How California Will Spend the $5 Billion a Year From Cap-and-Trade

While oil and gas interests lobby hard to unravel California’s cap-and-trade program (and it’s partner, Quebec), the state has decided how it will spend the approximately $5 billion a year in revenue.

Governor Brown reached an agreement with the state’s budget committee that allocates 25% of the money as a stable funding source for high-speed rail, while the majority will be divided between public transit, such as inner city rail – and other low carbon transportation – and affordable housing/ sustainable communities. A minority of funds will be used for weatherization, water efficiency, sustainable forests and recycling. Citizens are  already receiving dividends as monthly credits on their utility bills. The legislature votes this week.

For 2014-2015, the state expects $845 million in revenue, increasing to $5 billion a year after 2016, as the program expands. Currently, only stationary sources of emissions have to pay to pollute – utilities, manufacturers and food processors. Next year, it includes mobile sources – all 14 refineries will have to pay for emissions tied to fuel sales across the state.

Even though the funding is clearly being used for a variety of efforts that reduce state emissions, including affordable housing projects "that demonstrate a reduction in greenhouse gases," the opposition is taking California to court, hoping to squash cap-and-trade. 

Arguing that cap-and-trade is a tax, they say it’s unconstitutional because taxes must be approved by voters or by two-thirds of the Legislature. Instead it was crafted by regulators as directed under the states climate law, AB 32.

"The governor is using cap and trade auction proceeds to play Santa Claus for himself and his Sacramento colleagues, doling out dollars for bullet trains and subsidized housing and transit schemes," Harold Johnson, attorney at the Pacific Legal Foundation, told E&E News. "The connection between these projects and lowering carbon emissions is shaky and speculative at best. In fact, with the High Speed Rail project, the [state] Legislative Analyst indicates the construction process will actually make carbon emissions worse not better."

Even the Sierra Club expressed concerns about using funds for high-speed rail because of the need to get emissions down fast. Emissions have been dropping – by an impressive 22% from 2010-2011 – but they rose 2% the following year because of the closure of the nuclear plant. There’s been less hydro available due to drought, so natural gas filled in the gap.

But since transportation is by far the biggest source of emissions, lawmakers see mass transit as critical. "Californians are logging more vehicle miles annually than ever before," Darrell Steinberg, President of the State Senate told E&E News. "We’re on track to break the 400 billion miles barrier by 2020. Building new mass transit options near homes and commerce will dramatically reduce emissions."  

California and Quebec are holding a "practice" joint auction during the last week of July, in anticipation of their first official auction in November as the Western Climate Initiative.

Read our article, 1-Year Anniversary: California’s Cap-and-Trade is a Success. Many people aren’t aware that it’s open to individual investors as well as corporations. 

Here is the website for California’s cap-and-trade program, which took effect in 2012: