Newsom touts billions in climate spending through California's cap-and-trade program

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Over the past decade, a signature California program that charges polluters for their planet-heating emissions has generated billions of dollars for state initiatives, and Gov. Gavin Newsom said Wednesday that these revenues are effectively helping to reduce pollution and combat climate change.

“This is the backbone of our climate funding in this state,” Newsom said during a call with reporters. “It’s a point of deep pride that we continue to be a model for the rest of the nation, and for that matter, around the world.”

Speaking days before a planned trip to the Vatican, where he is scheduled to attend a climate change conference hosted by Pope Francis, Newsom touted the cap-and-trade program’s successes since 2014. State officials presented a report detailing $11 billion in implemented projects, as well as $17 billion in funding slated for additional projects.

Funds generated by the auctioning of pollution allowances have gone toward projects such as California’s high-speed rail, low-carbon public transit, rebates for those who buy electric vehicles, efforts to capture methane emitted by dairy cows, land conservation and tree-planting, and construction of affordable housing.

But the program, which was one of the first of its kind, has also encountered criticism.

Environmental justice advocates have argued that it’s failing to adequately protect people who live near big pollution sources, such as oil refineries. Experts have said that the current emission reductions aren’t on pace to meet the state’s climate goals and that the way state officials track the benefits of the spending overstates the actual effects in reducing emissions.

The State Auditor found in 2020 that California air quality regulators haven’t done enough to measure the reductions in greenhouse gas emissions that are achieved through incentive programs.

But Newsom said the funded projects to date are “proof points” that the program is delivering the benefits it was designed to bring, and helping the state toward its greenhouse gas reduction goals.

Newsom recalled attending the 2006 ceremony where then-Gov. Arnold Schwarzenegger signed the original legislation into law. He also praised former Gov. Jerry Brown, who in 2017 signed a bill that extended the program, for continuing “to fight the good fight against all of the opposition, all of the naysayers that said it couldn’t be done.”

“Gov. Schwarzenegger was right. The proponents of cap and trade were right. The naysayers and the cynics were wrong,” Newsom said.

State officials said more than 578,000 projects funded through the California Climate Investments program have supported thousands of jobs, while reducing emissions and protecting public health. They said 76% of the funds have been spent in low-income communities, where people often cope with more pollution.

“For more than a decade, California has been a global leader on climate action,” said Lauren Sanchez, the governor’s senior adviser for climate. “We are committed to the most robust and comprehensive climate action in state history, and raise the bar not only for ourselves but for governments around the world.”

According to the state report, the program has helped build affordable housing in job centers, with more than 12,000 units under contract.

The program has also supported projects intended to reduce wildfire risk by thinning vegetation and restoring degraded forests.

Additionally, Californians have received credits on utility bills funded by the cap-and-trade program.

The market-based program sets a declining cap on the amount of greenhouse gas emissions that are permitted annually. The California Air Resources Board issues allowances each year, providing some free while auctioning off others, generating revenue for the Greenhouse Gas Reduction Fund.

As fossil fuel companies and other polluters buy the allowances, the auctions have been raising between $3 billion and $4.3 billion per year.

Newsom said these investments show “what’s possible when polluters are forced to pay.” He said billions of dollars in additional investments will “continue to build the climate projects we need, faster.”

In 2023, the program provided $1.7 billion for thousands of new projects, among them investments in low carbon transit, land conservation, methane reduction at dairies and affordable housing projects.

“The projects funded to date are expected to reduce 109 million metric tons of greenhouse gas emissions, the equivalent of removing 25 million cars off California’s roads in a year,” said Liane Randolph, chair of the California Air Resources Board. “That figure represents 80% of the gas-powered cars currently on the road.”

However, experts have said there are significant weaknesses in the state’s current methods of tracking the climate benefits of the spending.

“I think these numbers are probably a little sunnier than they should be,” said Danny Cullenward, a climate economist at the University of Pennsylvania’s Kleinman Center for Energy Policy. “I think the benefits that are being claimed are significantly larger than what good analytical studies have found.”

He said part of the problem is that data on the projected benefits are largely self-reported and “pretty squishy.”

For example, the way the state tracks the climate benefits of the electric vehicle rebates assumes that each rebate granted causes a consumer to buy an EV, he said, even though some likely would have bought the vehicle without the rebate.

The cost effectiveness can also be skewed in the data, he said, when the cap-and-trade program funds only a portion of a project but claims all the carbon-cutting benefits.

“A lot of good things have been funded. But one of the challenges is that so far the reporting, the data quality, on what’s been funded and what effect that has had on reducing emissions is pretty mixed,” Cullenward said. “I think it’s unquestionably good that we have the program, and I think there’s substantial room to improve how effectively we’re spending the money.”

That’s especially important given the state’s tight budget situation this year, he said, and the fact that experts have projected California, despite recent improvement, still isn’t on track to reach its goal of reducing greenhouse gas emissions to 40% below 1990 levels by 2030.

Another issue that has generated criticism is the fact that about 65% of the annual cap-and-trade revenues must be dedicated each year to several programs, with 25% going to high-speed rail and the remainder split between affordable housing, transit and rail, low-carbon transit operations, and safe drinking water.

When state Senate committees held an oversight hearing in February, the legislative staff prepared a document outlining the state of the cap-and-trade program and noted that both the State Auditor and the independent Legislative Analyst’s Office have raised concerns about “limitations in the estimates” for the cost-benefit data.

News coverage has also revealed problems. In a 2019 investigation, ProPublica detailed concerns among experts that while the program had helped the state meet some initial benchmarks, it had largely allowed big polluters to “conduct business as usual and even increase their emissions,” while there have also been concessions to the oil and gas industry.

The Air Resources Board has been discussing potential reforms that would address some of those concerns.

Thus far, the program has not been particularly effective in reducing emissions, Cullenward said.

“By design, it was too generous. It gave too many allowances to pollute away, relative to our climate targets,” he said.

He hopes the reforms being considered by the Air Resources Board will make the program more effective, and said it’s important that state officials “get really serious about which programs they’re spending their money on that are most cost-effective to reduce emissions.”

“Right now, it’s a bit of a free-for-all,” he said. “It’s a lot of money, and we need to use it well.”

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