Photo by Karen Preuss

Cap-and-trade is failing to provide adequate funding to California farmers

by Nicole Pollock, Inside Climate News


  • Due to a decrease in revenue from California’s cap and trade program, many agriculture-based climate programs may receive funding cuts or no funding at all
  • The cap and trade program typically makes $600 million and $800 million from major polluters in the state through allowance auctions, but due to the economic downturn of the COVID-19 pandemic, only $25 million in revenue was reported for the most recent auction
  • Auction revenues help fund dozens of programs and initiatives that advance water efficiency, healthy soils, and emissions reductions in the agricultural sector
  • If funding continues to dwindle, many of these programs will receive no funding in the upcoming budget
  • Beginning January 2021, money from cap and trade auctions will not be required to fund climate-specific programs
  • Programs in funding jeopardy include the Sustainable Agricultural Lands Conservation (SALC) program, which helped link the climate crisis with farmland use

California’s cap and trade program is not meeting the emissions reductions we need for a climate-safe future. To achieve rapid decarbonization, California should pursue climate funding mechanisms that support climate justice efforts and carbon sequestration programs for the agriculture sector. 

Read More:

California is re-evaluating cap and trade

by Rachel Becker, CalMatters


California has relied on its carbon cap and trade program to dramatically reduce greenhouse gas (GHG) emissions in the state. Many believe this policy is not strong enough to reduce emissions to 40% below 1990 levels and now the state must decide if it will reform the program.

  • California was the first in the United States to implement a cap and trade program and it is now one of the largest pollution markets in the world
  • In the past two years, the auctions of pollution permits gather $600 million per auction and the money is used for programs like EV rebates
  • Due to the unstable economy from the coronavirus pandemic, auction revenue is declining
  • Major polluters that purchase permits include oil refineries, power plants, transportation, and manufacturers
  • Polluters are not in favor of adjusting the cap and trade program, saying that it could increase the price of gas and consumer goods
  • Currently, the state is not on track to reach 2030 emissions targets and must reassess how to meet these goals

Using climate funding mechanisms, such as a carbon fee and dividend, we can effectively produce an additional $20 billion per year specifically for a climate-safe California while reinvesting back into our communities.

Read more:

Governor Gavin’s chance to become a climate dividends hero

by Mike Sandler, co-founder of The Climate Center

With Federal climate action stalled for years, climate activists have looked to California to lead the way.  And California has in many ways, including by adopting the most ambitious multi-sector GHG cap in the country and an economywide carbon price, the first and still only one in the United States.  However, when it comes to climate dividends, California has not lived up to its full potential.

But with our new Governor Gavin Newsom reviewing Cap & Trade expenditures and priorities, there is a rare and exciting opening for climate dividends to become a reality.

First, a quick recap of the state of climate dividends in California.  After California passed AB32 in 2006, the California Air Resources Board convened the Economic and Allocations Advisory Committee (EAAC), which released recommendations for carbon price design in 2010, including returning “the largest share (roughly 75%) of allowance value…to California households.”  This recommendation was not carried out, as we’ll see below.  Meanwhile, the California Public Utilities Commission held a proceeding on the allocation of allowances in the electric utility sector and declared that 100% of proceeds from the electricity sector should be returned to ratepayers, including a non-volumetric (equal per households) “climate dividend” rebate. This was instituted as the California Climate Credit, seen as a line-item on utility bills starting in April 2014. The Credit was expanded to include revenues from the natural gas sector in 2018.

So, what happened to the Cap and Trade revenues? Since the Cap & Trade program began in November 2012, the Air Board, under direction from Governor Jerry Brown and with approval of the State Legislature, has spent $1.2 billion dollars on high speed rail and $959 million on urban infill housing.  An additional $400 million was given to the California High-Speed Rail Authority (CHSRA) to repay a loan they took before any auction revenues had materialized. Combined with the total $6.1 billion, this represents about 39% of monies available.  Indeed, when the State extended the Cap & Trade program through 2030, Governor Brown made a point to include a requirement for 25% of Cap & Trade funds to be used for high speed rail going forward.  It looks like now-Governor Gavin Newsom is reviewing that approach.

In Governor Newsom’s inaugural 2019 State of the State Address, he acknowledged publicly that the high-speed rail program will need modifications.  No one knows what this means exactly, but let’s assume that one outcome would be taking it off the life-support of Cap & Trade funds.  Let’s also assume that Governor Newsom is willing to move the infill and affordable housing projects (which have taken about 20 percent of Cap & Trade appropriations) out of Cap & Trade and back into the regular budgeting process.  Using 2017-2018 estimates, this would free up $356 million from high-speed rail, and $285 million from infill and affordable housing.  Another source of Cap & Trade revenues that could be used as dividends is the free allowances currently given to industry. In 2016, the Petroleum Refining, Natural Gas Extraction, and Cement sectors received over 49 million free allowances. At $15.31 per allowance, that subsidy is worth over $750 million per year.

Finally, what if the Climate Credit were changed from an on-bill line item on their utility bill (that no one sees) into off-bill amount and combined with the other funding sources?  The utility sector’s amount in 2016 was $771 million.  This gives us a cool $2.16 billion per year for dividends.  With approximately 40 million Californians, this would equal a climate dividend of $54 per person per year.  OK, no one is going to retire.  But every time the carbon price goes up, the dividend would go up.  Every time someone receives their dividend through a check in the mail or onto a debit card, there will be one more supporter of carbon pricing, and one more person who would support a tighter carbon cap (because that means a bigger dividend).  And as they spend that money back into the economy, think of the economic stimulus, funded by polluting companies.

Governor Newsom seems to be clued in to Silicon Valley, so he probably knows that the CEOs are excited about basic income.  Several of them have said it is necessary for the economy of the future.  Governor Newsom has proposed a “data dividend” that would monetize our digital profiles.  Climate dividends would be a great next step, because even though my Facebook posts are clever, they won’t actually save the climate (and I know at least one person whose Tweets actually harm the climate). Gov. Newsom likely recognizes the sour, populist mood at the national level, and the concern about ongoing economic inequality.  People are asking, why doesn’t the money ever “trickle down” to them?  In fact, that was the basis of the Tea Party movement, and part of the Rust Belt states’ discontent reflected in the 2016 election.  Dividends could address California’s own disadvantaged communities’ rightful concern that the Cap & Trade revenues focus only on coastal cities.  Governor Newsom can use climate dividends to make good on California’s desire for climate leadership, while making the expenditures simpler, less politicized, and more transparent.  By decreasing subsidies to the fossil fuel industry and moving the funding for high-speed rail and affordable housing back into the regular budget process, he could free up billions of dollars of California’s Cap & Trade revenues and return them back to people as climate dividends.

More groups line up in support for Senate Cap and Trade bill

Wieckowski’s SB 775 would create a post-2020 framework to meet California’s strict 2030 limits

Sacramento – A growing number of statewide and regional organizations in California, representing thousands of members, are lining up in support of SB 775, the Cap and Trade bill unveiled last month by Senator Bob Wieckowski and Senate President Pro Tem Kevin de León. The groups include climate activists, environmental justice organizations, consumer advocates, physicians, cities and academics.

“Supporters of SB 775 know that it is based on sound policy that will enable California to reach its ambitious goals by 2030,” said Wieckowski, the chair of the Senate Environmental Quality Committee.  “It sets a steadily rising price for carbon that is in line with what the world’s top economists think is necessary to address climate change.  It also protects Californians from increased prices caused by Cap and Trade by giving residents a climate dividend, the first to be proposed in California. I am optimistic that SB 775 represents a path to extending Cap and Trade beyond 2020 and I look forward to moving the bill this year.”

Wieckowski has been meeting with a variety of stakeholders over the past few months to discuss the bill and how it would help enable California to achieve the greenhouse gas emission reduction goals approved by the Legislature in last year’s SB 32.

SB 775 requires a two-thirds vote, has an “urgency clause,” and can be moved through the Legislature at any time.  It is currently in the Senate Environmental Quality Committee chaired by Wieckowski, which considers all climate change legislation.  It establishes a steadily rising carbon price collar that will bring more certainty to the Cap and Trade system, stabilize revenues derived from Cap and Trade and decrease the market volatility.

The bill creates three funds from Cap and Trade auctions – a climate dividend fund; an infrastructure and climate adaptation fund; and a clean energy and climate research fund.  It covers the same entities as the existing program, but completely separates the trading periods from pre-2020 and post-2020.

“SB 775 is a remarkable climate and equity solution for California that The Climate Center whole-heartedly endorses,” said Ann Hancock, the Center’s executive director. “For 10 years, the Center has advocated for a carbon price that reflects the actual cost of fossil fuel to our economy and environment, and that returns revenues to people. We need a science-based policy that addresses the regressive impact of rising fossil energy prices on working people to which such a carbon price will contribute. SB 775 fits the bill.”

SB 775 supporters include California Environmental Justice Alliance, Asian-Pacific Environmental Network, Citizens’ Climate Lobby, Courage Campaign, 350 Bay Area, San Diego 350, SoCal 350, Union of Concerned Scientists, Physicians for Social Responsibility – SF, Greenlining Institute, Coalition for Clean Air, Californians for a Carbon Tax, Friends of the Earth, Universal Income Project, several other organizations and economists from Stanford, Duke, and Colorado State.

Wieckowski represents the 10th Senate District, which includes southern Alameda County and parts of Santa Clara County.


The Case for Cap and Dividend

by Meghan Demeter  |   September 1, 2015

California has long been at the forefront of climate protection,
and the state has been something of a testing ground for environmental and
energy legislation. We’ve experienced both successes and failures, and can
learn valuable lessons from both.

The State has already allocated $1.4 billion in auction revenue
from California’s cap and trade system for numerous projects across the state. Much more revenue is anticipated as the system broadens to
include the transportation sector. But is this approach for allocating revenue the
most cost-effective?

First, consider effectiveness in reducing emissions. Though many
of the projects being funded by the cap and trade revenue facilitate green
technology innovation, it begs the question: will this make emissions go
down any faster than just mandating a cap on emissions alone?  As
green innovation reduces emissions in one sector – for example, transportation
– that sector will require fewer permits to pollute, therefore freeing up some
permits. When the permit supply increases, price goes down and it becomes
cheaper for other industries to purchase more permits. In other words, the
current system seems to simply shift the right to pollute among industries,
thereby negating the emissions-reductions benefits of the investments.   

Next, consider the aspect of fairness. Having the state charge
companies for emitting greenhouse gas will, by design, raise the cost of fossil
fuel. Those who are economically disadvantaged are disproportionately impacted by
this increase in cost. Although 25% of Cap and Dividend revenues are earmarked
for economically disadvantaged communities, this is not as powerful of an
offset for them as dividends would be.

Another aspect of fairness is people’s right to any income
associated with wealth that we create or inherit together, as Peter Barnes
explains in With Liberty and Dividends for All. The atmosphere is an
example of this shared wealth. When we charge for the emissions that are
harming our society, the revenue doesn’t belong to any one person–or even to
any one government. Rather it belongs to the people as a whole. Thus, that
money should be distributed as an equal dividend to all.

Another criterion for evaluating the allocation of revenues is the
importance of building political support for the Cap and Trade system. Although
Californians currently receive a biyearly climate dividend of about $35 as a
credit buried in their electricity bills, the relative invisibility of the
climate credit jeopardizes the entire system. Because very few people know they
are benefitting, political will is not being built to keep the system in place.

Contrast California’s approach to dividends with Alaska’s
successful example. The Alaska Permanent Fund writes a yearly check to every
Alaska resident. In 2014, this amounted to $1,884 per person. The off-bill
check is a tangible reminder of a policy that benefits every Alaskan. As a
result, there has never been a serious political challenge to the fund, and to
do so is now considered political suicide.

Dividends could function as a source of basic income, a type of
universal welfare that has been advocated for by economists and politicians on
both sides of the political spectrum. Furthermore, dividends are among the most
effective methods of increasing income equality. Once again, Alaska exemplifies
the impact that a successful dividend system can have; it is among the top
states for income equality.

It is rare that a single policy can address two important issues,
but cap and dividend has the potential to ameliorate both climate change and
income inequality.

Momentum is building, as bills in both Oregon and the U.S. Congress
are calling for cap and dividend as the next step in the environmental
movement. Representative Van Hollen has sponsored The Healthy Climate and Family Security Act, proposing cap and dividend on a national level, while Oregon Climate is in the midst of a campaign to institute the system in Oregon.

California has another opportunity to be a national leader in
environmental policy. The California Air Resources Board is currently updating its
investment plan for Cap and Trade revenues. The state should use this
opportunity to expand the climate credit and create an equal, off-bill climate
dividend. Through this, California could show how a cap and dividend system can
make the country a greener, more equitable place.

Make your
voice heard. Sign
our petition
to tell the California Air Resources Board that you support
cap and dividend. We’ll submit comments on Thursday, September 3.

Learn more:

Meghan Demeter is an intern with The Climate Center. She will be entering her senior year at Western Washington University, double-majoring in Environmental Economics and French with a minor in Energy Policy.

Business Groups on Both Sides

Last week, Mary Nichols, Chair of the California Air Resources Board, told the California Manufacturers & Technology Association, Western States Petroleum Association, and the California Chamber of Commerce: “Join the many hundreds of businesses that are investing in the fight against climate change instead of fighting AB32.”

They fought the original legislation for California greenhouse gas rules and lost. They supported a ballot initiative to roll back the rules and lost.  Now they could stop fighting a losing battle and figure out how to be winners in the new economy.  But as the rules are about to take effect, they are still doing the opposite.

We can be glad those statewide business associations don’t speak for all businesses. In fact, there are many companies that see emission reduction as a huge business opportunity, and groups like Chambers for Innovation and Clean Energy and Advanced Energy Economy are pulling them together into powerful associations. The California of tomorrow will be led by those types of hardworking entrepreneurs.

KPCC has more quotes.

   – Ann Hancock