Please note that the transcript provided below is AI-generated and intended for reference. It may contain missing words, misspellings, or other small errors. To request a correction or clarification, please contact info@theclimatecenter.org.
Barry Vesser, The Climate Center (00:00:44):
Okay. Welcome everyone. I am Barry Vesser with The Climate Center. We do appreciate that there are a lot of panels you could fly with today, so we appreciate your flying with us. If you are looking for the climate investments in time of fiscal austerity, I know a bit of a bummer, but it’s going to have an upside, I promise. You’re in the right room. And I’m just going to get us started by thanking our sponsors. And I do want to just say, we could not do this event without sponsors. The price of what it costs us is way more than a ticket, so we’re really grateful for that and for them.
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And also we get some support from individual donors. So we’re really grateful for that support. And finally, and some of you may be in the room. I hope so. We have a lot of promotional partners, organizations who work with us throughout the year that help us get the word out about this event. So thanks to them as well. If you haven’t gotten on the Event Leap app yet, I highly recommend it. You can see all the participants’ names who are here today. It’s the only place we have that information. So if you want that, it’s there. They also have maps. They have the agenda. Everything’s there in Eventleaf and you just go to Eventleaf Guide. And our comms team would appreciate it if you use the hashtag CA Climate Summit when you do your social media.
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I do want to introduce our moderator, Nuin-Tara Key, who is with us and she is the chief operating officer in California Forward. She has 20 years of experience in climate finance and climate policy, regional and urban planning, and working on social impacts. So we have a really wonderful person at the helm and I’m going to turn it over to you and Tara. Thank you.
Nuin-Tara Key, California Forward (00:03:12):
Hello. And welcome. Oh, thank you. Wonderful to see you all here today. Thank you for joining. And I want to thank the panelists too for what’s going to be a great conversation and thank you to the Climate Center for hosting this important conversation as part of the conference today. I’m Nuin-Tara Key, as was mentioned, COO at California Forward. For those who may not know us, we are a statewide organization working at the intersection of economic development, economic policy and climate. And our view is we’re working to build a new California economy that is sustainable, resilient, and inclusive. And for us, that means a couple things. One is anything we’re doing on the economy has to incorporate climate, both the energy transition, climate as a macroeconomic issue. We all are reading the news every day and understand the tremendous volatility in our kind of global energy system and California is not immune to that.
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We also do a lot of work looking at how are we managing the impacts of a changing climate from a fiscal and economic issue, all of which we will talk about here today. And I’m really excited to just kind of tee off this conversation. A couple context setting things that I just wanted to lay out for our discussion here is, I think, and Barry alluded to this, we recognize that our state budget context is heading in a direction of budget shortfalls. I think it’s important for all of us in this space to also recognize that the moment we’re in in terms of our budget situation is unique and but is also a product of kind of the structural design of how our state budget is set up. We are in, as you all I’m sure know, kind of the fourth year of a structural budget deficit in spite of record returns coming in, in spite of record capital gains and income tax that our state budget is very dependent on.
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So we’re in this place where we are dealing with very complex challenges, putting pressure on costs. We know the federal pullback, but also federal attacks on not just climate, but social service spending, public health, health spending are also putting additional pressure on the state budget, but we also have some structural budget issues that, again, we’re going to talk a little bit about here today that are really important for us to figure out as we’re thinking about how do we make sure that we have the right sustained investment to be able to deliver on our climate goals, as well as our energy and affordability and other service delivery that the state is so critical to be leading on. So we’re going to talk through all of that here and map out both some of the context and the challenges, but also where there’s opportunities for us to be thinking a little bit differently in terms of how we’re understanding kind of the state budget context, the federal context.
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And also importantly for us at California Forward, thinking about the other side, there’s where the money comes from and how we’re spending it, but we’re also need to be thinking about how are we better coupling our climate and economic agenda. And we’ll talk a little bit about this too. We all know affordability is a major driver right now in policy conversations at the state level here in Sacramento. And affordability for us is not just understanding the costs and some of the really extreme cost pressures that families and individuals are facing. It’s also about our ability to afford things and people to be able to have incomes, to be able to buy homes, to pay for their utilities and that side of things. So we’re also really excited to be able to have a conversation around how are we thinking about where there’s economic development opportunity as part of our broader approach on how we’re investing in climate.
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So we have a lot to talk about here today. I am not going to do full bios. I’m going to ask for this first question as you all are introducing yourselves and providing some context setting, please introduce, provide any background that you would like, but I’m really thrilled here today. We have Michael Wara from Stanford Woods Institute, Daniel Barad from Union of Concerned Scientists and Leslie Chang from Calex Corporation. So a very diverse group of perspectives from across California. So we’re going to start with this first question, which in addition to your introductions and giving us a little bit of context on who you are, the work you do, kind of the view you bring to this conversation. What’s your read? Kind of let’s just start with some level setting, context setting. What’s your read on where California’s climate funding stands today and what trends tell us about the years ahead?
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And Michael, I’m going to ask you to go first as we talked about to also kind of give a little bit of context setting around cap and invest and that context too. So over to you.
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:08:25):
Sounds good. Thank you, Nuin-Tara. I’m Mike Wara. I direct the Climate and Energy Policy Program at the Woods Institute at Stanford and they run a team of scientists, physical scientists, the social scientists get upset when I just say scientists and social scientists. I am a social scientist, physical scientists, social scientists, lawyers that work on a broad set of energy and climate challenges for state of California and the Western US. And would just begin this conversation, I think by reflecting on the moment we’re in, all of the structural deficit questions that New and Tara kind of artfully described. But also, I think the thing that many of the folks at this meeting historically have focused on and worked on and sort of used as a resource for climate investment is our cap and trade program. And the resources thrown off by that program that have been around for much of my career, right?
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I mean, we’re going on, program was first implemented in 2012, if memory serves correctly. And I think many have hoped that cap and trade will be a source of even additional incremental revenues, even as we’re seeing competition for those resources grow with time. And I want to just talk through some implications of the reauthorization legislation that passed last year and the subsequent market performance that we’ve seen. And I’ll just say, let me just lead. I think it’s really important to lead when you’re wrong by saying, “I was wrong.” Sitting in this room, or not this room, but someone across the hall somewhere, same meeting last year, I was asking questions and thinking thoughts about very high carbon prices post reauthorization. And the reason for that has to do with market fundamentals in that market, that there are not enough allowances relative to emissions. If one is kind of moderate about the emissions reduction trajectory that we’re on in California, if you sort of assume that the future will be like the past in terms of emission reductions, there aren’t enough allowances.
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So logically, you reauthorize cap and trade, you create as much regulatory certainty as the state is capable of creating, you’re going to see an increase in emissions prices. And prior to reauthorization, we’d seen a fall off in allowance prices that was reducing income to the greenhouse gas reduction fund, which is the main source of climate investments in a surprising way. We went from four billion a year to a little above two billion a year pretty quickly as the allowance price fell back to the price floor. And many people, myself included, thought if you reauthorize cap and trade to 2045, that will solve that problem or solve it in the sense of raising allowance prices, which would open the spigot of cash through the GGRF, might also create its own set of problems in terms of affordability because that cash would be coming from gasoline sales, right?
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Cap and trade, the GGRF fundamentally is raised by refiners paying the allowance price when they sell gasoline, finished gasoline at the rack, at the refinery. That’s where the money comes from, to a first approximation. And so if the allowance price goes up, that sort of shadow gasoline tax would go up and maybe create some political pushback and consequences. Instead, what we’ve seen in the last few auctions is actually a softening of the market. And a number of the players that we thought would come back to the market are sitting on the sidelines. And who are those players? Disproportionately, they tend to be entities that are able to buy and hold allowances. The people that need allowances are buying what they need at the allowance auctions and buying what they need from the large bank of allowances that ARB has allowed to be created over the last 12 years and kind of sitting and doing what they need to get by.
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The people that would actually bid up the price of allowances because they can buy now and hold and sell later for a profit are not buying now. Why are they not buying now? I think they’re not buying now because of the regulatory risks that they perceive from the federal government, right? The threat that the Trump administration has made pretty loudly and clearly to go after California’s climate program. There’s enough kind of uncertainty about that combined also with a little bit of waiting on the sidelines to see the final ARB rulemaking, implementing the reauthorization provisions. And that has meant that allowance prices are staying at the price floor. They’re back where they were really for most of the program where we have effectively like a carbon tax imposed on most emissions in California that’s at this price floor trajectory. Now, that might mean that allowance revenue for the things that folks in the room want to use it for is we could at least be predictable, is predictable, but because of changes in how the GGRF money is allocated that were made maybe with, I would say, not a lot of attention, certainly in a rush at the end of the last session, that’s for sure.
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This all happened, this was the landing four or five planes on the same runway at the same time kind of move that the governor’s office managed to pull off in the late 2025 or 2025 session.
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Important changes were made to the structure of how the GGRF actually provides revenue. And in particular, prior to reauthorization, revenue was doled out on a percentage basis. So if the pot got bigger, certain entities got more money, think high speed rail, for example, and if the pot got smaller, those entities would get less money, but there’d still be money left over for other things, things like the legislative priorities maybe that might come up on an annual basis. Now that’s really changed. Those entities get a fixed pot of money, and then whatever’s left is available for appropriation. The thing is, if you assume a price floor value price for allowances, and that’s an engineered outcome, ARB could decide they want to have high allowance prices, but I think it’s unlikely they’re going to decide that in the current moment, given everything that’s going on. And you look forward a few years, because of the fall in the cap and the preallocation of dollar values to certain pre-selected uses, the amount of money available for discretionary spending under GRF will fall to zero by the mid 2030s or early 2030s.
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Sorry, I misspoke. So there’s going to be a rapid fall off unless circumstances change. Now, things change all the time. Who would have predicted that the oil price now would be a hundred and whatever it is this morning, $105 a barrel for WTI and Brent who predicted that people in this room would be paying any attention to WTI and Brent futures prices six months ago. But here we are. Things can change back the other way and things may well do that. But I would say that broadly speaking, reliance on the GGRF is becoming riskier and riskier as a source of investment funds. We have Prop four as well, but that’s a finite resource. And so I would argue that we really need to be thinking about many of the strategies actually that Kate Gordon championed Nuantara’s boss at California Forward when she worked for the governor, that we need to be mainstreaming climate investment into all of the investment planning that we do as a state if we’re going to have sustained sources of revenue.
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This cannot be like an add-on thing. It has to be something that’s in the Caltrans budget to take one prominent example. It has to be something that is being implemented as policy in the regular way that we go about doing our business because the special sources of funds are likely to get smaller, not bigger over the next few years. And it’s critical that we sustain investment in that period. Thank you. Thanks.
Leslie Chang, Caelux (00:16:53):
Hard to follow, Michael. My name is Leslie Chang. I am the director of strategy and policy at Caelux Corporation. We are a domestic solar manufacturing startup. So we manufacture Profskite solar cells over in Baldwin Park, which is in the greater LA area. Proskit solar cells are a really interesting new class of materials. If you think about a solar panel, if you conceptualize that in your mind, it’s typically glass, silicon, solar cell, bottom glass. Silicon’s typically sourced from China, so the supply chain demands, I think over the last couple of years, ever since COVID and recently geopolitical risks have made things tricky to say the least. And what’s really unique and interesting about our technology is that we’re making everything right here in the United States, not only in the United States, but in California, which is famously difficult to manufacture in. So from my perspective as someone from the private sector, I want to speak to what Michael was saying about the threats that are coming in from the federal administration, solar and wind and renewable energy is under a lot of threat right now.
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And what that’s resulted in is a sort of similar slowdown in the way investors are looking at the market.
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When I think about what the Biden administration was able to do with the Inflation Reduction Act, that is a key opportunity that I see for California that can create that level of not only business certainty, but long-term strategic power building for climate, for working people, and for communities. The Inflation Reduction Act catalyzed over $490 billion in private investment into the United States, mostly in red districts that created more jobs, more climate investments, and decarbonized communities at a time where we really need it. So we’re thinking about things that can help accelerate this pathway forward for decarbonization, can help improve the affordability agenda in terms of making energy cheaper, and also can make sure that we are giving people good jobs. Thinking outside of the box, thinking about these types of creative solutions is what’s necessary. This is what’s going to catalyze the next phase of California’s transition.
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It’s really thinking critically about what industrial strategy means, how to center climate and how to work with legislators and the private sector and community to really center that in the way we’re thinking about all of this work moving forward. So I’ll touch on that a little bit more, but that’s what I’m excited to speak about today.
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Daniel Barad, Union of Concerned Scientists (00:19:46):
Yeah. Hello everyone. Daniel Barad with Union of Concerned Scientists. Union of Concerned Scientists uses rigorous independent science to solve the world’s most pressing issues. And my favorite story about UCS is how it was founded. It was founded by a group of MIT professors who were, during the Vietnam War, we’re trying to get the government to spend less money on nuclear weapons and weapons of war and more on science to solve the world’s most pressing issues. Since then, we’ve mostly been able to move away from that original purpose, although in the last few weeks.
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Fortunately we still have a small global security team on staff. But anyways, that is besides the point. To paraphrase Michael about the context of where we’re sitting, things aren’t great, it’s pretty bleak, there’s not a lot of funding. And then just to make things a little bit worse, the federal administration is not only taking away our funding, it’s also taking away the critical tools that we thought we were going to have to be able to transition our electric sector and especially our transportation sector. It’s taken away our advanced clean cars two rules, which would have transitioned our vehicles to entirely electric by 2035, and it’s taken away to really important heavy duty rules that also would have served to transition it. And so we no longer have those tools and relight on funding, and so that makes it really difficult. So what we need to be doing as a state is looking for really creative solutions that can generate additional revenue, and then looking at the revenue that we have right now, making sure that we’re spending that in the highest and best ways.
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And then on top of the federal rollbacks on the investments and the regulations, just one more thing that the vice chair mentioned this morning is we are in the midst of a transition in our state refinery sector. We’ve decreased gasoline demand in the state by 2.4 billion gallons a year since 2017. And this alone is a pretty big affordability win that goes unnoticed. If you think about, Californians were buying gas at five to $6 a gallon right now and they were buying 2.4 billion more gallons, that would be an additional $12 billion that consumers would have had to spend. So it’s looking at the ways that we can make our policies work as our climate policies work as affordability solutions, and then also make them meet this moment where we’re in the middle of a transition, making sure we’re moving forward on our goals, while also recognizing the importance of stabilizing supply, making sure people can get to and from work, those folks who can’t afford electric vehicles right away.
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So I’ll speak to some of the solutions a little bit later on, but that’s the general framing that UCS is bringing to this conversation.
Nuin-Tara Key, California Forward (00:23:07):
Great. Thank you all so much for painting such a dynamic and complex picture here, both in terms of kind of where we’re at on the budget and kind of the structural challenges we have on the revenue side, the federal context, and then to your point, kind of how we better couple kind of economic and affordability with climate goals, which is the perfect segue to kind of this next section here and discussion for us, which is, given this context of scarce public dollars that are oversubscribed, one thing I would also add in is, I think as we’re seeing increased climate impacts and disasters like the LA wildfires happening, we’re also seeing tremendous pressure on the budget as well. And I think I heard it was mentioned when I was in the main stage room, kind of this, the challenges of using GGRF to backfill general fund dollars for CAL FIRE.
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I think we all agree CAL FIRE is critically important to fund and we need CAL FIRE to respond, to be there for response and also the mitigation side of things, but also backfilling the disaster response side of things into the source of funding that we have to actually get at the root cause of the issue just means that we are facing falling further and further behind our ability to actually address the underlying issues around climate. And so in that context, if we could kind of step back, we’ve talked about the world we live in today. I want to pivot and kind of, what would the future look like? What would we like to have in place? What would a high impact investment strategy look like? One that can address affordability, but also kind of optimize where we have existing funding, what would that look like?
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So Daniel, maybe I’ll have you kick us off for that piece.
Daniel Barad, Union of Concerned Scientists (00:25:08):
Yeah, thank you. So first I want to talk about a bill, Union of Concerned Scientists is sponsoring AB 2672. We’re sponsoring four bills. So I get the numbers mixed up sometimes, but yes, 2672 by assembly member heart. And this bill is a really good bill to talk about in the context of what we’re talking about today, because it’s kind of a mix of what can the state be doing on the policy front and also on the investment side. So basically taking a step back, California has its own special, unique fuel blend. It’s called Carbob, and it’s the only gasoline that you can sell in the state of California. That’s great for environmental purposes. It is slightly cleaner than federal gasoline or gasoline from other states, but it also makes our state really fragile and really susceptible to supply constraints. So in recent years, we’ve seen, first of all, a number of refineries close down.
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So we have fewer and fewer in state refineries. And then when the refineries that we do have catch on fire or have some other unplanned outage, they have to call up a refinery usually in Korea or India, which are the ones that are making carbob. Stick the gasoline on a ship takes three to six weeks to get here. And in that time, that’s when consumers are seeing these huge price spikes. So UCS really wanted to understand how much better is carbob than non-carbob, and is there a way that we can add flexibility to the market and potentially generate funding to offset the emissions associated with the non-carbob use? So what we looked at is if you allow the sale of non-carbob gasoline, some of which is made in state refineries or you can get by is made closer to California. If you allowed for that sale with a small fee per gallon that would then fund the clean cars for all program replacing pre- 2004 vehicles, could you mitigate the emissions associated with the non-carbob use?
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And the answer was yes, you absolutely can. So a proposal like this, AB 2672, would stabilize prices during the supply constraints, allowing us to use more gasoline, and then it mitigates the emissions within the first year of the vehicle replacement and then pays long-term climate and clean air dividends down the road. So I think that’s one example of how we can just look at the system as a whole and potentially generate funding in a way that actually potentially reduces or would reduce gas prices. So on top of our beloved bill, I think it’s important that we also are just looking at how the state spends the very limited resources that we do have. UCS analysis shows that pre- 2004 vehicles make up fewer than 19% of the cars on the road, but emit more than 80% of our smog forming NOx emissions. So if you want your biggest bang for your buck in terms of air quality, it’s really going after these pre 2004 vehicles.
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The state has a program that does that, the Clean Cars for All program. So we can fund that traditionally with GGRF dollars, although we have fewer and fewer of those, or we can pass our beloved carbo bill and generate some additional funding. And then just a couple of other things. The governor’s zero emission vehicle incentive program is $200 million, I think has some good design features to … It’s a small amount of money, but to make sure we’re maximizing it, they’re really focusing on first time EV buyers because we know when someone buys an electric car for the first time, they very rarely go back to purchasing an internal combustion engine. So that’s a way that you can make those dollars go the furthest. There’s also a cap on how expensive vehicles can be to encourage the automakers to be making lower cost electric vehicles.
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And then the final thing I’ll say is just, we need to do more on the heavy duty side. This is the side that’s way less advanced in terms of electrification and the side that also didn’t get any new additional funding. There will be some LCFS funding and some funding from DMV registration fees left over. So we’re very lucky we have that, but that is going to need to be a huge Priority going forward for the state to replace diesel trucks with electric options.
Nuin-Tara Key, California Forward (00:30:06):
Great. Thank you, Daniel. Michael, I’d like to turn to you now, if you don’t mind, to kind of give your view of what would a high impact investment strategy that delivers on climate and affordability look like?
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:30:19):
Well, I think it’s important to think about where we are and then what the logical next steps would be to improve. And I guess as I think about the decisions that were taken, especially prior to the election of President Trump and the shift, the large shift in policy that occurred at the federal level, I do think we need to recalibrate in California. We have been spending money on things that frankly reflect political compromises rather than honest conversations. And I would point to CCS, hydrogen, biofuels as really important places where these are technologies that have either not proven scalability or where we know that they cannot scale to the level that we need for a true energy transition. And we have electric vehicles as a technology that can scale. And so we should be in a time of scarcity, really trying to focus resources there. What does that mean practically?
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I think it means looking again at the low carbon fuel standard decisions that were made prior to the election of Donald Trump and the change in policy, the repeal essentially of the Inflation Reduction Act policies that we could rely on as a state when the LCFS decision was made. We can’t rely on those anymore. And I think, and we haven’t talked about this very much, but the other place I think we really need to be having a hard conversation is on adaptation and mitigation and risk reduction funding. And they’re a much more adult conversation with homeowners, local governments, and the state all contributing their fair share and assuming that FEMA will contribute nothing. And we need to have a conversation about how to raise that money because if we don’t, the cost of climate impacts, I mean, they already are, right? Cal Fire’s budget has doubled in the last, since I’ve been doing fire, show me another state agency whose budget has doubled in the last decade and is on track to keep growing, right?
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We’re about the legislature just agreed to a new kind of construct for labor with the Cal Fire Union that’s going to mean that the budget is going to have to grow substantially into the future. And unless we can really make progress on loss reduction, we are in big trouble. So there again, I think we need to be having some conversations about, is it insurance premium taxes? I see Deborah Halberstadt standing in the back of the room there. Don’t mean to give you heart palpitations. Is it some other way that we’re generating revenue that can be invested and to get back to what I think everybody has invested really carefully and with a focus on efficiency in a way that we maybe haven’t, if we’re honest, if we’re all in the room being honest with each other, the GGRF revenue has not always been invested with that focus or any other revenue in this space.
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And so we need to get disciplined. We can do it. I think we can. I think this is actually an opportunity to learn to do things better so that as conditions improve, we can scale what we’re doing to a much larger level. And that should ultimately be the goal.
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Nuin-Tara Key, California Forward (00:33:44):
So yeah, want to have you kind of map out what would your vision look like? But then also if you can kind of bridge into the next question here for us, which is kind of what has worked to bring private investment to the table and really kind of focusing from your view in this landscape and context, that piece of the question.
Leslie Chang, Caelux (00:34:04):
Yeah. I think the through line between what Daniel and Micah are talking about in terms of builds and scalability is that we have to center advanced manufacturing in California’s economy moving forward. And I think what has characterized our economy certainly over the last decade is a significant investment and priority of tech, Silicon Valley, software as a service. These are the types of things that has really defined California’s economy over the last couple of years. And I think on one hand, this has certainly brought in tremendous investment into the state, but it’s only produced one kind of job and it hasn’t necessarily pushed us in the direction of making things. And I think that that’s one thing that this administration talks about, but doesn’t actually execute on, which is making things in the United States, which is critically important because for me, thinking about advanced manufacturing, there’s sort of three different aspects of work and stakeholders that need to be brought in.
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On one side are the investors. It’s the investor base that I think the Biden administration got right with things like the Inflation Reduction Act and CHIPS Acts. It’s thinking about what are the types of incentives that we need to put in place to ensure that private investors come to the table and invest into manufacturing. Manufacturing is very different from software. It is capital intensive. It is very expensive. It is labor intensive. It is difficult to do. And we haven’t done this in the United States in a very long time. So thinking about the ways in which we can actually build out industry again requires significant investment from the state, but also private investors. That’s one bucket. The second bucket is the manufacturers themselves. We have a pretty clear understanding of what technologies can scale and can work, but for companies like myself, there are a lot of new, advanced, innovative technologies out there that need this kind of support from the state and from private investors.
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So what are the types of things that can guarantee that startups can move from R&D into pilot into scale to deploy their technologies immediately so that we can decarbonize the grid because energy demands are rising faster than we can consume it. I think energy demand is projected to double by about 2050, if not earlier. So we need to think about the ways in which we are bringing those investors to the table, ensuring that domestic startups with innovative new ideas, whether it’s coming from academia or the private sector, have opportunities to build, and then all of that culminates in well-paying jobs for everyday people. And that’s something that I think the tech industry really missed out on. That was one type of job for one type of person, and we’re seeing a lot of that getting offshore right now. If we want to bring affordability back to the table for everyday people, that means we need to expand the different classes of jobs that are available to people in California so that they can stay here and afford to live here.
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That means well-paying jobs, union jobs that are suitable for people who might go to high school, but not choose to pursue college or even trade tech school. And so these are the three types of, I think, stakeholders that need to be brought to the table, and that can happen when we center manufacturing. I think it’s either Connecticut or Massachusetts now that actually has a chief manufacturing officer in the state legislature, which I think is so cool because that represents, I think, the kind of forward thinking, long-term planning that California can really commit to. And when we commit to that, when we think about recentering advanced manufacturing and by proxy climate in the way we think about our economy moving forward, I think that begins to shape the way we think about the next 10 to 15 years in a way that we haven’t thought about before.
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So certainly, I think I agree there’s huge opportunity here, even though things seem very dire, but I think Americans are incredibly innovative and we have the best schools in California and we have people who are dedicated and motivated about climate. And I think this really is the state to pioneer the next phase of American manufacturing and growth.
Nuin-Tara Key, California Forward (00:38:35):
Right. I appreciate that. And California Forward, we’re doing a lot of work around a lot of the issues that you just talked about. And I think the point that you bring up around kind of looking at other state models, where other states leading or kind of charting some practices that we could be looking at brings up, for us at California Forward, we’re doing a lot of work to think about how to build more durable kind of regional economic development structures across the state. I mean, we all know California is an incredibly diverse economy in our regions is really where our economy is taking place and there’s a ton of diversity in terms of what that needs to look like. So there’s no one size fits all, but we also recognize at the state level, and we’ve all kind of talked about kind of the importance of state governance and the priorities and kind of being efficient, we also don’t have a dedicated economic development kind of agency or view at the state.
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We’ve got some really important pieces that are doing great work, but we don’t actually have that kind of cohesive view as part of how we’re thinking about what and where we’re coupling our economic vision with other priorities as well. And so I think that’s just another piece on kind of that governance. The role the state plays is setting that table, helping guide and create a framework to bring these pieces together that then can bring, and I appreciated your point of like, how do we set the table with the different perspectives that need to be there is definitely a priority. I would love, Daniel or Michael, if you have other thoughts kind of on the private sector and kind of what works to bring that public private view together before we move on.
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:40:18):
I’d just say something Leslie that you said really resonated for me. When I think about the problems that California has, the way that we will solve them is by drawing capital into California. There is not the public money to solve the problems at the scale we need to solve them with public capital. So that means we need to create a context where people want to invest their capital in California. And if we can do that, we will solve all of these problems. And the problem we’re having right now is reluctance to deploy capital in California as much as anything else. We saw that with the Inflation Reduction Act. You want to build stuff, build it in Georgia, right? We need to make it so that people want to build stuff in Baldwin or in Bakersfield or wherever else in California, maybe even in Palo Alto.
(00:41:08):
Who knows? I mean, crazy things happen. That’s pretty crazy, but if we can create that outcome, California policies will take care of the rest. So I completely agree with the broad context in which you’re laying it out. Great.
Nuin-Tara Key, California Forward (00:41:25):
Okay. I think we just have a minute or two before we transition to audience Q&A here, and I know you’ve talked a little bit about this, but wanted to open up fully recognizing we have limited state kind of revenues coming in. Your point is so critical, Michael, of we need to bring in additional capital, private capital from outside of the state, but where are there some opportunities for us to be kind of thinking about, especially in context of the federal dynamics that we’ve been talking about here, to think about alternative revenue mechanisms that we should be considering. You touched on one, but I was wondering maybe if you want to dig into that one a little more or other ideas that are out there and then for everybody, how should we start thinking about expanding our revenue context in California?
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:42:18):
Well, I think I mentioned two, really. Well, maybe one is not a revenue expansion. I think we need to really think about how we’re spending the climate money that’s coming out of gasoline sales much more carefully. We’re not careful enough. That’s thing one. Thing two, I suggested the idea of using insurance premium taxes or an increase in insurance premium taxes. Right now they’re at 2.4%, maybe we raise them to 3.4% and we take that money and we spend it very carefully on hardening homes so that they’re less likely to burn down in wildfires. We know what to do there. We know the basic steps. There are some complexities with scaling up a program like that, but the biggest complexity is there’s no money, there’s no resources. And even modest resources there could make a big difference when the next bout of fire weather comes around because in a state of 40 million people, there are going to be ignitions.
(00:43:19):
There’s going to be fires. The question is, what happens when those fires do occur? Oh, I keep wanting to do that. I can’t help you. Thanks.
Leslie Chang, Caelux (00:43:29):
Yeah. I think just everyday people are really taxed out right now and certainly in LA County and across the state, I mean, there’s a lot of ballot measures that are being proposed to try to fill in the stop gaps that’s been left by the state and certainly the federal administration. I think there is a lot of legwork that California needs to do to make sure that people trust that the government can work for them again. And I think that this aspect of spending responsibly and budgeting in a way that actually accounts for how people live is incredibly important. Yeah. I keep talking about the Inflation Reduction Act, but I think it was a landmark piece of legislation that really did a lot. And I think bringing more private investment into the state is necessary. Thinking about the ways in which those three buckets I talked about earlier between investors and private corporations and people when we have better jobs, people pay more into the tax space.
(00:44:27):
When we incentivize businesses to come here, corporations pay more into the tax space. When there are all of these incentives with all of these diverse stakeholders investing into California, that helps our state people would want to move to California, which is also people are moving out of California. All of these things are really necessary and I think seem very mundane, but really is transformative for how people view California. And I think critically how people view and relate to the role of the state, not capital S state California, but the government. And I think that’s really important because trust in the government is at an all time low right now. People need to understand and believe that the state can actually work for them. And I think something as simple as this that doesn’t rely on more propositions, taxing people, giving more money to the government, I think will go a really long way.
Daniel Barad, Union of Concerned Scientists (00:45:24):
Yeah. Just real quick, I think definitely agree with Michael that we have to be much more intentional about how we’re spending our capital invest revenue and LCFS, but I also think we need to acknowledge they’re under attack every single year. The capital invest program right now is on lots of billboards you may see around Sacramento. So just want to make sure that first and foremost, we actually have those programs that are providing the critical funding. We actually get the capital invest rulemaking done and then hopefully we can lift to have the conversations about how to spend that money more prudently. And then of course, I’ll just plug AB2672 one more time. This is a great way, reduce gas prices, generate revenue, and spend it prudently on replacing old dirty vehicles.
Nuin-Tara Key, California Forward (00:46:20):
Great. Thank you so much. Okay. So now we can turn to audience Q&A here. Great. There’s a question right there. And then in the back corner, I see too.
Speaker 6 (00:46:34):
I’d be curious if you all have any thoughts on public pensions, some of those very large amounts of money that we have in the state, strategies for investment actually into California, like CalPERS, et cetera, are invested all over the world. And then particularly if there are any, given the high need for like ROI, if there are particular technologies, industries that are a good match for campaigns that might be looking to push public pensions to be able to invest.
Nuin-Tara Key, California Forward (00:47:11):
I mean, I think maybe just one quick and then I’ll hand it over is, I think being mindful that the institutional investors, CalPERS, CalSTRS, have return requirements in statute. And so I think that’s something definitely to be aware of. It doesn’t operate like other investment capital out there in terms of being able to be really flexible or having a little bit more risk tolerance in terms of the return. So I think that’s just important context setting, but I don’t know if you all have thoughts on specific technologies or opportunities there. I mean,
Leslie Chang, Caelux (00:47:49):
I will say, I think the state of California providing those guarantees to ensure that green technologies can scale is going to be a really important bridge to getting there because yeah, that aspect of ROI is really important, unfortunately. And I think that’s why we still have oil and gas and a lot of pension funds everywhere because investors are looking … The portfolio managers are looking at how to balance that. And if we aren’t taking meaningful steps to change the way people look at these new types of energies and the way that they can actually create a return for people, then it’s going to be hard to get to that point where we can actually rebalance portfolios and really emphasize more green technologies rather than sort of traditional industries. I think investors have to … I mean, everybody has to sort of view advanced manufacturing as this next phase of growth.
(00:48:41):
And I think a lot of that starts with the state being really serious about what it means to actually unlock that landscape.
Nuin-Tara Key, California Forward (00:48:52):
Great. There’s a question in the back corner and then blue shirt up here and then I’ve got some more on this side. Thank you for running the microphone. Oh, what
Speaker 7 (00:49:04):
Was that?
Nuin-Tara Key, California Forward (00:49:04):
That, yep. Okay. Yeah.
Speaker 8 (00:49:09):
Thank you. So I serve on the California Air Resources Board and Kappa Invest is coming to the rulemaking process next month. Obviously, we’re the stick. It’s the legislature who divides up the carrot and gives it to whoever they want, but I’m curious if you have any feedback about that rulemaking process and if anything that you would like to see happen next month when we look at allowances.
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:49:31):
Do you want to get in trouble, Michael? I mean, I’ll just say I have so many thoughts, but lots of stakeholders do. And I think it’s a difficult balancing act that the Air Resources Board confronts in the current moment with cap and invest. And I would agree with Daniel’s remark that we need to have it, and that’s a priority one should be sustaining the program. And I guess I think that the … The outcome we have now has to do with lots of decisions that have been made over many years that have led to the allowance bank that we have now, and lots of things that the ARB can’t control, like what the Trump administration is doing.
(00:50:20):
I guess if it were me, I think we have to try to protect jobs in California. Leakage is a huge concern, particularly as the cap gets more stringent. At the same time, recognizing that change is inevitable, right? That you can’t protect jobs that you need to go away if you’re going to reduce emissions. And I think there is that huge tension throughout this … In another room somewhere around here, Emily Grubert is talking about the mid transition, right? And I mean, Emily’s fantastic if you can hear her talk ever. I’m glad you’re all here. So ARB needs to project clear signals to the market about what it’s going to do and stay true to those signals. I think that there’s some of the missions accounting that we could talk about maybe offline that could be better about how ARB measures its own progress, like why it is that biofuels are treated as zero emissions and we have the low carbon fuel standard measuring every intimate detail of every biofuel producer kind of raises some questions, but we have to stay the course right now.
(00:51:35):
And I think, and then there’s a legislative conversation about how the money’s spent that’s super important.
Nuin-Tara Key, California Forward (00:51:43):
Thank you. Okay. Go ahead up here.
Speaker 9 (00:51:47):
Hi. One of the things I haven’t heard mentioned by anybody so far this morning has been public transit. And I’m wondering why there is apparently no appetite to help regional public transit of high quality that would bring down emissions and also make transportation more affordable for people. I haven’t heard anybody mention it. And is it because of the high speed rail program because that’s just kind of such a disaster or what do you have, what thoughts do you have about that?
Nuin-Tara Key, California Forward (00:52:21):
I mean- Go for it. Jump in. Yeah. I would say I don’t see how we meet our emissions reductions goals on the transportation side if we’re not investing in transit and accessible transit around the state, which looks differently in different locations. And I do think, yeah, the context on high speed rail is one piece of it, but that’s not the entirety of it. And I do think we have to have a serious conversation about how we’re supporting and investing in transit, especially even coming out of the pandemic still and seeing how many transit systems are struggling to get back to revenue at a sustainable level. And I think we’ve talked about it a lot of prioritizing limited state dollars where there is significant return and transit investment provides not only emissions reduction return, but also broader economic development opportunity, economic opportunity as well. And so I do think transit is a really important piece of this, that we do need to have a conversation about where and how we are, when we subsidize things that are really valuable, that provide a public good and broader economic good as well.
(00:53:38):
So agree, I think it needs to be part of the conversation.
(00:53:44):
Great. Okay. Back over here, back. Yep, thank you. And then up here. Great.
Speaker 7 (00:53:55):
Thank you. I’m kind of amazed that nobody has mentioned either the climate super fund bills or the lawsuits that are moving through courts all around the country that would pull a ton of money from the only entities on the planet that can afford to undo the damage that they have done, which is the major oil companies. And I just say an answer to the question about the public pension funds is that they need to factor climate related financial risk into their financial planning because when the lawsuits really take hold or bills like Make Polluters Pay pass in different states around the country, those are going to, we’re going to be verging on stranded assets and a lot of losses for the pension funds. Thank you.
Nuin-Tara Key, California Forward (00:54:57):
You go and then, yeah.
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:54:58):
Okay. I mean, I think it’s important to be clear that there are two issues. One is, how do we pay for things now? And that’s mostly the conversation we’ve been having today. There’s another issue, what are the go forward incentives for firms and investors? Were those super fund bills to pass? I mean, how many people here have ever been involved in circular litigation? I have. It is not a rapid path to anything. Let me tell you, once you have a bunch of potentially responsible parties in the room, the bickering and the lawyering up that happens, nothing fast is happening there. However, it is a really important set of incentives to have in place so that people behave better now and they change their investment practices in the moving forward. So I view that legislation and the private litigation that’s happening is incredibly important, but I do not expect that it’s going to raise money for anything that we need to spend money on like this year, next year, until I retire, if we’re honest.
(00:56:01):
But like long before I retire, if those bills pass, it could really change incentives for the pension funds in particular in how they invest and how they think about risk. So there’s a huge upside. It’s just not budget for the next governor upside or the next governor’s first term maybe.
Nuin-Tara Key, California Forward (00:56:22):
Yeah. Matt?
Speaker 10 (00:56:27):
Thank you. I think we’ve tended to fund a lot of investments in California climate investments through grant funded programs. And I’m curious if you have thoughts on the treasurer, the iBank, these other sort of state financial institutions, like has anybody done a more comprehensive look at the tools and authorities they have to deliver on some of this? And what questions would you have in such an analysis? Can I
Dr. Michael Wara, Stanford Doerr School of Sustainability(00:56:56):
Take this? Yes, please.
Leslie Chang, Caelux (00:57:00):
Great question. Yeah. I think anecdotally, so my company is looking at expanding and I am very incentivized to stay in California, but was told to sort of consider a lot of other states, Georgia included. So I did outreach to those states, Georgia, North Carolina, South Carolina, New Mexico, Nevada, Arizona. And what was really missing from California was this dedicated economic development office. I had one point person in every state that said, “I could put you in touch with the workforce development partners. I can put you in touch with so- and-so. Here are all a different agency. There’s one coordinated body.” And California is very big. And so I understand that there has to be multi-agency stakeholder coordination, but having a dedicated point person and office coordinating all of this is critically important. I think iBank and Treasurer’s office, all of these has to sit under a coordinated mechanism.
(00:58:06):
I think they also have to be really focused on moving companies from that pilot like R&D to scale up phase because again, thinking about this parallel between tech as we’ve seen it in the United States and advanced manufacturing, scaling up tech is really easy because it’s sort of a linear process. It’s one investment and it’s into people. Advanced manufacturing is harder, it’s different, right? The challenges are exponential. And so for a company that’s trying to move into deploying available, commercially available technologies now, there needs to be more of a coordinated effort from the state to support that as well. So I think about the Department of Energy, like the loan programs office, the Office of Clean Energy Demonstrations that was available during the DiBiden administration. California has a lot I think that could pull from those types of models, but sitting under the umbrella of an economic development agency would be, I think, the starting point.
Nuin-Tara Key, California Forward (00:59:08):
I would just add one quick thing to that, which is, I mean, I think the same is also true, not only on the kind of advanced manufacturing, emissions reductions, energy transition, but also on the risk reduction side of things as well. Just back in the envelope, these are the wrong numbers, but best wrong numbers of like, even if we were to harden a million of the homes in high fire severity, high risk areas for wildfire and use an average of $20,000 per home, that’s $20 billion. We know there’s not $20 billion of grant money sitting around, nor is that the best use of direct public subsidy. I think we need to be, to your point earlier, Michael, very much more precise and kind of diligent about where we’re spending limited public dollars. There are absolutely places and communities, individuals who cannot afford financing and they need to mitigate and reduce the risk on their property.
(01:00:05):
There also are a lot of people out there who could take out financing and we need to make that financing better incentivized and more easily accessible as well. And I think there’s a really big space for us to explore a lot of opportunities for us to think about leveraging state dollars to bring in additional capital and bring in private money so it’s not all just one time grants to pay for everything. I think I’m getting the sign, so apologies. There are many questions still, but I want to thank panelists very much for spending your time and your insights. So thank you. And then thank you, Mary. Thank you all so much. Great.