number of ways running up to now, but sort of as you said at the very beginning, as we both said, California is kind of the 800-pound gorilla in the state climate game. And anyone who's paying attention to national politics knows that, once again, here we are saying, "Oh, we're going to go to the States. The federal government is going to be lost to us. There's going to be no progress at the federal level. We're going to have to do this at the States."

Just real deja vu of this conversation. So if that's true, California is the big state actor, the one with sort of historically the most ambitions, with the most administrative capacity to make plans and form policies. So just talk a little bit about the implications here of California's success or failure on this larger kind of go-back-to-the-states strategy.

Danny Cullenward

So obviously we need to push at all levels. So I don't want to say, "Oh, the states are going to take care of it," because it's not enough, and nothing's ever enough. But we've got the best of times and the worst of times. I think you can point to some things that are really not working, and I do that a lot because when they get copied, it screws up other things as well. We're also doing a bunch of things that are working, and I think it's important to think about those. I think the potential to go deep on individual sector policies. CARB continues to be, that the Air Resources Board continues to be one of the most important vehicle regulators in the world, and we need to be really thoughtful about that as an important focus.

David Roberts

Enormously influential, right? I mean, whatever, a dozen states follow along?

Danny Cullenward

More than that, I think, yeah, it's the only state that can set stricter emission standards for mobile sources than the federal government. And, of course, the Right-wing legal machine will attack that, and we will have to defend that. But that continues to be an important area. We really did launch the first large-scale, 100% clean electricity policy, our SB 100 bill, that many states have now copied, and that's been profoundly beneficial. And we have many sector-specific policies, whether it's trying to organize offshore wind, trying to think about the buildout of clean electricity and accelerate the pace of grid deployment and clean energy deployment.

There's a lot of efforts to push that further in the legislature and in the administrative branches. And we have right now a massive budget surplus, a good chunk of which the governor is very intentionally directing, and explicitly directing around climate priorities, many of which are great. So you can see everything when you look at us. And the thing that worries me is we have sold the story that we figured it all out, rather than we're one of the places that is doing the most to figure it out. And we will have some wins and some losses, and people who copy us uncritically will miss that.

NGOs, who promote simplistic tales of what we've done, will sell the wrong story to other people and will also miss the opportunities to move forward in this state. So I'm actually pretty hopeful that there's a lot of great things going on. But as always, fixing the cap-and-trade program is one of the hardest ones, and I still continue to try and do it.

David Roberts

Yeah. And the flip side of cap-and-trade maybe being weaker or more flawed, than is understood outside the state, or even understood within the state. The flip side of that is just the extraordinary success and power of these sectoral policies. And this is sort of conventional wisdom, maybe more so a couple of decades ago, but the sort of conventional wisdom in US policy circles is that, "oh, we're trying to move away from command and control," overly intrusive this and that to market-based policies that are less smaller government hand. All this very conventional wisdom. I just feel like it's so important for people who are following the actual unfolding of policy and the unfolding of emission reductions in the US to just say aloud, again and again, it is these old-fashioned sectoral policies that are the workhorses, that are working, that have proven track records at this point.

Danny Cullenward

Yeah. I mean, if you're an industry that's, that's trying to get started, like, we, many of us want to start the offshore wind industry in California, that's a very good thing. You need typically legislation, you need regulatory coordination. You see that the interest in geothermal development and lithium mining down in the Salton Sea area. It's not a surprise that you see new industries that are trying to create themselves, and create the infrastructure around themselves, working directly with the government to figure that out. And of course it's going to take a lot of private capital and a private sector interest to do that.

But it is not a surprise that there's a coordinating role for the government in that work.

David Roberts

Right. And there's more to it than just turning up the carbon price dial and hoping for the best.

Danny Cullenward

Yeah. And again, I'm not here to say don't do any of that stuff. It's better to have one than to not have one. And the key thing is to realize that it's really hard to turn that dial, and there's reasons not to, especially around affordability, rely on it too much. So tell me where you want that price to be and design a program to get you there. It could be a tax, it could be a cap-and-trade program that's well designed to get you to a particular set of outcomes, and then rely on it for that boost, for the revenue it brings in, for the little kick it gives to all the sectors it covers.

If you rely on it to be this magical thing that will deliver at low cost whatever you need, no matter when you need it, you won't get it. Just like if you assume carbon removal will mop up all of your problems, it will fail.

David Roberts

Right.

Danny Cullenward

You need to build it to be the thing that you want it to be and not rely on it as a crutch. So, again, I'm not here to say, "get rid of it, or Washington shouldn't have a cap-and-trade program." What I'm saying is Washington is proposing to adopt California's forest offset protocols into its cap-and-trade program. So all of the widely documented problems in our protocols are planning to be replicated. Why?

David Roberts

Right. So just a more discerning eye in terms of picking apart what's working and what's not working. Okay, well, this is super educational.

Danny Cullenward

Eat your veggies.

David Roberts

Yeah. Eat your veggies. And I think it's helpful, I think, to get it out there, because things tend to descend into sloganeering. So I think it's good to get it out there that California is both kicking ass and falling short, like, both doing a lot and really not prepared to accomplish all it says it want to accomplish. We can hold both those thoughts in our heads.

Danny Cullenward

Yes. And let's not forget, it's really hard to do any of this, and you need experts to do it. And we got to remember, some institutions are really good at some things, and some things are challenging to some institutions, and we can't lose sight of that administrative capacity issue.

David Roberts

Yes.

Danny Cullenward

It's at the heart of all of this. You can't just say, "oh, industrial policy, but I don't actually have a public sector," that doesn't work. Right. You can't say, "cap-and-trade, and I have a monstrous team that's ready to — oh, I don't have a monstrous team. I have a very small team that's going to need to be a taker on a lot of the details." Those are very different strategic considerations.

David Roberts

Right. Alright, well, thank you so much for this. This is really clarifying, and maybe we'll do it again in five years when the 2027 Scoping Plan comes out.

Danny Cullenward

And we talk about — yeah, yeah. That'd be fun. Thanks for having me back on. I really appreciate it.

David Roberts

Awesome. Thanks, Danny.

Danny Cullenward

Cheers.

David Roberts

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