Benefits of Cap and Trade Often Elude Communities Hit Hard by Air Pollution

Growing up in North Richmond, California, Denny Khamphanthong didn’t think much of the siren that wailed once a month, every first Wednesday at 11 a.m. The alarm is a test of the community’s emergency warning system, which has alerted residents to numerous incidents over the years at the nearby Chevron oil refinery. One accident there — a 2012 fire — sent a cloud of black smoke billowing over San Francisco Bay and left thousands of local residents struggling to breathe.

Now, when Khamphanthong explains the sound to his young nieces, he sees the fear in their eyes. “I forget that this isn’t normal,” he says. Nor is the fact that Khamphanthong and most of his childhood friends carried inhalers. Richmond, a diverse, industrial city where housing prices and incomes have lagged behind its Bay Area neighbors, has poor air quality and some of the highest rates of respiratory and cardiovascular disease in California.

“There’s a lot of beautiful things that happen out of [Richmond],” says Khamphanthong, a community organizer with the Asian Pacific Environmental Network whose family emigrated from Laos in the 1980s. “But at the same time, when you look at the reality of it, it is sad.”

Pollution, poverty, and race collide in many other disadvantaged communities across California — and the country — and some argue that the state’s climate policies haven’t helped. While California has already cut its greenhouse gas emissions by 13% since their peak in 2004, many residents still suffer from high levels of air pollution — much of it produced by fossil fuels.

In particular, controversy has dogged California’s cap-and-trade policy, which took effect in 2013 and regulates roughly 450 entities accounting for 85% of California’s emissions. The system works by setting a limit on the total amount of greenhouse gases released by refineries, power plants, and other large emitters, and requires polluters to obtain permits to cover their share. The overall “cap” lowers every year, forcing polluters to reduce their emissions or purchase allowances from others who do.

Economists, environmentalists, and policymakers — many of them White — tout cap and trade as a cost-effective way to cut emissions while generating money for other climate initiatives. But environmental justice activists say the program has not served California’s disadvantaged communities, and particularly communities of color, where many facilities operate. In their eyes, it doesn’t do enough to address climate change and allows emitters to continue polluting the air in the meantime.

For example, state records suggest that the Chevron Richmond Refinery, one of California’s largest emitters, released more greenhouse gases in 2017 and 2018 — the last years for which data are publicly available — than it has since 2008. And in several recent years, it emitted as much or more of certain air pollutants. It has also dramatically increased the volume of gas flared off as waste — another source of harmful compounds. (Representatives from Chevron said that flaring was related to a new hydrogen plant coming online, and that the refinery has made significant investments in reducing emissions of air pollutants over the past 40 years.)

To many, cap and trade highlights a contradiction. “You’re hearing all this great stuff about how amazing your governor and your state is on climate leadership,” says Lucas Zucker, policy and communications director at the Central Coast Alliance United for a Sustainable Economy. But “it doesn’t feel like anything is changing.”

As the United States reckons with its long legacy of racial injustice and the increasingly devastating consequences of climate change, questions about the efficacy and fairness of cap and trade have taken on greater urgency than ever. But seven years on, researchers, regulators, and activists are still arguing about how California’s most famous climate policy has affected its most vulnerable residents — and how to do better.

The Air

Climate change is usually seen as a global problem. But its effects are profoundly local, and often refract through long-standing patterns of inequality and racism.

In the U.S. and elsewhere, low-income residents and people of color shoulder an outsized share of the climate burden. They face greater risks from heat waves, floods, and other climate-related impacts. And they have suffered collateral damage from the harmful pollutants produced by using fossil fuels.

These pollutants, which include particulate matter, nitrogen and sulfur oxides, and toxic substances like benzene, have been linked to health problems ranging from respiratory disorders to reproductive problems to cancer. And numerous studies show that polluting facilities and their emissions tend to concentrate in disadvantaged communities.

“Me and my five cousins, we all have asthma,” says Abe Francis, 15, of Sacramento. When Francis was young, doctors prescribed him medication because they feared he might stop breathing in his sleep. He still struggles to catch his breath when he plays basketball at the park. “It’s incredibly scary for me,” says Francis, who is African American.

According to CalEnviroScreen, the system the state uses to identify at-risk populations, his neighborhood falls in the highest fifth of pollution-affected communities in California. It ranks in the 94th percentile for poverty and roughly 90% of residents are people of color.

In Wilmington, a predominantly Latino community in south Los Angeles, Dulce Altamirano says her children and grandchildren suffer from headaches, rashes, nosebleeds, and respiratory problems caused by pollution. “The air quality is very bad,” 45-year-old Altamirano says in Spanish, with a sigh. “I personally have many problems with breathing, with my throat. … There have been times when my husband wanted to call the paramedics.” The city sits among numerous refineries, oil wells and storage facilities, shipping ports, and high-traffic roads, and some neighborhoods rank in the top tenth of CalEnviroScreen scores.

Climate policies present an opportunity to address these issues because greenhouse gases and harmful air pollutants often come from the same sources, like industrial smokestacks and vehicle tailpipes. In fact, when California passed its landmark 2006 climate law — which directed the state to cut greenhouse gas emissions down to 1990 levels by 2020 — supporters claimed that it would save thousands of lives through improved air quality alone.

But environmental justice advocates grew concerned that these benefits would not be equally distributed when the California Air Resources Board decided to adopt a cap-and-trade program as part of its strategy to implement the law.

CARB turned to cap and trade in part because it had broad support from both environmental groups and industry players, and was already in use by a coalition of East Coast states and the European Union to tackle greenhouse gases. (In 2014, Quebec joined California’s market and several other states and countries have considered or adopted their own versions in recent years.) However, community activists worried that the system would allow companies to find ways to keep emitting, particularly in disadvantaged neighborhoods.

“Anytime to you have that kind of pay-to-pollute scheme, the communities that already were being sacrificed — that becomes a business decision,” Zucker says. And some evidence suggests that these fears have come true.

A 2018 study led by Lara Cushing, now at the University of California, Los Angeles, found that more than half of the facilities covered under cap and trade actually increased their in-state emissions during the first three years of the program. These facilities were also more likely to be located in disadvantaged communities. (In-state emissions were offset by purchasing cleaner power and carbon credits from other projects that reduced emissions elsewhere.)

A 2019 report by the environmental group Food and Water Watch found similar results for the East Coast’s Regional Greenhouse Gas Initiative — a cap-and-trade program that regulates the power sector.

However, a new analysis by economists at the University of California, Santa Barbara, paints a slightly brighter picture in California. The researchers used a model to simulate how pollution spreads in the atmosphere to study how emissions translate to exposure. Like others, they found glaring disparities between disadvantaged communities and their Whiter, more prosperous neighbors. But while this so-called environmental justice gap increased in the years before cap and trade took effect, it fell by 20% to 30% afterwards in the areas where facilities were covered by the program.

The California studies, which took different approaches, do not offer a clear answer about whether cap and trade has helped or harmed disadvantaged communities in the state. Both had to wrestle with outside factors that affected emissions, such as the Great Recession and California’s other climate policies. But activists say that another even more important question has mostly gone unasked: What would have happened if California had adopted a different policy altogether?

Many feel that their communities would have seen greater progress if the state had regulated emitters directly, says Katie Valenzuela. She grew up in the town of Oildale — in a major oil-producing region in California’s Central Valley — and previously served as policy and political director for the California Environmental Justice Alliance. In March, Valenzuela was elected to Sacramento’s City Council District 4, representing midtown and downtown Sacramento and South Land Park.

In recent years, state regulators have tried to tackle inequalities in air quality. But Valenzuela says that officials have leaned on cap and trade instead of embracing more aggressive climate policies — often at the expense of vulnerable communities. “It’s been 14 years, and we’ve still never had a meaningful discussion about reducing our dependence on fossil fuels.”

The Money

By the time California’s cap-and-trade program came up for renewal in 2017, environmental justice advocates had united against it. They felt ignored by state officials and abandoned by mainstream environmental groups. The final reauthorization bill, which extended the program until 2030, only compounded their sense of betrayal: among other provisions, it exempted many polluting facilities from extra regulation by local air districts.

This souring of relationships was particularly tragic given that many saw California’s original climate law as an explicit effort to advance environmental justice. It was “integral to the design,” says Michel Gelobter, a social entrepreneur and environmental justice advocate who helped shape the bill when he was the executive director of Redefining Progress, a sustainability think tank.

The law directed state officials to consider the impacts of climate policies on “communities that are already adversely impacted by air pollution.” It also mandated that the state convene an Environmental Justice Advisory Committee to oversee its climate efforts. Even the cap-and-trade program, while far from perfect, had equitable ambitions, Gelobter says.

He and other economists note that traditional environmental regulations often raise the cost of goods and services, which disproportionately harms low-income people. And the extra money that consumers pay goes into the pockets of polluters, Gelobter says. Thus, to him, the most just climate policies are those that impose a price on carbon and use the revenue to blunt the economic blow on the most vulnerable members of society. And California has done exactly that.

Every quarter, the state auctions off emissions allowances to polluters (some are also distributed directly to industries) and by law, 35% of the money raised must be spent in disadvantaged communities. In practice, however, the state has delegated far more — almost 60%, or roughly $3 billion in total since the first funds were released in 2014.

Phil Serna, a member of the California Air Resources Board, sees this as a powerful counterpoint to critiques that cap and trade is unjust. “How we invest our resources is really a reflection of our priorities,” says Serna, who is also a Sacramento County supervisor.

Some cap-and-trade revenue goes directly to California residents, to offset the increased cost of electricity and natural gas caused by the state’s climate initiatives. The rest of the money goes toward projects that reduce greenhouse gas emissions or improve water quality. In disadvantaged neighborhoods, that might mean expanding public transit, increasing access to renewable energy, and building efficient, affordable housing.

Some feel uncomfortable about the source of these funds, because they often come at a cost to community health. “We would prefer it if there was no money coming from the cap-and-trade system because there was no pollution coming from our economy,” says Alvaro Sanchez, director of environmental equity at the nonprofit Greenlining Institute. But from an investment point of view, he says, “the money picture feels fairly positive.”

In the San Joaquin valley, cap-and-trade funds have helped low-income residents purchase clean cars. Most of the valley ranks in the upper third of CalEnviroScreen scores and the region has the worst air quality in the nation. Bakersfield leads the country in particulate pollution, and Fresno ranks second. But here, the leading culprits are agriculture and traffic — not the large industrial facilities covered under cap and trade. (The program regulates transportation indirectly by forcing fuel distributors to buy emission allowances.)

Under an initiative called Drive Clean in the San Joaquin, residents can get up to $9,500 to trade in their old car for a hybrid or electric vehicle. So far, Drive Clean has replaced 3,000 cars and saved customers hundreds of dollars a month in gas and maintenance costs, says Tom Knox, the executive director of Valley Clean Air Now, which runs the program.

One of those vehicles went to Sokunrith Nop, who emigrated to the U.S. from Cambodia 41 years ago and now lives in Stockton. He replaced his 1995 Honda Civic with a fully electric 2017 Fiat 500e. “I love it. It suits me perfectly,” says Nop, who needed something reliable to drive his child to school.

He likes saving money on gas. And he wants to help the environment. “Everybody should drive a car like that where we don’t pollute,” Nop says. He only wishes the program could help more people like him. “Those cars are expensive.”

The Rub

Cap and trade isn’t the only way to put a price on carbon, and it’s not the only one that raises environmental justice concerns. Such issues arise whenever policies rely on market forces to drive down emissions — because markets are famously unconcerned with equity. “It’s all about finding efficiencies,” says Kyle Meng, an economist at UCSB and a co-author of the study on the environmental justice gap.

Still, activists and researchers have proposed numerous ways to make California’s program fairer. For instance, regulators could require that emissions in disadvantaged communities decline at least at the same rate as the overall cap, rather than setting a statewide goal, says James Boyce, an economist at the University of Massachusetts, Amherst. Officials could also impose geographic restrictions on trading to ensure that the pollution benefits accrue more locally, or force emitters to go through local air permitting processes.

California’s Environmental Justice Advisory Committee has repeatedly called on regulators to reduce the number of available allowances and do away with offsets—a cost-containment measure that allows polluters to buy added emissions credits from outside projects that reduce carbon emissions, like planting trees or protecting them from logging, often in other states.

Alicia Rivera, a community organizer for Communities for a Better Environment in Wilmington, says that she struggles to explain the concept of offsets to residents breathing unhealthy air. “The refinery gets credit, but in Wilmington, they haven’t reduced anything,” she says. (CARB has not banned offsets, however, starting in 2021, companies won’t be able to use as many, and at least half must benefit the state.)

Some say that California’s program would produce more equitable results if it had a more ambitious emissions target, and thus, higher carbon prices. (By the state’s own assessment, cap and trade deserves little credit for its progress so far.) Others say that it has received too much attention. Danny Cullenward, a climate policy expert at Stanford University, argues that cap and trade “claims to be able to do anything you want … while the politics frustrate any efforts to dial it up to do that.”

Stanley Young, director of communications at CARB, says that cap and trade serves as a backstop for the state’s other climate policies, like efforts to increase renewable energy use and clean up traffic pollution. And he says that it functions as intended—first, as one of several tools to reduce greenhouse gas emissions, and second, to raise money.

California has made good on its obligation to invest the resulting funds in hard-hit communities, but some say it could still do better. Certain programs that ostensibly benefit disadvantaged communities may not actually do so; for example, a recent study by Cushing and others found that some of the state’s clean vehicle rebate programs serve more well-off Californians than low-income residents.

Sanchez, of the Greenlining Institute, says that the most disadvantaged communities often lack the means to access cap-and-trade revenue. And when they do, state agencies are sometimes reluctant to give control to community-based organizations, says Simeon Gant, executive director of GreenTech, a workforce training program in Sacramento whose students include teenager Abe Francis. As a result, he says, “they never get to the people they’re targeting.”

Indeed, many Californians have never heard of cap and trade and remain unaware that it produces money for their benefit. Khamphanthong and others say the state should do a better job of engaging with community members to figure out what they need most. In Richmond, Khamphanthong would like to see support for green jobs that treat employees well and benefit the community. “Why not just work with us to figure out a solution?” he asks.

The Future

In recent months, California’s cap-and-trade program has encountered problems. At the beginning of the pandemic, the spring auction brought in a fraction of the expected revenue. And over the summer, the head of California’s Environmental Protection Agency, which oversees CARB, released a letter stating that he would work with the board to reevaluate the state’s dependence on cap and trade going forward.

Whatever California decides, it has to put equity first, says Jackie Cole of Veritable Good, a consulting firm that specializes in environmental justice. “If that is not the central lens through which you are developing solutions, then those communities will always be left out,” she says.

New York may offer an interesting model. Last year, activists celebrated the passage of a climate law that sets even more aggressive emissions reductions goals than California. Environmental justice groups championed the bill, and they are hopeful that the state will steer clear of cap-and-trade policies (they have long fought the East Coast’s regional market). Instead, activists support imposing a polluter fee to raise money, on top of strict mandates to cut emissions.

Back in California, CARB passed a resolution — “almost a constitution,” says Serna — reaffirming its commitment to social and racial justice in October. “I have every expectation that that will eventually find its place into everything that we continue to do at CARB,” he says, including managing cap and trade. (In September, Black employees at CARB wrote an open letter and proposed an action plan to address concerns about systemic racism within agency culture.)

The state has already taken steps to address air pollution in disadvantaged communities, including issuing new regulations for vehicles — a major contributor. After Abe Francis participated in a recent CARB panel on environmental justice, the agency offered to install low-cost air monitors at his home as part of a pilot program. Francis said they have already helped his family members stay safe on unhealthy days.

The state has also begun implementing a 2017 law, passed alongside the cap-and-trade extension, that creates a community-focused system for tackling harmful emissions in the most affected neighborhoods. Along with Richmond, one of the first cities to participate is Wilmington, together with neighboring Carson and West Long Beach. After a long negotiation among community members, local officials, and industry representatives, refinery managers agreed to cut emissions of several key pollutants by 50% by 2030. The final plan, released last year, also includes provisions to reduce pollution from traffic and oil wells.

Rivera, the community organizer, says the refinery agreement represents a victory — albeit hard-won and too late for many. But Altamirano, the Wilmington resident who served as a member of the community steering committee in the negotiations, isn’t quite as hopeful.

She lives close enough to a refinery to hear valves pop open and to smell the noxious fumes that seep out. Sometimes, flares illuminate the night sky above her house. And she says she’s still waiting to see change.

“Solo hablan, pero no se hace nada,” she says. “Just talking and then doing nothing.”

This report was made possible in part by the Fund for Environmental Journalism of the Society of Environmental Journalists