Carbon Pricing in California

Our state level work has focused on getting a price on carbon that reflects the actual cost of fossil fuel to our economy and environment. Since 2007 The Climate Center has been educating policymakers, stakeholders and the public with the aim of having Cap and Dividend be the top market-based solution for AB32, the Global Warming Solutions Act.

A panel of experts, called the Economic and Allocation Advisory Committee (EAAC), released a report in 2010 that recommended that the largest share of auction revenues– roughly 75% of allowance value – should be returned to California households.  According to EAAC figures, this dividend translates to $388 in 2012 for a family of four, rising to $1,036 by 2020, adding a total of $7,004 to family incomes over the 8 year period.

The California Air Resources Board (ARB) approved the draft rulemaking for Cap & Trade on December 16, 2010 and the law is supposed to be implemented in 2012. The Regulation to Implement the California Cap and Trade Program included a mention of dividends, but ARB chose not to decide on how revenue generated by the law will be used, leaving that for the state legislature to decide.

Under the cap and trade system, state utilities, such as PG&E, are freely allocated permits which they must then sell to generators. The utilities, however, are required by the legislature to use at least 85% of that profit to benefit ratepayers, who may have suffered from higher energy prices. In 2012, the California Public Utilities Commission voted unanimously to use 100% of their auction revenues to create a climate dividend for their customers.

This was a huge step in the right direction. Unfortunately, the PUC later decided that administering an off-bill dividend was too costly. The solution that was then decided upon was to include a bi-yearly climate credit on customers’ utility bills. The credit in 2014 averaged at $35 in April and October, and is expected to rise over time.

The Climate Center continues to advocate for the expansion of the climate credit into a true climate dividend, with the majority of the auction revenue being dedicated to that purpose. The dividend should be off-bill to ensure the maximum visibility and impact.

To read ARB’s scoping plan and the rulemaking which contains the main strategies California will use to reduce the greenhouse gases go to:

Find out more at Mike Sandler’s page, Carbon Share and read his blog on huffingtonpost.