Gov. Gavin Newsom is asking the Legislature to extend California’s landmark cap-and-trade program beyond its 2030 sunset to run through 2045. Farm and businesses groups applaud the proposal but warn lawmakers against inserting environmental justice reforms that could raise food, energy and fuel costs.

Extending cap-and-trade this year without significant structural changes, Newsom reasons, would add market certainty to participating businesses that must set plans now for their long-term investments. Newsom has emphasized that message by renaming the program Cap-and-Invest.

The California Chamber of Commerce and the California Manufacturers & Technology Association immediately backed Newsom’s proposal.

“This program has generated nearly $33 billion in investments over the past decade and remains a vital tool in advancing the state’s climate objectives,” said CMTA President & CEO Lance Hastings in a statement following the announcement. “Extending it will reinforce California’s global climate leadership, provide long-term market certainty, and foster sustained private investment, aligning key components in achieving carbon neutrality by 2045.”

CalChamber CEO Jennifer Barrera added that the program “includes the kind of flexibility that ensures industries continue to grow in California and supports emerging technologies, which drive California’s economy.”

Several groups representing dairies, farmers and winemakers have joined the call for a clean reauthorization. In a letter to the governor and legislative leaders last week, the business coalition lauded the program for helping the state “decarbonize without draconian mandates.”

In a statement to Agri-Pulse, Michael Boccadoro, executive director of Dairy Cares and the Agricultural Energy Consumers Association, explained the ramifications for rural interests.

“California’s farm families support an affordable cap-and-trade reauthorization as proposed by Governor Newsom,” said Boccadoro. “Any affordable plan must fully fund climate-smart agricultural programs that provide cost-effective emission reductions, protect rural economies and ensure affordable food and fuel for all Californians.”

How cap-and-trade impacts agriculture

Farmer-owned food processors are among the roughly 400 facilities that account for the bulk of the state’s greenhouse gas emissions and are subject to the carbon cap. To prevent passing significant costs on to consumers and to avoid incentivizing companies to shift production — and the emissions — out of state, the California Air Resources Board issues a limited number of emission allowances each year to the facilities. About half are free and the rest sold at auctions, with the revenues, adding up to around $4 billion annually, financing climate grants to promote soil health practices, efficient energy and water technologies at farms and food processors, and upgrading tractors and other equipment to low-emission models, among around 90 programs in all.

Dairies investing in costly anaerobic digesters, which can convert biogas to renewable energy, have benefited from the matching grants as well as from offset credits sold on the cap-and-trade market.

That support has been critical in achieving the state’s goal of reducing methane emissions 40% below 2013 levels by 2030. Dairy Cares, which has led the industry’s sustainability drive, announced Tuesday the sector has hit a major milestone by achieving an annual reduction of 5 million metric tons of methane, putting it more than two-thirds of the way to reaching the 2030 target.

But the dairy industry worries about the potential setbacks from dwindling state support for digesters. Bracing for a $12 billion budget shortfall, Newsom plans to shift more of the state’s general costs to the Greenhouse Gas Reduction Fund, which houses the revenues. The governor’s revised budget plan released last week would move $1.5 billion to the GGRF pot to cover ongoing firefighting expenses for wildfires, and it would continue to set aside $1 billion for high-speed rail. The administration proposes to eliminate climate-smart agriculture funding, along with all other discretionary spending in the GGRF. The budget proposal does not clarify allocations for the Sustainable Agricultural Lands Program (SALC), the only agriculture program to receive continuous GGRF appropriations.

Dairy Cares and other advocacy groups are now urging the administration and lawmakers to restore some of that grant money. In January an agricultural coalition requested $600 million in GGRF money to support climate-smart programs.

Then last month the California Farm Bureau joined American Farmland Trust and the California Climate and Agriculture Network (CalCAN), among other farm and conservation organizations, in a letter asking legislative leaders to maintain at least 2% of the GGRF money for SALC. Since 2014 the program has funded more than 20 conservation easement projects to protect more than 244,000 acres in 38 counties.

The conversations in the Legislature over discretionary and continuous funding are tied to the reauthorization, and business and farm associations are not the only ones engaging with lawmakers over the extension.

Environmental outcry over dairy digesters

A coalition of environmental justice and climate groups are urging policymakers to eliminate free allowances, calling them a giveaway to boost oil industry profits.

“Even under a clean extension scenario, costs of the overall cap-and-trade program will increase post-2030, simply as a result of the ambition necessary to meet these essential climate goals,” the coalition wrote in a letter to lawmakers last month, dismissing affordability concerns.

Joining that call was CalCAN, California Certified Organic Farmers, the Community Alliance with Family Farmers and Kat Taylor, a billionaire hedge fund manager with close ties to Newsom who has been a strong advocate for Healthy Soils and other climate programs at the California Department of Food and Agriculture. The coalition also includes staunch critics of offset credits and incentive grants for dairy digesters, such as the Leadership Counsel for Justice and Accountability.

Another organization, NextGen California, is asking the state to curb allowances and set new restrictions on “unregulated” offsets, while establishing emissions caps tailored to individual facilities that are adjacent to environmental justice communities.

“Policymakers are now presented with an opportunity to refashion the Cap-and-Invest Program by pulling back subsidies for corporate polluters and re-investing those funds in all California communities,” said NextGen policy advisor Jamie Pew in a statement accompanying the request.

The calls for reform have prompted trade associations to defend cap-and-trade in a plea for stability. They view the free allowances and offset credits as cost containment mechanisms that stabilize the market, keep companies competitive and prevent leakage, when businesses take their emissions to other states. Promoting an “affordable reauthorization,” the Western Growers Association has teamed up with the Agricultural Energy Consumers Association and groups representing citrus, cotton and pistachio farmers; dairies; poultry producers and tree nut processors to launch a new website.

According to the groups, “the cost of living in California is out-of-control, harming the economy and disproportionately impacting those who can least afford it.” They argue that “Sacramento policymakers would be wise to heed increasing voter concerns” by adopting Newsom’s clean reauthorization. “Following the environmental playbook” would increase costs for energy, food, fuel and housing. The coalition also calls for investing GGRF dollars into programs proven to be cost-effective and verifiable, such as the livestock methane reduction grants, the Food Production Investment Program for energy-efficient technology, and FARMER grants for upgrading tractors.

“Heavy-handed regulation is not the answer,” they warn. “Shifting away from incentive-based solutions would jeopardize the economic backbone of the San Joaquin Valley, accelerating the decline of industrial and agriculture jobs.”

The arguments are beginning to play out in public through legislative hearings this week, as budget subcommittees dig into the governor’s new budget proposal. The debates are anticipated to extend through the summer as lawmakers flesh out the details in budget trailer bills to approve by the end of session in September.

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