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Photo: Laitr Keiows

The program that funds California’s electric car rebates, which has incentivized more than 150,000 people to purchase eco-friendly cars since 2009, is running out of fuel.

In its latest budget ruling, the state’s legislators revoked $500 million in funding for electric vehicles. The rebates currently provide up to $6,500 for citizens who want to green-up their fleets with electric or hydrogen vehicles and plug-in hybrids. Low income families in the San Joaquin Valley and Los Angeles can qualify for as much as $13,500 when they invest in an electric car.

Tesla Model S P85D. (Photo Credit: Martino Castelli)

Tesla Model S P85D. (Photo Credit: Martino Castelli)

Why Is California Cutting Funds for Clean Cars?

Money doesn’t flow from e-vehicle-miles-traveled, so, in 2006, the state government passed the Global Warming Solutions Act, known as AB32, to jumpstart the regional cap-and-trade system.

The cap-and-trade scheme generates money through the California Air and Resource Board, which issues a fixed number of credits every three months. Major polluters like energy utility and manufacturing companies purchase these credits to meet state emissions regulations instead of implementing on-site green house gas reductions.

In addition to financing the clean car initiative, revenue generated from the cap-and-trade market supports several of the state’s other carbon cutting initiatives, such as the high speed rail planned to connect California’s major cities (expected to receive $600 million per year a year through the program).

In May, the latest carbon credit auction sold less than 11 percent of the 2016 credits offered, at the base price of $12.73. These credits will fund a mere $10 million for California’s green initiatives, which is a fraction of what was expected.

Parking lot. (Photo Credit: Laitr Keiows)

Parking lot. (Photo Credit: Laitr Keiows)

Experts speculate the low demand stems from regulatory uncertainty about whether the program will be reinstated after its 2020 expiration date because of a court case that could restrict the legislative body from imposing the AB32 regulations that the California Chamber of Commerce claim to be unauthorized taxation. Additionally, secondary markets that allow companies to buy permits under their state-issued base value make for a bear market. Others suggest that companies are cleaning up their act and no longer need the permits to stay up to code. Regardless of the reason, the state’s green policy coffers are in jeopardy.

California’s Cap-and-Trade Needs a Tuneup

“We will not meet our world-leading clean air and emission reduction targets unless we solidify and redouble our commitment to the state’s cap-and-trade program and climate goals beyond 2020 and we will work hard to get that done,” Governor Brown’s representative, Deborah Hoffman, told the Los Angeles Times.

If California doesn’t do something “the whole system could fail,” remarked CA Senator Kevin de León (D-Los Angeles). “If that happens, we could lose an entire stream of revenue to make our communities more sustainable.”

The Future

The world-renowned cap-and-trade policy has a built-in floor that doesn’t allow the emissions allowances to fall below previously traded levels, which holds value in the market. Despite the low volume of trades on the primary market, the secondary market has experienced higher than usual trade volume, which indicates that buyers are capitalizing on a bargain for the still valuable credits. 

Image Credit: Pixabay

Image Credit: Pixabay

Despite the pending court case, the Environmental Defense Fund (EDF) is confident “that California courts will ultimately confirm the Legislature’s broad grant of authority to the California Air Resources Board (ARB) to design effective programs to address the imminent threat of climate change, and will reject the claim that auctioning valuable, marketable emission allowance constitutes an unconstitutional ‘tax.’” 

Even if the courts authorize the claim, established legal protocol “should help to ensure that the environmentally and economically important cap-and-trade program continues with minimal disruption,” said the EDF.

The organization expects “a resilient cap-and-trade program will remain at the heart of the state’s increasingly ambitious and effective climate strategy long into the future.”

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