With election on horizon, new extension of Calif.’s cap and trade program remains uncertain

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The California legislature last Friday failed to approve language to extend the state’s Cap and Trade program beyond its current 2020 expiration. The self-imposed deadline was intended to take advantage of Assembly member Jimmy Gomez’ presence before he was sworn in to replace now-Attorney General Xavier Becerra in the US House of Representatives on July 11.  Governor Jerry Brown had presented a compromise plan earlier in the week but the proposal was regarded unfavorably by nearly every party, and many close to the issue believed that language was designed to help identify the truly significant issues still remaining on both sides of the argument.

In 2010 California voters enacted Proposition 26, sponsored by the California Chamber of Commerce and others, which more stringently defined what constitutes a “tax” and therefor requires a two-thirds vote of the legislature. Based on the language of Prop 26 any extensions of the state’s Cap and Trade program will require a two-thirds vote and therein lies the problem.

While Democrats held 54 of the 80 seats in the Assembly – exactly what’s needed for the Cap and Trade extension to pass – the legislature now needs Republican votes because, with Gomez’ departure last week, the Democrats no longer hold a two-thirds majority. On top of that, the progressive Democrats and moderate wing of the party cannot agree on the terms of the extension.  It is believed that a coalition of moderate Democrats and central leaning Republicans will be needed to satisfy both industry and the environmental communities.

Now that the pressure of the Gomez departure has been lifted, the legislature has until the beginning of Interim Study Recess on September 15 to achieve a resolution. Any extension will require new regulations that will take 18-24 months to promulgate, and next year is an election year, a time when risky, controversial votes don’t come easy.

Time will tell if in the next two months the legislature can come to agreement on the details of a program that is supported in broad strokes by both environmental groups and industry.