California’s Cap-and-Trade Scheme Adds Financial Insult to Environmental Injury

The myth that market forces can solve all problems is alive and well with California’s cap-and-trade scheme. Instead of commonsense regulations that require polluters to reduce their climate-destroying emissions, policies like cap-and-trade and carbon taxes rely on market forces to do the same job. But time and again these schemes end up proving ineffective and problematic, especially for environmental justice communities.

Cap-and-trade programs purport to reduce greenhouse gas emissions by allowing polluters to buy and sell pollution credits based on an industry-wide limit, or “cap,” on total allowable pollution. But there is no evidence that these programs significantly reduce carbon emissions. Supporters of market-based pollution controls naïvely contend that polluters only require a higher trading price to properly discourage them from spewing toxins. But all these programs do is create a Wall Street-style casino for polluters to trade the right to continue — or even increase — pollution. 

Cap-and-trade is essentially a pay-to-pollute scheme that creates incentives that undermine environmental justice, sacrificing equity in favor of industry profits. The companies that buy credits and increase pollution — and simultaneously reap profits by avoiding any pollution control costs — tend to be in communities of color and lower-income areas, only adding to existing environmental injustice.

In our recent report “Paying to Pollute: The Environmental Injustice of Pollution Trading,” we described how pollution trading schemes hurt socially and economically disadvantaged communities. These populations already face higher pollution exposures because of the disproportionate location of toxic facilities, like power plants, in their neighborhoods. Pollution trading incentivizes the purchase of pollution credits in these vulnerable areas, creating toxic hotspots that concentrate multiple, harmful pollutants, such as particulate matter and NOx, which tend to remain in the area where they are originally emitted.

Theoretically, California’s cap-and-trade program addresses the underlying environmental justice disparities by directing half the revenue generated from selling pollution credits to disadvantaged communities and low-income households. But this modest compensation is trivial compared to increased pollution that threatens human health and the environment. As the Indigenous Environmental Network and Climate Justice Alliancestated: “Token revenues distributed to environmental justice communities from carbon trading or carbon pricing can never compensate for the destruction wrought by the extraction and pollution that is the source of that revenue.”

Furthermore, it turns out that little of the promised compensation even gets to the targeted areas, according to a new study from the University of California, Irvine. Instead of serving the disadvantaged and low-income communities as mandated by law, the study found that funding went to projects dispersed over a larger region, diluting its impact. This means that communities that are experiencing the worst environmental and health burdens are also getting shortchanged on promised compensation.

The UC Irvine study focused on Orange County and found that only 8.5 percent of the promised funds directly benefited socially or economically disadvantaged populations. Orange County counted investments in regional transportation as the same as investing in disadvantaged areas, which “overstates the degree of investment in these places,” according to the authors.

The study highlights that unjust cap-and-trade programs not only perpetuate the historical imbalance borne by environmental justice communities, but also consistently fail to remedy disproportionate pollution burdens. 

States must reject market-based programs and restore and strengthen effective regulatory pollution controls. The Clean Air Act successfully reduced pollution and protected human health and the environment. The best way to reduce climate emissions is to prohibit additional emissions and require an immediate and sustained reduction of greenhouse gases. We need to strengthen pollution controls and redouble enforcement efforts, focusing on reducing pollution in environmental justice areas. A carbon casino doesn’t stop climate change, it only delivers profits to polluters.