The Heat is On

Mary Nichols, chairwoman of the California Air Resources Board, on engaging the business community to go greener

Back Q&A Feb 13, 2017 By Rich Ehisen

As head of the California Air Resources Board for the last decade, Mary Nichols is considered the second most powerful person — after Gov. Jerry Brown — in the state’s wide-reaching efforts to combat climate change. It is an effort state officials have vowed to continue despite the election of President Donald Trump, a climate change denier. We sat down with Nichols to talk about curbing GHG emissions and the agency’s relationship with California’s business community.

“People who start or expand businesses here do it with the full knowledge that this state has very stringent environmental requirements, and many businesses have actually come here because of that.”

The historic law that really kickstarted California’s emissions-reduction effort, AB 32 (the Global Warming Solutions Act), turned 10 last fall. That decade has been marked by much contention between the business community and CARB.  How would you assess that relationship today?

We have a relationship with almost every sector of the economy here because AB 32’s programs [such as cap and trade, fuel mileage standards and target goals for electric vehicles] are so widespread and have touched almost anybody who has done business in California. People who start or expand businesses here do it with the full knowledge that this state has very stringent environmental requirements, and many businesses have actually come here because of that. We have created a class of entrepreneurs, if you will, as a result of our regulations. People in the alternative fuel business or who have developed more efficient building products and technologies are actually beneficiaries of California’s regulatory structure. When I, or members of my board, go out into the public, and particularly when we meet with some of the smaller Chambers of Commerce or groups that are working in these particular areas and engage with them, there is a lot of support for what we’re trying to do. That doesn’t mean people aren’t critical of us because they definitely are, especially if they think our regulations require too much paperwork or intrude too much on the way they do business. But when it comes to the overall climate program itself, there’s really only one sector in the economy that remains adamantly opposed to everything we’re doing, and that’s the oil and gas industry. Because what they do is inherently in conflict with our goals. There’s just no way to look at it differently. As long as they’re in the business of producing and refining petroleum, they’re going to be in our sights in one way or another, so we do have a complicated relationship with them. But overall it’s been a respectful relationship.

We’re a long way from a final legal resolution on the state’s cap-and-trade program. What would happen if the program were to cease functioning? There would be a significant loss of state revenue, correct?

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Before we talk about it going away, we should talk about what it is, because cap and trade is only one piece of the total GHG-reduction effort. It is only responsible for a little less than 20 percent of the actual emissions reductions we’re trying to achieve. And while it is a unique program, cap and trade was not designed as a revenue generator. In fact, we give away over 80 percent of the allowances created by the program. So the revenue cap and trade generates is actually just a small subset of all of the economic value created statewide as a result of the reduction plan. But yes, based on what we estimated for what we would be getting out of these allowances that we do auction, we’re talking about billions of dollars the state would lose. So yes, there is a loss of revenue if the program goes away. That revenue could be made up if we were to substitute a carbon tax, which is one of the alternatives that people have been talking about. It would take a two-thirds vote in the legislature.

Would our lawmakers ever pass a carbon tax, and is that better than cap and trade?

Our legislature does sometimes pass a tax if they think it can do something that people will ultimately like, and especially if it can replace some other source of revenue that’s even less popular. So a lot of the ideas around a carbon tax are tied to eliminating taxes that might be more of a drain on the economy. However, as we are today in California, the people opposed to cap and trade would be equally if not more opposed to a carbon tax. So I’m not sure whether that would be a very viable political approach to take. Our analysis, at least so far, has also shown that a cap and trade program is probably the most cost-effective way for the given amount of greenhouse gas emissions we’re trying to get out of the environment.

There has been great concern from some that the cap-and-trade program has failed to adequately address the concerns of poor communities, where many of the worst polluting factories and power plants are located. What’s your perspective and what can be done?

Infographic: California Tackles Greenhouse Gases

A cap-and-trade program in theory should not make that situation worse — because if a company has to buy a bunch of allowances to keep running an old dirty facility located in a disadvantaged community, versus investing that same amount of money in a newer, cleaner facility that could accomplish the same result, they’ll disproportionately put their money in the newer, cleaner facilities. That’s the economic theory, and I think it’s probably true. But as with a lot of those things, it’s true only up to a point. The reality is that when we put this program into effect, the economy was down and there were facilities operating at quite a bit less than their permitted levels. As the economy came back after the recession, some facilities have increased their level of activity and have actually been able to legally increase their emissions not just of CO2, which isn’t a neighborhood-level pollutant, but of sulfur dioxide or nitrogen oxide or particulates as well. It was legal under their local air district permits, but not something the community wants. Of course what people really want to see is reductions from these facilities, and there’s nothing in the cap-and-trade program that is pushing [these specific facilities] in that direction. So as we go about developing our new scoping plan under SB 32 [2016 legislation that extends the state’s GHG-reduction goals to 2030] we’re looking at how to address this problem. We could put additional requirements on those facilities so if they are going to participate in the program and engage in trading, they would also be required to do some additional clean-up of those facilities so there’s a net benefit in the communities they’re located in. Because we’re completely in agreement that this needs to be addressed. We’re just trying to figure out how to accomplish all these good things at the same time.

Some have suggested that the State of California use its immense buying power to force those we buy products from to ensure their products are made as ‘cleanly as possible.’ What’s your stance on this?

It’s viable but it is also a lot of work to implement. We looked a few years ago at the idea of a certification program for products that would need to be life-cycle oriented. You can’t just look at the end use — you have to look at every piece that contributed to it, from the sourcing of the raw materials to the manufacturing to the disposal. We have, for example, worked with the Department of General Services on rules for acquisition of vehicles, and in that one area alone we’ve spent a lot of time on how to construct not only the purchase specs and the kind of things they want built for them, but also things like charging stations for electric vehicles. It’s a big project, but I do believe that in the long run, to get to the kinds of really deep decarbonization that we need, we have to be thinking that way. It just requires a whole lot of people with expertise that goes way beyond anything any single agency could do. But I think you could pick a few specific products, and do it as a demonstration effort. The big area of multiplication is if we can do something like appliance standards, which would apply to a product like air conditioners that the state might install in any buildings it owns, which then gets the industry to make those for everybody so you get the private sector involved as well. 

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