Tag: cap-and-trade

Governor’s Funding Plan for Climate, Drought

Governor Brown has released a proposed budget that reaffirms the state’s commitment to boosting drought resiliency and battling climate change. While specifics are likely to change before the budget is finalized in June, here is a summary of key proposals.

  • Cap and trade. California’s recent efforts to combat climate change have been funded from its cap-and-trade program. The program faces an uncertain future because its statutory authority is set to expire in 2020. Partly due to this uncertainty, 2016 cap-and-trade auctions raised a fraction of the money raised in previous years. At the governor’s budget press conference, he announced legislation that would extend the program beyond 2020. Appropriation of cap-and-trade funds in the new budget is dependent on the passage of this bill—which will require a two-thirds vote in both the senate and the assembly. Should it pass, the governor proposes appropriating $2.2 billion for cap and trade, a decrease from last year’s $3.1 billion. As in past years, 60 percent of the proceeds would be for ongoing funding of public transit, affordable housing, sustainable communities, and high-speed rail. The rest is split among one-time investments. This year, the largest sum in the one-time investment pot ($863 million) is for public transit improvements aimed at increasing ridership and decreasing greenhouse gas emissions. Smaller sums include $142 million to fund local climate actions in the state’s most disadvantaged communities and $128 million for projects in forests and urban and agricultural landscapes that remove carbon dioxide from the atmosphere and store it in vegetation or soils.
  • Emergency drought spending. While recent rains have drenched California, the governor’s emergency drought declaration is still in effect, and the new budget appropriates an additional $188 million in one-time resources for drought relief. Roughly half ($91 million) is allocated to CAL FIRE—the agency dedicated to fire protection and stewardship of the state’s forests—to enhance its firefighting capacities and support the removal of dead trees. The drought has contributed to widespread tree mortality, which has raised concerns that the dead trees might fuel future destructive wildfires.
  • Water bond updates. Nearly 80 percent of Proposition 1 water bond funding has already been appropriated (though far less has been awarded for spending). This year, the governor proposes appropriating $248 million from the bond for an Integrated Regional Water Management grant program. These funds are meant to incentivize regional cooperation with the goal of resolving complex water management challenges at a broad scale while balancing social, environmental, and economic objectives. For instance, these funds could foster a regional approach to helping water systems adapt to climate change. An additional $3.8 million would enable the State Water Resources Control Board to enforce the implementation of California’s groundwater law.

Although state money represent only a fraction of California’s total water sector spending (13%—the rest is mostly locally funded), it is an important piece of the funding pie. While the governor’s proposed budget would bring welcome funding to a number of critically important areas, key water challenges continue to experience long-term funding gaps—especially safe water for small rural communities, flood control systems, stormwater management, and ecosystem management.

Learn more

Read California’s Water: Paying for Water (from California’s Water briefing kit, October 2016)
Visit the PPIC Water Policy Center

Uncertain Future for Cap-and-Trade

To date, California’s actions to combat climate change have been funded mostly through its cap-and-trade program, which allows the state to collect funds from greenhouse gas emitting sources. California was the first state to institute a cap-and-trade program. To date it has collected more than $4 billion in auctions of permits to companies and significantly reduced greenhouse gas emissions through the program. But the state program has been challenged in the courts, and its statutory authority is set to expire in 2020. At least in part due to the program’s uncertain future, there has been a drastically reduced collection of revenues this year.

The program is an interesting blend of regulation and free-market practices. The Air Resources Board—the agency in charge of the program—sets a cap on state’s greenhouse gas emissions and allocates emission permits for each company that releases them. Usually the permitted amount of emissions is lower than the company’s current level of emissions. To make up the difference, companies have the option to buy more permits from the state or from other companies that can reduce their emissions at lower cost. These permits, both private and public, are auctioned quarterly in a public online market. This market-based mechanism enables the state to promote technological innovation and brings flexibility to the effort to reduce emissions.

The funds collected also serve to pay for mitigation and adaptation programs. Under the current law, 60 percent of cap-and-trade proceeds are continuously appropriated to public transit, affordable housing, sustainable communities, and high-speed rail. The remaining funds are appropriated on a one-time basis each year to programs for disadvantaged communities, clean transportation and the environment. As of this September nearly $2.3 billion had been appropriated, including more than $700 million for high speed rail, almost $500 million for affordable housing and sustainable communities programs, $325 million for low carbon transportation, more than $200 million for transit programs, and the remaining for a variety of other programs including energy efficiency, agriculture, forests, and other environmental programs.

This year’s one-time investment will go to support programs that reduce greenhouse gases while benefiting disadvantaged communities, support clean transportation, and help protect ecosystems. The legislature and governor were unable to come to an agreement to spend all of the discretionary funding, and reserved an additional $462 million for future appropriations. This decision may have been motivated by uncertainties surrounding the future of the cap-and-trade program.

Virtually all allowances that were offered for sale in cap-and-trade auctions in 2015 by the Air Resources Board were sold. However, that has not been the case in 2016. The February 2016 auction saw a small amount of allowances go unsold. In the May and August 2016 auctions, the Air Resources Board sold less than 2 percent of the allowances offered. As a result, the May 2016 auction brought in only $10 million, and the August auction brought in $8 million—compared to $517 million from the February auction.

If the state does not address these uncertainties, revenues may continue to be small, forcing the state to cut spending on programs funded by cap-and-trade or look for other ways to meet its ambitious actions to address climate change.

Climate Change, Fracking, and Drought—Oh My!

Last week’s release of the PPIC Statewide Survey: Californians and the Environment prompted a discussion of several major policy issues under consideration in Sacramento. A panel convened by PPIC talked about the survey’s findings on climate change policy, particularly public attitudes toward a potential increase in gas prices when new regulations for transportation fuels begin next year.

PPIC research associate Sonja Petek set the stage for the panel discussion by presenting the survey findings. The panel included Assemblyman Richard Bloom (D-Santa Monica); Anne Baker, a senior advisor at the Center for Energy Efficiency and Renewable Technologies; and Rob Lapsley, president of the California Business Roundtable. The panelists said they supported the goals of the state’s climate change policies. They encouraged a public education effort about the extension of the cap-and-trade program to transportation fuels. The survey found that most Californians also support the policy change, but support drops sharply if it means higher gas prices.

The panel was divided on the state’s approach to fracking, a controversial process for extracting underground oil. Bloom is the author of a bill calling for a moratorium on fracking. Lapsley described the economic benefit of having more in-state oil production. The survey found most Californians opposed to fracking.

The panel also discussed water policies and the drought. In the survey, Californians name water as the number one environmental issue this year, and a narrow majority of likely voters support an $11.1 billion bond that is scheduled for the November ballot. Support is higher for a lower bond amount, something that is under discussion in the Capitol.

Californians and the Carbon Tax

California is leading efforts to address climate change, and public support for state action on this policy has been strong and steadfast. In the July PPIC Survey, six in 10 likely voters say that global warming’s effects have already begun and favor the state’s requirements that greenhouse gas emissions be reduced to 1990 levels by 2020.

The landmark law laying out these efforts—AB 32—relies on a “cap-and-trade” program for companies to reduce their greenhouse gas emissions. The state government currently enforces emissions “caps” by issuing permits that can be “traded” among companies at quarterly auctions. The state is getting ready for the AB 32 legislation to impact transportation fuels in 2015, with costs—which are unknown—likely passed on to Californians at the gas pump. Under these circumstances, some policymakers are having second thoughts about the cap-and trade program and are reconsidering a carbon tax on companies for their greenhouse gas emissions.

In our polling over the past five years, Californians have been more likely to express support for a carbon tax than a cap-and-trade system. In the July PPIC Survey, 54 percent of likely voters favor a carbon tax on companies’ greenhouse gas emissions—identical to the support that we found in July 2009. By comparison, 43 percent of likely voters favor the current cap-and-trade system when read a description in the July PPIC Survey—similar to the 44 percent who supported this proposal in July 2009. This support for a carbon tax doesn’t appear to be a simple reflection of a desire to tax business. A carbon tax on companies is a more popular proposal than raising overall state taxes paid by California corporations, which had a mixed response (48% favor, 47% oppose) in the March PPIC Survey.

What are the attitudes underlying majority support for a carbon tax on companies? Most likely voters are concerned about global warming and want the government to take action. Those who express the most concern and support tend to favor a carbon tax over the cap-and-trade system. For example:

  • Of those who believe the effects of global warming have already begun, 75 percent favor a carbon tax and 56 percent favor the cap-and-trade system.
  • Of those who believe that global warming is a very serious threat to the state’s economy and quality of life, 78 percent favor a carbon tax and 55 percent favor the cap-and-trade system.
  • Of those who favor the state law to reduce greenhouse gas emissions to 1990 levels by 2020, 76 percent favor a carbon tax and 57 percent favor the cap-and-trade system.

There is also a political dimension, reflecting the partisan differences in levels of concern about climate change and support for state action. Democrats are more likely to favor a carbon tax (72%) than a cap-and-trade system (54%), with similar trends for independents (56% carbon tax, 42% cap-and-trade). Republicans show similarly low support for either approach (32% carbon tax, 27% cap- and-trade).

The July PPIC survey also found that potential consumer costs play a striking role in views of climate change policies. Among likely voters, 70 percent, favor requiring oil companies to produce transportation fuels with lower emissions; however, favor for this policy declines to 41 percent if it means an increase in gas prices. What is noteworthy is that most higher-income Californians support lowering emissions—even if gas prices rise. In light of California’s uneven economic recovery, this finding suggests that the state lawmakers should be focusing on ways to limit the financial impacts of new global warming regulations on the state’s less affluent residents, not abandoning current efforts to reduce greenhouse gas emissions that enjoy solid support.

If policymakers are going to debate the pros and cons of these two policy options, it would be worth taking the time to better explain them to the state’s residents—especially since gas prices could increase with either option. Most likely voters have heard only a little or nothing at all about these competing proposals for reducing greenhouse gas emissions. One in four likely voters say they have heard a lot about the cap-and-trade system (24%) and awareness is similarly low for the carbon tax (28%) in the July PPIC Survey. Californians care about climate change and would likely welcome the chance to learn more about the decisions that are being made today to address the challenges of the future.

Testimony: Using Cap & Trade Revenues to Bolster Climate Policy

The Senate Budget and Fiscal Review Committee focused Thursday on the governor’s proposal for spending revenue from the quarterly auction of emissions allowances that is part of California’s program to reduce greenhouse gases. The committee took testimony from the Legislative Analyst’s Office, the administration, and a panel of independent experts. Ellen Hanak, PPIC senior fellow, was part of that panel. Here are her prepared remarks:

Thank you for inviting me to address you this morning. I’d like to focus my remarks on ways to think about achieving multiple benefits from the use of cap and trade auction revenues. In addition to a primary goal of reducing greenhouse gas (GHG) emissions, the governor’s budget proposal emphasizes two types of co-benefits: supporting disadvantaged communities (as required by Senate Bill 535) and creating jobs. It’s also important to recognize that the cap and trade revenues have the potential to strengthen an integrated climate policy for California that focuses both on reducing GHG emissions – or “mitigation” – and on helping the state prepare for some of the negative impacts that are anticipated from climate change – or “adaptation.” This approach to using the auction revenues is consistent with the legislative guidance provided by Assembly Bill 1532, which included climate adaptation as one of the desirable co-benefits of a spending plan.

A significant body of research suggests that the impacts from climate change will be significant in California, even if global efforts to reduce GHG emissions are successful. We are already seeing rising temperatures and accelerating sea level rise, and the science points to the likelihood of increased frequency of extreme events, such as more frequent droughts, wildfires, floods, and heat emergencies. Although it is difficult to attribute any specific weather shock to climate change, the current severe drought facing California highlights the importance of making investments to reduce our vulnerability to these types of extreme events.

Some mitigation and adaptation actions are complementary, in the sense that they simultaneously reduce GHG emissions while making us better able to cope with the expected impacts of climate change. Examples include efforts to improve energy efficiency in buildings, to manage energy demand, to conserve water, and to build more transit-oriented “sustainable communities.” All of these efforts reduce energy demand and hence, GHG emissions; they each also make it possible to better handle one or more of the anticipated negative effects of climate change. Energy efficiency and energy demand management lower peak energy needs during extreme heat events. Water conservation helps us cope with water scarcity. And denser, more transit-oriented, and walkable communities reduce the urban footprint, making it possible to lower the water use devoted to landscaping (which helps cope with water scarcity) and to keep more habitat available for California’s plant and animal species that are also being threatened by a changing climate. As another example, forestry management can help store carbon (providing GHG benefits), while also reducing the risks of wildfire and the potentially harmful consequences of such events for the state’s water supplies. (Last year’s Rim Fire, which threatened the water supplies for many Bay Area communities, illustrates this risk.)

The governor’s proposal for spending the cap and trade revenues includes some activities that are clearly complementary in this sense, including weatherization of homes, energy efficiency in state buildings, water use efficiency, and forest fire prevention. Other parts of the governor’s proposal have the potential to be complementary if implemented carefully. For instance, urban forestry can lower energy demand, but it can also raise water demand unless care is taken to plant low-water-using tree species and to design the tree planters in ways that capture stormwater. (This type of approach is known as low-impact development, and it can help increase water supplies and reduce the water pollution associated with storms.) The same is true for the sustainable communities’ grants: They can provide multiple benefits if planning considers other factors besides encouraging transit use, like energy- and water-efficient buildings and landscapes.

In all, as much as a $300 million of the $850 million of proposed spending for next year falls into categories that potentially can contribute to an integrated climate policy addressing both mitigation and adaptation. At a minimum, the state should be attentive to the specifics of how these programs are implemented to ensure that they meet both goals. It could also be valuable to consider some rebalancing of the overall spending proposal to favor measures that contribute to these dual goals. As one example, it could be very beneficial to expand the effort on forest management in California’s upper watersheds.

In closing, I’d like to leave you with a couple of reflections on this idea of using cap and trade revenues to support an integrated climate policy. First is the question of reducing costs of climate change policy for Californians. In contrast to the view that cap and trade revenues should be focused solely on reducing the costs of GHG mitigation, I’d like to suggest that it’s also appropriate to think about using these revenues to reduce the costs of preparing for a changing climate. The cap and trade program itself is designed to help lower the costs of reducing greenhouse gas emissions, because it allows trading of emissions allowances to meet the cap. Preparing for a changing climate will also entail numerous costs for Californians, and using these funds in ways that also support such efforts will help reduce those costs.

Second is the question of what Californians think about the state’s role in climate policy. In PPIC’s most recent survey on this issue eight out of 10 residents said it is important that the state pass regulations and spend money now on efforts to reduce global warming. And eight out of 10 residents said it is important to pass regulations and spend money now on efforts to prepare for the effects of global warming. An integrated approach to using cap and trade revenues will help California meet both goals.