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.
Jasmin Ansar, The Climate Center (00:18:35):
Good afternoon everyone and welcome. This track is the critical policy reforms and this is the first breakout panel for the cap and trade reauthorization reform and on revenue. My name is Jasmine Ansar and I’m the moderator for this session. I work at The Climate Center. I’m a researcher welcome and happy Earth Day. I should start, you can’t hear me? Oh, okay. Can you hear me now? Thank you. Alright, I’ll repeat. Happy Earth Day. Welcome everyone. Okay, this is the Cap and Trade reauthorization reform and revenue session.
(00:19:49):
Just to set the context for the panelists. The panelists, we will first have Katie Valenzuela, who’s the director of Policy and Advocacy at Everyday Impact Consulting should be followed by Lolly Lim, who’s program manager of Climate Equity at the Greenlining Institute. Then Barbara Haya, who’s the director of Berkeley Carbon Trading Program. And finally, Michael Wara, who’s the Director of Climate and Energy Policy Program at Stanford University.
(00:20:22):
There will be a question and answer session at the end, so please if you can hold your questions until the end and unless it’s clarification from a particular speaker, then feel free. I just want to quickly thank our sponsors, Sunrun Peninsula Clean Energy, Heirloom, Bay Area Air District, GM, SMUD, LA Department of Water and Power, San Jose Clean Energy, Clean Power Alliance, Ava, the Energy Coalition, MCE, Citizens Climate Lobby, dcbel, Renew Home, Policy Pulse, Silicon Valley Clean Energy, and thank you to all the individuals who helped to make this event possible. Just a reminder that on Event Leaf, which is the app, you can see the agenda in the speakers and please use this hashtag for your posts. So let me start by just giving a very brief overview of the cap and trade program. So it all started with legislative mandates and the first mandate was AB 32 that set a target of reducing emissions back to 1990 levels by 2020. And as you can see from the graph, indeed emissions did fall and we actually reached that target early. That is before 2020. That was followed by SB 32, which passed in 2016. That set a new target of 40% below 1990 by 2030. So we’ve yet to reach that and hopefully we are well on our way. Then in AB 1279, passed in 2022 and that set a new goal of carbon neutrality by 2045 and hopefully we’ll get there.
(00:22:28):
Just to give you an overview, the basics of cap and trade, I mean, the question is, will we have these legislative mandates for emissions reductions? How are we going to get there? And the way we’re going to get there, it’s a mixture of both direct regulations and cap and trade, which is a market mechanism in cap and trade. The whole idea is that you set an emissions cap and all big emitters will have to meet whatever level of emissions they’ve been allotted. They have two choices. They can either go into the auction and into the market and buy what are called allowances or permits, or they can actually invest in emission reduction technologies and actually sell their allowances to others who have not invested. And one of the hallmarks of a successful cap and trade program will be, of course the caps will be declining as emission reductions occur every year.
(00:23:29):
But what your hope is that the price of polluting the price of carbon will increase. So you should see an increasing price of signal. And what that does is of course make much more cost effective and profitable emission reduction technologies and the are set so that they decline because you hope you’ll get the lowest hanging fruit in the beginning. That’s when the price is the lowest. And as it increases then you can invest and hopefully new technologies will mean that the costs of future reductions will get lower. So the long-term, what you get is a price signal for clean technology investments. The way it gets implemented is through once the targets, the goals have been set, then the California Air Resources Board, who is the agency in charge of implementation, develops what’s called a scoping plan, which is an action plan to actually deliver those emissions reductions. They will then determine what the next set of regulations are for the program and then the program starts. So that’s the theory.
(00:24:41):
We’re a little bit delayed, which is what we do not need at the moment. So this is actually a slide taken from last year from CARB workshop where they had hoped that by now the regulation would be in place. And indeed as they say, amended regulation in effect, unfortunately we’re still waiting, but hopefully it will come when they issue the new regulation that will embody the parameters of the program from 2026 when it gets implemented through 2030, there is still the remaining issue that after 2030 there is no, basically what we need is reauthorization of the cap, both those points, that is both for the new regulation and for the reauthorization. There are reforms that are needed. And one of the ways you can tell that is not nearly as effective as it should be is if you look at the price of carbon, the price of carbon has not been steadily increasing.
(00:25:42):
In fact, it’s been pretty much at the floor for most of the program, it’s been much too low. So that gives little incentive for people to invest in carbon emission technology, which is the whole point of the game. So what needs to change? Quite a few things. The current program, one of the main issues is it subsidizes pollution, which seems ironic for a program that’s designed to stop polluters. You’re actually helping them out by giving them free allowances. And this is not insignificant. This is significant sums. I mean just from last year, 2024, almost 25 million allowances were given out. That’s worth almost a billion dollars. And just think of how that money could be redeployed both for clean technologies, both for addressing transition and affordability. So the carbon prices, I said it’s been low and it’s been pretty unstable. Part of the reason for the instability is that there is no reauthorization or no reauthorization after 2030.
(00:26:42):
So people are worried. Other things that need to be considered is what should be funded by the auction revenues. The auction revenues currently go into a program called the Greenhouse Gas Reduction Funds and Lolly, who’s our second speaker, will be talking about that, her analysis and what reforms are needed. And I should have actually said that Katie, who’s going first will be talking about a lot of the problems in particular because of polluters are subsidized because polluters are allowed things like offsets, which are alternative allowances, alternative programs that can be invested outside California, many of them. And anyway, there are many problems with offsets, but Katie will be talking about a lot of the environmental justice features that remain with the current design of the program and how the program needs to be redesigned and reformed. As I said, lolly will be talking about the auction revenues and the use.
(00:27:48):
Barbara High will talk about the offsets the problem, the lack of credibility, and the fact that they allow pollutants to continue in frontline communities. And finally, kind of pulling all of this together, Michael Weer from Steinford will be talking about how do we deal with the fact that higher carbon prices and higher energy costs are very regressive. They affect low income people disproportionately. And so how do we manage this affordability aspect, which is absolutely critical for the success of the program. So I’m going to now hand off to Katie, hand off. Can you tell why did the high emitters get free allowances? Talk about that. You’re speaking to the right person.
Katherine Valenzuela, Everyday Impact Consulting (00:29:13):
My name is Katie Valenzuela. I’m a consultant with Everyday Impact Consulting based here in Sacramento, but I have the pleasure of representing center and race poverty in the environment in Central Valley Air Quality Coalition based in the Central Valley here in California on this work.
(00:29:29):
So that is how I start. And this is a hot take on EJ perspective. This letter just came out on Thursday, so y’all are at the cusp of learning where EJ is at. It has been many, many months of weekly conversations to get us to this point, but we are ready to rumble and hope that a lot of you in this room will support us as we embark. So these are not my points alone. I have to point out the broad coalition of folks who participated in this letter from across the state of California. We’re also working in coalition with a broader allies group around oil and gas allowances and other questions that are going to come up. But we are very excited to be presenting this and I’ll get into each of these points here today. But I also see so many cameras up.
(00:30:10):
I’m just going to wait a minute and let you all take a lovely photo of the screen. I also will have my email at the end, so if you want the actual copy of this letter, you can feel free to email me. I’m going to go through a lot of content and you’re probably going to really not like me by the end of this. Okay, so carbon markets. So what Jasmine said is correct. I mean California uses a suite of programs to address our climate targets. Carbon markets are one of those strategies. What it allows is flexibility for industry. And I’m going to parrot carb right now because I’ve heard it so many times. I could almost say it verbatim. It allows flexibility for them to meet the challenges in the way that makes most sense for them. And so the reason that I start with this is because carbon trade is not the only carbon market that California uses.
(00:30:55):
We also have a system called the low carbon Fuel Standard. I say this because this is a standard that largely applies to fossil fuel, transportation, fuel companies, and those credits versus the $30 a ton that cap and trade is at can easily go above $250 a ton. So it’s a much higher price signal to industry than cap and trade, but most of that money is actually going out of state. So it’s going to biofuel projects. The idea was to phase out fossil fuels, but it’s largely going to biofuel projects out of state. So when you think about the pass through cost to residents and what we’re experiencing, which is real, I mean that’s not the only way the oil and gas industry sets their prices, but some of that is compliance. You’ve got a program that’s coming in many times more than the cap and trade program costs that is delivering very few if any benefits.
(00:31:40):
And in some cases actually harming communities by perpetuating technologies like renewable natural gas and clean hydrogen, which we can’t even define as what you think. When I say clean hydrogen, you’re like, oh, isn’t hydrogen good? We can’t define it the way you think it is. Burning plastic is considered clean hydrogen right now in California. It’s insane. So this is going directly to its industry to industry. California doesn’t control it. We can’t make sure that it benefits communities. And so ej, one of our primary objectives when we’re talking about extending the carbon markets to past 2030, which is what we’re doing, is to bring in low carbon fuel standard to that equation. And we think that we could implement better price control mechanisms within low carbon fuel standard because part of what it’s doing is giving a really huge incentive to direct air capture projects and carbon capture projects and other crappy projects.
(00:32:26):
And we also think that we can, sorry, I told you I’m hot. I kind of get loose. I’m getting loose. Nobody recorded me please. And also the other thing that we’ve struggled with CARB is getting them to consider low carbon fuel standard, a market mechanism. Now you’re going to think to yourself, well obviously it’s a market mechanism. They’re selling credits. They’re trading credits. That’s a market mechanism. Literally the definition of a market mechanism, carb disagrees. And so because they disagree, there’s no mechanism in place to ensure carbon’s only sold once. That’s an additionality protection. There’s nothing that tracks that carbon to make sure that I’m not also maybe selling it to Microsoft. I’m not also doing it over here. So there’s a whole bunch of things that CARB could be doing to better regulate this program to better deliver benefits to communities and to help.
(00:33:09):
If we’re going to have to pay for this through higher prices, then we should at least be ensuring that the program meets our needs. Now back to the topic at hand cap and trade. So this chart is from the iMac. I cannot take credit, I should have put Danny’s info on here. My apologies, Danny Ward, wherever you are. But this market really shows the price scenarios for cap and trade moving past 2030. So the big message that you see here is that the cost for this program are going to go up because regardless if we make changes to the program, they were going to need to ratchet it down and carbs current modeling shows that they’re going to need to ratchet it down. What this chart also shows you though, which is really important is that how you distribute the credits within the system doesn’t really change the overall cost of the system.
(00:33:52):
There’s only so many credits in the system. So if I’m giving more credits to the oil and gas industry and say, I’ve decided to move that down into credits that have to be bought at auction, that’s not going to change the overall cost. It’s going to change who pays, right? And so that’s the difference that we’re talking about. And I have to start with this slide because something that not a lot of folks, there’s only so many credits in the bank, and so if I’m giving it to the oil industry, they’re not buying it from GGRF, but if I move it over, it’s not necessarily going to make the overall cost impact different. It’s just going to mean the oil industry is paying versus us paying by not having that money in the GGRF. So when we think about carbon market reforms, so the question earlier, something that happened in 2017 with AB 3 98 which extended the program to 2030, is that they set the industry assistance factor at 100% for every industry regardless of leakage risk.
(00:34:42):
So before 2017, CARB actually had this pretty intricate analysis of leakage risk. So everybody was getting free allowances up to the cap and they were slowly going to start stepping it down. So there were some sectors that were always going to get 100% like cement, which is high leakage risk industry. There were other sectors like refining that were not going to keep getting 100% and we’re going to start seeing those credits step down. So in 2017, we set the industry since this factor at 100% for every industry. The big beneficiary of that was the oil and gas industry. They got about $300 million worth of credits just in that next year, third year compliance period in 2018, that value total credits they get now is valued at almost $890 million. That price will continue to go up as the credit prices go up as the program gets more expensive.
(00:35:30):
So we’re basically subsidizing the oil and gas industry for a billion dollars a year in free allowance credits. So our number one thing is, hey, we should probably go back to a slightly more methodological approach for how we allocate free allowances. It should be based on actual leakage and ideally you would just take it all away from the oil and gas industry. This doesn’t trickle down, it didn’t help prices in 2017. It’s not going to help prices post 2017. When you look at the charts, of course they’re passing through some costs, but most of it’s global markets, right? I mean this isn’t how they’re setting their prices and at least this way if they’re having to buy the credit or reduce their emissions. But if they’re having to buy the credit, we can invest that money. We can put that money into transit, we can put that money into affordable housing, we can put that money into projects that will directly help consumers rather than hoping and praying that the industry will trickle down some corporate benefits to us because goodness knows you’ll die holding your breath on that one.
(00:36:18):
And we also want to eliminate offsets, which I will let Barbara talk about in a minute because she is who we cite on all of that. Now, community investments, these are our priority programs. These are not the only priority programs. We are also working with sustainable ag, affordable housing and transit folks on other like we see as co-benefit strategies for us, these are really aimed at top priority environmental justice, like reduced pollution programs that we feel are really critical that we want to uplift for our communities. We are also a huge fan of the climate credit, which Michael War will talk about. It’s the only way that we can get money to every housed Californian without having to stand up a whole separate program. And it’s something that we feel really strongly could be improved and actually increased. So when you remember that credit distribution, some of those credits in that distribution go to the climate credit.
(00:37:06):
So we could take some of those oil and gas credits and put it into the climate credit bucket and then you will see more money on your bills that we could wait towards high impact regions. We could wait towards high heat regions and actually make it more of an impact on everyday households as they’re paying their electricity bills. So we’re very excited to continue to support that. Now, our final platform point here comes around cumulative impacts. And some of you’re going to be like, oh, we’re talking about carbon, we’re talking about climate. Why are you talking about air pollution, Katie? Well, I can tell you as I break my fan that in 2017, well 2016, let me back up. Jasmine just told you about how they set the 2030 target and they had companion legislation in 2016 that bill almost didn’t pass, and it did not include an extension of the cap and trade program.
(00:37:49):
And you want to know why? Because predominantly the Latino caucus, but other lawmakers as well, were starting to get concerned that over a decade after AB 32 passed, they weren’t seeing the reductions in the communities that they represented. And so they were starting to raise, and we were starting to get early evidence in 20 15, 20 16 that showed that these high polluting facilities are over concentrated in communities of color newsflash and that they weren’t really reducing emissions in the first decade of the program. And so people were starting to put their foot down and say, wait a minute. Part of the point of AB 32 if you read the bill, is to deliver co-benefits for environmental justice communities and to ensure that we’re not perpetuating further harm. You can’t demonstrate that anymore. So AB SB 32 only passed when it was linked with a bill called AB 1 97 that actually required carb to prioritize direct emissions measures among other things.
(00:38:37):
And so when 2017 comes around and we’re talking cap and trade, there aren’t the votes for 3 98 unless it’s linked as it was to AB 6 1 7, which was the community air protection program. So that program has a lot of deficits. It’s something we’ve tried to make work. It was largely designed by industry, frankly. And so it’s been kind of an uphill slog the whole way. But essentially our message to the legislature and to all of you is that we want the promise that was made in 2017. In 2017, the promise was we’ll only extend the program if there’s a robust air quality program in place to ensure facility emissions are actually going down in your communities. That still has not happened. And so we are looking for companion legislation like Senator Becker’s bill to be introduced to actually ensure that emissions reductions go down in communities. You can do whatever you want in your carbon market land with your monopoly money, but in Oildale California, we really want to see the air pollution get better through emissions reductions. So that is what we are pushing for and some of the lessons we’ve learned on 6 1 7. But with that, this is my sled. This is all of us in January, our EJ Coalition in person. And thank you for the Time Climate Center and happy to answer any questions at the end.
Jasmin Ansar, The Climate Center (00:39:57):
Lolly is next.
Lolly Lim, The Greenlining Institute (00:40:00):
Hi everyone. Thanks for the opportunity to speak here and thank you Climate Center for this amazing event. I’m Lolly Lim, She/they pronouns. I’m with an organization called the Greenlining Institute. For those of you who are unfamiliar, we’re a nonprofit advocacy group based in Oakland. We work on climate and economic equity advocacy, and I’m going to be sharing some information from a report that we worked on in partnership with the USC Equity Research Institute last year. So both GREENLINING and USC were trying to understand this question. Is that better? Better? Okay, both USC and greenlining, were trying to understand this question of cap. Andrade has been running for about 10 years a little bit longer, and over $10 billion have gone into the GGRF and been spent out. So when there’s revenue generated through the auctions, they go into this pot of money and then it gets spent out on a suite of programs.
(00:41:00):
There’s about 70 to 80 different programs that have received dollars through GGRF and it’s dispersed by the California Air Resources Board. So we are trying to understand after 10 years, where have those 10 billion gone and what communities have they gone to? Have they really centered the communities that are most pollution burden, the low-income communities, the ones that by statute there are some guidelines around. So there are requirements that at least 35% of these dollars benefit these priority communities as they’re called. And we are trying to understand, is that happening? Do people know about these dollars? What can be improved? So today, I’ll just share, I’ll link the report at the end, but I’ll share our key lessons. And we did this through a couple different ways. We did some quantitative analysis of where the dollars are flowing. We did case studies of 10 programs. We did some focus groups in EJ communities and we just talked to a lot of people.
(00:41:58):
We did over a hundred interviews with environmental justice and community-based orgs that have utilized some of these dollars to get their perspectives as well as carb. We talked closely with them and gave them copies of the report to comment on, et cetera. So I’ll just give you the spoiler here, what’s working and not working? So across the state, we did find that the projects from this suite of funding, the projects are indeed many of them landing in dac disadvantaged communities, low-income communities and slash or low-income households. So by the numbers, when we did this with 2022 data, it was 73% are landing in these places. In some way, I think the number that the most recent data drop is 76%. But what we saw was that there seems to be very limited awareness and visibility of a lot of these projects. The exception is with programs that are really community driven, well coordinated, and provide really direct and tangible benefits.
(00:43:04):
I’ll talk about some examples and we saw that from the portfolio of projects, there are some that really stood out as having facing continuous pushback from local residents. And then broadly there are opportunities to improve GGRF, particularly around producing deeper economic benefits and supporting the needs of pollution burden communities in the way that they’re asking. So this table here or this chart, who’s here familiar with Cal and bio screen? The tool seeing lots of hands. So basically as you go from left to right, the 10th percentile represents census tracts that are the most polluted and pollution burdened. And by the numbers we see that the dollars are landing in those higher deciles, which is good. And I should note that there’s a statute SB 5 35 slash AB 1550 that requires some of this. It says you have to do at least 35%. So I think this is where statutes really matter.
(00:44:05):
You make that requirement, you create a definition and then carb tracks it. So having those goals really matter. And when we interviewed folks, the type of projects on the left, transportation, housing, those are the types of projects that we often heard as being kind of desired project types. And by and large, the GGRF suite of dollars do go towards those project types. When we did these focus groups, what we saw was that we tried to look at three particular EJ communities, the Eastern Coachella Valley, Richmond, California and Oxnard in the central coast, and determine how much money was flowing to each of those places from GGRF dollars and kind of slice the data in this way to list out all the programs, how much money went into that region, what kind of projects happened, say in the Eastern Coachella Valley or Richmond. And we brought these to folks during our focus groups and basically what we were hearing was like, I didn’t know that this was happening in part because the impact is not there.
(00:45:08):
I feel like we haven’t really worked together locally. There’s probably places where we could have been more effective at getting more money for our region had to be coordinated. So basically there’s a fragmentation issue where sort of bottoms up desires are not having the opportunity to be elevated and to be funded in a coordinated way. And then these are some examples of programs where we heard more positive feedback. The transformative climate communities was one of the programs that a lot of people basically for most of the programs that we brought, people were like, oh, I’m not familiar with that, but this one people seem to actually know about. And it allows communities to bottoms up plan and implement a coordinated portfolio of projects. The Affordable Housing and Sustainable Communities program was another one where that requires a significant level of community engagement and collaboration. And that seemed to be a really popular oversubscribed program as well.
(00:46:08):
And a couple other examples, community Solar. That was the first community owned solar project in California that is in a tribal community and also low income. I think it might be the first in the nation kind of hitting all those marks. So very unique project funded by cap and trade that had good results. And then forest health funding that flowed through tribal entities. Also, we heard positive feedback on. So those are some examples of project types where there was a lot of community buy-in and visibility and impact. And we also heard that there are some project types that face continuous pushback related to methane digesters or alternative fuels for perpetuating inequities and claiming benefits with that proper accounting of harms. Those are kind of the things that we heard. And there are also programs in the portfolio that we think showed some mixed results. So high speed rail automatically receives 25% of GGRF dollars.
(00:47:12):
And we’ve heard good things about jobs creation for that program. And then some mixed feedback in terms of the actual impact of the program and compared to how much of the resources it receives. And then AB 617, the air quality program that Katie talked about, we heard kind of mixed results on that, but broadly people kind of hoping that it can improve over time. So I want to pivot to talking a little bit about economic benefits coming out of GGRF because that is so critical as we’ve all heard about the affordability focus at the moment. And what we saw was that there’s a lot of promise for creating deeper economic benefits through these types of programs. But at the moment, the data that we have to work with is a little bit murky. So the economic benefits that get reported for GGR right now is related to job creation and cost savings.
(00:48:07):
But what we couldn’t figure out is who are these economic dollars and benefits actually flowing to? So when you look at the carb database, you see a project and you’re like, oh, it goes to say a company for retrofitting their to making their facility more energy efficient. But how does that, and it says X number of jobs created that are modeled, it’s hard to work with that information that’s modeled data. How many real jobs are actually created? Are they good jobs? Are they local jobs or are people coming in and out? And then how does that trickle down to serving the local community? So there are some, I think data updates that CARB is starting to do to make that easier to understand. And also there’s some limited tracking of community workforce agreements and labor agreements, et cetera that do happen. I bring all this up because I do think there is really great opportunity to integrate more economic benefits goals, like just the way I mentioned in the beginning, s SP 5 35, AB 1550, setting that target and making carb track it and having all the administering agencies integrate that goal.
(00:49:15):
Setting targets around economic benefits can help us get there. So I’ll just give a couple examples of why I’m excited and think there’s a lot of promise in this. We have seen really cool examples of programs creating these very tangible economic benefits through cap and trade funded dollars. So like I mentioned, the community owned solar owned by this tribe, which supports energy sovereignty. We’ve seen a low-income home ownership project, which is rare. Usually these projects are rentals. So to have a cap and trade funded home ownership project for low-income households is really cool. They’re also hiring section three disadvantaged workers for capital projects. And there are lots of little nuggets of promise. And I think having all of these coalesce and setting a really clear target around economic benefits and affordability through this program through broadly GGRF and funded programs would be helpful goal towards getting us there.
(00:50:13):
And then lastly, I want to finish by noting that we did all these interviews and did these focus groups. And what was really clear was that the needs for climate investments in these pollution burden places are really immense. And many of them are not squarely GHD problems. So we heard about toxic soils in Richmond where you need to remediate the soil before you can even build anything on it before you can do transit or housing. We heard about the need for safe and affordable drinking water in these drink Coachella Valley and many other parts of the Central Valley air pollution issues, some of the most heavily burdened neighborhoods in the entire country goes on and on. So I bring all this up because I think GGRF could be utilized to continue to support many of these program types and not some of which are strictly tied to GHG and some not.
(00:51:08):
So I’ll wrap up with these key lessons here. The first is that climate investments produce the most visible felt impacts when projects are community driven. Some programs right now maybe actively or programs that have been funded before might be harmful to selected communities. And before continuing to fund those types, they should be scrutinized carefully if there’s ongoing concern. CCI can be used to produce deeper economic benefits for low-income households and communities, stronger goals and requirements would help. And then in many pollution burden communities, the immense and wide ranging need and scale for climate investments would be supported by funding that really flexibly addresses environmental priorities, greenhouse gases, as well as air pollution, water quality, toxic solar remediation and the like. So I’m getting the stop sign here, so I’ll stop there, but I’m happy to chat more and then you can read the full report if you would be interested here. Thank you.
Barbara Haya, Berkeley Carbon Trading Project (00:52:34):
Hi. First thanks to the climate center for hosting this, and I’m Barbara Haya, I should speak. I’m Barbara Haya. I direct the Berkeley Carbon Trading Project at uc, Berkeley’s Goldman School of Public Policy. We focus on interdisciplinary analysis of carbon offsets, quality and credibility. And I’ve been doing research myself for over 20 years on carbon credit quality. And just to start off with a note of backdrop. So last week when the Trump administration came after state climate policies, governor Newsom came back saying that we’re going to double down on our climate policies and that is something that I wish that all states should do. It made me proud to be a Californian. He did that by saying he’s going to quickly push for a reauthorization of the cap and trade program. And the main message that I have is in the process of reauthorizing the cap and trade program, we need to reform the carbon offset program.
(00:53:52):
My main points that I want to get across over the next 10 minutes or so are one, the offset program is large. It’s a large part of our cap and trade program. It generates credits far in excess of the claimed program benefits. It needs reform and without reform, my worry is that it will continue to send funds out of state for credits that don’t represent real emissions reductions instead of having those funds be reinvested in California to reduce our emissions in state. One second. And in terms of possible ways of reform of the offset program, I want to highlight, I think Oregon has already implemented or is in the process of implementing as approved a model program that I think California should consider. They’ve replaced their offset program with a climate mitigation fund that works much like GGRF. Another alternative program is Washington’s program. They have an offset program, but it’s focused in state and it’s brought the offset program under the cap, which reduces the risk that it will undermine the integrity of the cap.
(00:55:28):
And I’ll describe that a bit more. As a third option, we could improve the quality of California’s offset program and that has proven to be elusive so far. And it would require significant reforms. And at a minimum it will be important to at least any reauthorization should come with a limit on the use of offsets and ideally a smaller limit than we have today. Just a quick note, the main points of these two graphs are in 2017 when the California Air Resources Board came out with a scoping plan on the size of the offset program, the maximum offset use of all companies and emitters use the maximum allowed offsets. Then that offset limit equaled around 22% of the expected reductions from within California between 2021 and 2030. And more than half of the expected impact from the cap and trade program itself after the suite of other policies have reduced emissions like renewable portfolio standard and LCFS. An interesting point is taking a look at the 2021 to 2023, the offsets that have actually been purchased and used to meet regulated entity targets, two thirds are out of state. One third is from projects in the state.
(00:57:13):
California’s offset program is over crediting considerably. Here is the credits that have been issued so far under our program. 80% is from forest, 75% is from improved forest management. To note the improved forest management projects also make up 40% of all credits generated from any project, any offset projects in the us, including from the voluntary market plus California’s offset program. And this program has over credited considerably. The main reason is the way the improved forest management protocol works is that any forest landowner in the US can generate credits if they commit to holding more carbon in their forest than they say they would have held without the offset program, with a minimum being the average for the forest type. And two studies have come out really questioning whether that claimed baseline, what would’ve happened otherwise is accurate, is conservative, is credible. And they both found that when comparing land management on offset lands compared to how the land management was before it was entered into the offset program, they see no discernible difference, no change in forest management practice.
(00:58:41):
They also found when they compare those lands and forest management on those lands compared to control lands, also no discernible difference across when taken across the entire set of participating projects. That’s not to say that the program isn’t having any impact. It comes with a hundred year commitment not to develop the land, not to reduce the carbon on the landscape. So presumably over time it will have impact. That impact could be decades in the future. We don’t know how much it will be. And those credits are being used by companies today to justify ongoing emissions or to be used towards their emissions reduction targets. The IFM protocol, we’ve seen other problems with it, not just baselines, but also leakage and the amount that’s put in the buffer pool and these problems have not been corrected to date.
(00:59:49):
Right. Okay. And then I wanted to say offset programs are hard to run. Well, we’ve seen poor quality across also the voluntary market. It’s sort of something we’ve seen across all major offset programs. And the challenges are largely due to two things working together as I understand it’s one is high levels of uncertainty and subjectivity and estimating emissions reductions largely because you have to measure emissions reductions against that counterfactual or baseline scenario, which is highly uncertain, combined with a set of market actors that both the buyer and the seller benefit from more credits benefit financially. And all of that is in a context of information asymmetries and you get adverse selection. So the problems are inherent to carbon offsets.
(01:00:49):
So let me describe several possible approaches to reforming the program. I would encourage really considering adopting Oregon’s offset Oregon’s program, they’ve implemented it as an alternative to their offset program. It’s their community climate investment fund. So under this program, regulated entities can pay a fee now $129 per ton into the climate fund that they can use towards meeting their cap and trade reduction targets. The fund is limited to 20% of their total emissions, so that’s more than California. California’s offset program is limited to 4% of our emissions going up to 6% next year. The funds go to an NGO administrator that would, and they have a call for proposals for those NGO or those NGO administrators that would be responsible for running this program under the guidance of an equitable equity advisory committee where they would design programs where those funds would go into reducing emissions in the state focused on the transportation, residential, industrial, and commercial sectors. So those funds would go into reducing emissions in the cap sectors, helping to reduce the costs in the cost going forward of reducing emissions.
(01:02:28):
The funds should reduce at least one metric ton of CO2 equivalent per credit. On average credits aren’t tradable and they should prioritize projects and programs with health, environmental economic benefits for environmental justice communities with 15% going to tribal communities. For Washington’s program, it’s another alternative to reforming our offset program. It’s an offset program with two key changes from what we’re doing, differences from what we’re doing. So all projects must have direct environmental benefits in the state as opposed to half for California and offsets are under the cap. That means that any credit used comes with a reduction in the cap of one ton in the following period.
(01:03:27):
Back to my main points, I just want to leave you with a few overarching thoughts. I think whatever system we adopt to play the cost containment role in our cap andry program should do so in a way that’s transparent and effective. Meaning in part that it accurately estimates, submissions, reductions. It doesn’t waste funds by paying for reductions that don’t really happen. It keeps funds in the state to help the state reduce its own emissions and it supports emissions reductions in an equitable and broadly beneficial way. And I believe that Oregon’s CCI program does all of this. And lastly, at a minimum when we in the reauthorization process of the cap and treat program, at a very minimum it will be important to have a limit, an explicit limit on the use of offsets and ideally a lower limit if we continue the offset program. Thank you.
Michael Wara, Stanford Woods Institute for the Env (01:04:52):
Hey everybody, I’m going to talk about cap and trade reauthorization and affordability, talk about the challenges that we’re going to face if we reauthorize and discuss some potential solutions. But I would emphasize that the solutions I’m going to offer are partial, and this is work we all need to be doing as we think about reauthorization and the creation of a sustainable cap and trade program that will drive reductions close to the 2045 goal, right? We are headed into uncharted territory and it is really important to emphasize that the reductions up until 22 were one and a half percent a year. We’ve been doing 4% reductions the last few years, which is a huge reduction. I’ll just say the only historical examples one can find, were developed societies reduced emissions 4% a year for multiple years, involve things like great depressions and strategic bombing campaigns. So we’re doing something different here. We’re building a prosperous, thriving economy with good jobs and we also want to drive emissions down very close to zero. That is new. And so we need to be careful.
(01:06:16):
So I’ll just emphasize, I think affordability is the key challenge. Lemme just step back and that’s a picture of altina. If you don’t know what altina looks like these days, it’s pretty grim. We need to be doing this. It is worth the money. We need to be showing the path forward. I think of California as like pilot scale, right? We’re only 40 million people. We’re a very affluent state, but we need to show the path forward for what prosperous affluent societies can look like and be zero carbon. That is the promise of cap and trade. We have mostly not delivered on that to date. I’ll just put my cards on the table with probably most of the people on this panel. But we’re headed into a time where this program is either going to perform or not and reauthorization is a real opportunity. And I’ll just add one other note that reauthorization Jasmine presented at the beginning, some of the timelines that a RB has laid out.
(01:07:21):
A RB, my differences, my legal differences with a RB on this, you should go back more than a year, more like 10 years. But I have long felt that cap and trade reauthorization and extension of the program to 2045 can only occur by a legislative reauthorization. That anything else would create a lawsuit that would generate such uncertainty for the market that the market could not function. And I want to say I’m really heartened that a RB has come to the table on that issue and the governor’s executive order and response. Maybe Trump can do good things accidentally sometimes. And one of the good things is that the administration has really committed to this effort and a RB is behind it. And I think that’s a huge step forward and real progress because it means that there is partnership between the executive branch and the legislative branch on this issue. That has not always been easy. The relationship around cap trade and many of us have scars on our backs from the last time and hopefully this time can go better and we can all come together and find a path forward. So like I said, I think affordability is the key challenge because we are going to reduce emissions a lot in the 2030 to 2045 period at an unprecedented pace if this program stays on track.
(01:08:42):
We need to think about how we spend money that the program generates and we should think about that problem. In terms of how we decarbonize, I’ll talk about climate credit redesign. We’ve done some work on that. Lane Smith, who I think is not in this room, he’s here today, he’s led that work for my team, really grateful for his contribution. Talk a little bit about increased allocation of allowances to utilities to try to reduce electricity rates using the allowance value generated by the sale of cap and trade allowances and then briefly subsidies to buy down the cost of needed electric system investments. Something that working on. So first of all, affordability is the challenge. I think before the LA wildfires, before the announcement from Newsom, that cap and trade re authorization was the priority. Most members of the legislature involved in energy and climate were very focused on affordability, and this is why this is the black lines are inflation and this is the three large investor owned utilities, their rates relative to inflation. If you live in California, you know this because you get a bill every month that reflects it. Wildfires are the predominant driver of these changes, but they are by no means the only driver, but the necessary investments to avoid outcomes like paradise and the Woolsey Fire in Southern California have been very large. They continue to be large. Also the liabilities generated by these major loss events. So electric costs are really high. That’s a big challenge. If the strategy to decarbonize is to electrify everything and build a zero carbon electricity system.
(01:10:27):
In addition, and this is modeling the A RB commissioned, and I just want to contextualize this a little bit. This is modeling that was done by Professor Jim Bushnell and his team at uc Davis. For those of us who’ve been around cap and trade market design in California for a long time, this team and the folks at Berkeley Haas, I’m plugging for uc here as a Stanford employee. Go Bears, go Aggies. They do the best modeling work. And when I say best, I mean because this is the third iteration of their work and the last two times they got it exactly right. So these people have forecast skill. Now what does this complicated figure you? It shows you a couple things down here. I’m just going to come over here. Down here in light blue is what happens if we do nothing? If we do nothing, the price of the cap and trade program falls to the price floor.
(01:11:26):
The reason for that is ARB has allowed a lot of allowances to accumulate in the bank, the bank of unused allowances. And if those allowances can’t be used after 2030, you got to use ’em before. And that means there’s too many allowances kind of sloshing around. If reauthorization occurs in any form, and this is Jim and his team evaluated a number of scenarios with different kind of frameworks, but what you can see compared to the little blue line down at 25, everything else goes right up to a hundred, right? That’s a bunch of different options for market design. And then there’s some divergence as we go out to 2045. A lot of that has to do with assumptions about economic growth in California. But we are in a different world once we reauthorize and how to put this, folks who work in state government on emissions trading programs sometimes have a hard time admitting that the money generated by the GGRF has to come from somewhere.
(01:12:35):
Money doesn’t grow on trees. Money in the GGRF mostly comes from selling allowances to refineries to cover emissions associated with the combustion of all of our gasoline and diesel fuel in the state of California. I don’t actually burn much of that anymore, but that’s because affluent enough to buy an EV and have a home charger. So it’s easy for me, but everybody, regular folks have to drive their car a long ways to work. It’s probably a used car. It probably burns gasoline. That money, that carbon price is additive to the price of gasoline. And this has political ramifications, right? We are down here right now, that’s about $25 a ton. You could think of it as like about 20 cents a gallon. If you go up to a hundred and above a hundred, you can do the math. This is where the sustainability of the program comes into question.
(01:13:28):
And we really need to be thinking if we are going to take this path, if we’re going to take a path of high carbon prices using market forces to force companies because of economics to reduce emissions, how do we create a sustainable pathway for regular people to afford that? And for businesses that manufacture things in the state of California to afford that, they’re both important, right? Because businesses employ the people who have to drive a long ways to work. And so we need both things to function. And a lot of the engineering around cap and trade to date, frankly, has been about keeping prices low. If we’re honest, we say the true thing out loud. It’s about keeping prices low That is not going to work. Absent wild accounting chicanery to get to the kinds of targets that we need to achieve over the next decade, it’s just not going to cut it.
(01:14:27):
So we’re either not going to achieve targets or we’re going to develop a system that really meets regular people, regular Californians where they are and helps them to achieve this outcome where we all do it together. So how do we decarbonize Well today, and I think this is really the theory of change. There’s lots of extra sort of wheels and epicycles that are bolted onto this by various constituencies, but the real theory of change here is we decarbonize the electric sector and then we electrify everything. And that’s the simple answer. That’s lots of complexity built into that. Where do we get high quality industrial heat? Talk to my engineering friends at Stanford about that. They’ll have all kinds of stories to tell you, but this is the basic answer. We know right now, and we’ve done a lot of it, we’ve been quite successful at decarbonizing the electric system.
(01:15:19):
The electricity that serves California is much cleaner than it was. We’re not signing long-term contracts with coal plants on the res or in Utah anymore. A lot of those stacks are getting blown up and knocked over and that’s great. That is an accomplishment. But a question to think about is how much is this the next increment of electrification going to cost? Remember that electric rates are very high right now because of lots of things including investments in electrification and how are we going to pay for that? I’m running out of time. So one of the things that we’ve looked at is changing how the climate credit works. Probably most people in this room have no idea that they get a climate credit if they do. That’s kind of by design. In 2012, this whole program was designed to give utilities allowances to give to their customers in a way that the customers would not notice.
(01:16:12):
And so what that means is you get your little extra increment of money on your bill as a bill credit in April and October when you don’t need it because it’s not hot. We did a study where we looked at this is coastal and inland. You can think of it that way. Cold versus warm climate zones. And notice how the bills are very different in the coastal California. It’s foggy in the summer, bills are actually lower than in the winter. If you go, and actually this is for care customers, if you go to Bakersfield, you’re looking at a difference between 150 bucks in the winter and 300 bucks on average in the summer. This is where a lot of the Bill Rearage comes from. Low-income people who can’t afford to pay their bills in the summer. So we recommend reallocating the climate credit. And you can see the dash line is our modeled reallocation.
(01:17:05):
It is doable with even just the amount of allowances we have now where we essentially protect the people who are least able to pay their electricity bills to keep their kids and older folks safe in the summer, right? It’s hot in the Central Valley. Allow them to afford their bills in a way that we think is very manageable. And we’ve worked with the investor owned utilities as well to make sure that this can work, it can, we should do it. It’s a no-brainer for California. Real quickly, I’m running out of time. We’ve also looked at increased allocation of allowances to utilities. We think there is potential there, but it’s relatively limited. The amount of change you can get rates and bills is relatively small for larger and larger increments of allocation to utility. So that is not a silver bullet unfortunately. I wish it were.
(01:17:53):
I was hoping it would be. Honestly, the other thing we think is important, and one of my team, Megan Atal is sitting in the audience, I want to shout out to her, she’s, she’s really leading this charge is thinking about major investments we need to make in California in order to achieve that a hundred percent clean grid that’s powering everything we do. And one of the biggest investments we need is in transmission. I’ll finish quickly and we think it’s worth considering whether we could buy down the cost of the electric transmission upgrades we need to make in California that will also notably generate better wildfire safety and potentially allow retirement of once the cooling power plants where we do not want them in EJ communities to buy that investment down via subsidies from cap and trade, take the cash flows that come out of the allowance auctions securitize against them so you can bond and make a major investment. Today, I’ll just say lots of ideas. Reauthorization is likely going to raise cap and trade costs. We can manage that problem, we need to manage it or we will not end up with a program that can be sustained in the long run. And we should help to ensure that the least able to afford the changes that are happening in California are provided with assistance. And we think that assistance should be via electricity rates and potentially by making investments at much lower cost using cap and trade money in the electricity system. Thank you.
Jasmin Ansar, The Climate Center (01:19:32):
Thank you to the panelists. Outstanding coverage of issues. Lots of food for thought. It is now Q&A time we have at least some time. Yes.
Speaker 11 (01:19:46):
Please remind me about the legislation that has been introduced for the extension of cap and trade. Is it also include any reforms or is it clearly just an extension?
Katherine Valenzuela, Everyday Impact Consulting (01:19:56):
Right now they’re just placeholder bills. Ms. Erwin has a bill and Ms. Limon who’s heading the senate working group, the governor’s office has signaled that he wants to introduce a clean straight extension. We’re trying to take back the word clean. It’s not clean in May, so we’re working hard, but a lot of the folks in the assembly and the Senate want reforms. So we’re just trying to bolster that effort.
Jasmin Ansar, The Climate Center (01:20:18):
Yes, if you could stand, I’m sorry, that would be helpful.
Speaker 1 (01:20:26):
Energy. Katie, you mentioned that LCFS allowance prices are way higher than capital trade. I’m curious why that’s the case as well. As you mentioned that a lot of the money is flowing out of stake with biofuels. How is it who determin? Is it statute? Is it? Who’s deciding where that money goes? Wondering if it’s similar.
Jasmin Ansar, The Climate Center (01:20:53):
Okay, so the question was about LCFS and the price of LCFS credits being so high and at least two thirds of it, I think you said was going out of state.
Katherine Valenzuela, Everyday Impact Consulting (01:21:03):
Much smarter people than I can talk about why the prices are higher. But I will say that the decisions on what credits they buy and from whom are made entirely by industry. In this case, low carbon fuel standard applies to the fuel companies. So they’re deciding what credits to buy and what projects to invest in.
Jasmin Ansar, The Climate Center (01:21:20):
Yeah, Linda, thanks.
Speaker 11 (01:21:23):
I’m Linda and I thank you for the panel. It’s very informative. Can you all hear me? I’m going to sit, but I can talk loud. Loud. I just wanted to bring up the topic of soup pollutants in this context of this conversation, particularly one comment for Barbara and one comment for Katie on the topic of short-lived climate pollutants. Let’s see, Katie, you talked about that there needs to be robust program to ensure air pollutants will go down toward the end of your presentation. And I wanted to say by focusing on methane, looking at black carbon, looking at ozone precursors criteria pollutants that are causing these things, that’s one way to really create, to focus some of this offset work on super pollutants would be a benefit to the climate would help support our near term climate goals. And it has more benefit than is it currently accounted for under current climate accounting systems that undervalue methane or don’t include some of these very short-lived but powerful climate plumes.
(01:22:38):
And then for Barbara, I wanted to just pose this comment and not be interested in your thoughts about this topic of super pollutants that you talked about the issue of over crediting and in your chart, in your pie chart forestry, obviously the big junta, but again, if there’s more investment in mobile and stationary sources of these very short-lived climate pollutants, again that are huge air pollutants, I think that would ensure, especially if you follow the Washington model for instance, and made sure that offsets were going to benefit Californians and in California, that you would see a lot of that problem of over crediting go away assuming that you have high quality, high integrity credits.
Jasmin Ansar, The Climate Center (01:23:33):
So the question really was about super pollutants
Speaker 11 (01:23:37):
And particularly short lived fit into your thinking about all
Katherine Valenzuela, Everyday Impact Consulting (01:23:41):
Of this. Yeah, I think when coupled with strong regulatory measures, I think part of the problem, we have low carbon fuel standards, a great example. We do value methane in that system and we valued it to the extent that we’re actually creating an incentive for dairies to expand their cattle size and other problems that we would like them not to do. We’d like them to sustainably manage their manure. We’d like them to reduce the size of their cruise, but they don’t do that because they get a lot of money by selling the methane they capture to fuel companies who want to use that to reduce their carbon. So I think the devil’s in the details, but we’re a big fan of direct regulations. A lot of those ag waste sites are not under super stringent direct regulations that we’d like to see implemented. For sure.
Barbara Haya, Berkeley Carbon Trading Project (01:24:23):
Yeah. Just a quick comment, I mean, methane is a part of the offset program.
Speaker 11 (01:24:32):
Yes, it is. Although it’s severely undervalued for its impact,
Barbara Haya, Berkeley Carbon Trading Project (01:24:37):
Right? Because yeah, it’s using a hundred year GWP instead of a 20 year GWP, which is four times as much. And a fund like the Oregon Fund could choose to support, could prioritize reducing methane.
Jasmin Ansar, The Climate Center (01:24:56):
I think we have time for just one more question. Yeah,
Speaker 8 (01:25:02):
Thanks for this. I thought it was incredibly informative and very hopeful in the sense that I think all of the reforms that have been proposed are very practical and made a question. To me, this feels pretty different than 2017 where there was sort of more of an ideological opposition of market mechanisms in general. And so question one is my perception there accurate? And two, we can get away with it. For Michael, we talked about the affordability and afford a hundred dollars a ton would be a dollar per gallon, but the reform you recommended would go to lowering electricity costs. Do you have any ideas on the lowering transportation?
Katherine Valenzuela, Everyday Impact Consulting (01:25:48):
Yeah. Well, I’ll say that we are still ideologically opposed to market mechanisms broadly in the EJ movement. Markets tend to exacerbate racism and other sort of structural finance land use issues over and over again. However, you are noticing a difference in 2017 environmental justice groups were pretty opposed to any extension and we’re really rallying behind Senator Wakowski carbon tax proposal at that time. I think it was 7, 7 5. So this is a shift for EJ to say that we just need a stronger air quality program. We feel we can really mitigate the harm of a cap and trade extension. If you can tell me that the refineries in Kern are actually going to reduce emissions at some point. So it is a shift for us. It’s one that was not taken lightly
Michael Wara, Stanford Woods Institute for the Env (01:27:18):
To transportation problems in California is to create opportunity for people to have a job in the Bay Area and be able to live in the Bay Area as opposed to in Tracy or Stockton. And that’s there’s a local government sitting in the room. I’ll just say local governments where I live in Marin County are the problem. And we need to take the believe in climate change and act like we believe in climate change, which means things like what Mayor Bass did in LA after she was elected ED one which set a shot clock on affordable housing, all affordable housing projects and completely flip the economics of those projects. And if we were willing to do those kinds of things, I think we could get a lot done on housing and that would fundamentally change this equation. And honestly, that’s the California that I grew up in and I want my kids to live in as adults too.
Jasmin Ansar, The Climate Center (01:28:15):
Well, with that, let me say thank you so much to the panelists. Thank you, Katie. Thank you, Barbara, Michael, A lot of really useful information and we just need to go out and get the reforms instituted. Thank you.