California will earn less from greenhouse gas auctions

from Dan WaltersCalMatters

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Two decades ago, when California got serious about reducing or even eliminating carbon dioxide and more greenhouse gasesits political leaders weighed two potential tactics regarding industrial emissions.

The state can impose direct restrictions on a facility-by-facility basis, typically favored by climate change advocates. Or it could set overall emission reduction targets that would gradually reduce and auction emissions allowances, assuming their costs would encourage the reductions.

the last one known as cap and tradewas favored by corporate interests as less burdensome and passed, finally coming into force in 2012.

Since then, the California Air Resources Board has held quarterly auctions of emissions allowances, raising a total of $35 billion so far, which in theory is being spent on projects that would reduce emissions.

Revenues have varied from year to year, but have generally increased as emissions caps have decreased. Since peaking at $8.1 billion in fiscal year 2023-24however, auction revenues are declining.

Roughly half of the money was given to utilities to minimize the impact of cap and trade on consumer spending. However, the program is wide-ranging criticized as a de facto gasoline tax and other fuels that were already among the most expensive in each country.

The rest of the revenue is deposited into a greenhouse gas reduction fund, which governors and lawmakers have used for a variety of purposes, not all related to reducing emissions. In a way, it was a slush fund.

Last year, Gov. Gavin Newsom and the Legislature overhauled the program in two bills, Senate Bill 840 and Assembly Bill 1207. The program was extended, it was renamed cap-and-invest and new priorities were set for spending auction proceeds.

Notably, the state’s cash-strapped and long-stalled high-speed rail project will receive a flat $1 billion per year instead of the 25% share he was getting. Project managers hope that lenders will provide enough money to complete the first stage in the San Joasim Valley; the plan is to pay off the $1 billion annual cap and invest loans.

Earlier this year, the Air Resources Board released new regulations to implement the legislative changes, but faced criticism that they would increase costs for consumers. That led to a revision in April that softened the impact of the rules — most obviously on refiners that had threatened to leave California — but environmental groups are very critical.

The April version will also sharply reduce net revenues from emissions auctions, according to the Legislative Analyst’s Officeproviding barely enough to allocate $1 billion for the bullet train and another $1 billion for the governor and legislature to spend. Other programs that have received cap-and-trade support, such as wildfire protection and housing, likely won’t get anything.

The program has been used in recent years to fill programs that the deficit-ridden state budget could not cover, so the projected drop in revenue would worsen efforts by Newsom and lawmakers to close the gaping hole in the state budget.

“(The Greenhouse Gas Reduction Fund) is a relatively small portion of the overall state budget, but it has been a notable source of funding for environmental and other programs in recent years,” state Assembly Budget Counsel Jason Sisney said in an email. “A collapse in its revenue would markedly change the state’s budget process. The state’s general fund, which is under spending pressure, does not appear to be able to offset much, if any, significant drop in (Greenhouse Gas Reduction Fund) revenue at this point.”

When Newsom presents his revised budget this week, he could reveal how he intends to cover the cap-and-invest program shortfall, particularly whether he will honor a $1 billion commitment to high-speed rail that project leaders say is vital to continuing construction of its segment from Merced to Bakersfield.

It can come down to bullet train versus wildfire protection.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.