By J.R. DeShazo, Colleen Callahan and Julien Gattaciecca
UCLA Luskin Center for Innovation
Is the state’s Cap-and-Trade program to fight climate change hurting or helping Californians — especially those of us who live in the greater Los Angeles area? A UCLA study reveals that Californians in general, and Los Angeles County households in particular, benefit financially under Cap-and-Trade.
The UCLA Luskin Center for Innovation estimates that the average household living within the greater Los Angeles area could gain approximately $55 per year as electricity consumers and $15 per year as natural gas consumers under the state’s Cap-and-Trade program. Lower-income Los Angeles area residents are estimated to gain even more: approximately $60-70 per year as Southern California Edison electricity consumers and $15-20 per year as Southern Californian Gas Company customers under Cap-and-Trade. (The range takes into account whether the residents live in a single-family house or an apartment.)
More broadly, the state is expected to return over $345 million to Southern California Edison customers, and approximately $90 million to Southern California Gas Company customers, in 2016.
Where did this money come from? The state of California established the Cap-and-Trade program in 2012 to reduce greenhouse gas emissions such as carbon dioxide. It requires that the biggest producers of greenhouse gases — including electricity utilities, natural gas utilities and fuel distributors — purchase carbon allowances relative to their emissions.
The money collected from these auctions goes back to Californians in two main ways. First, Climate Credits: Twice a year, the state gives to California households, via their electricity bills, a share of the revenues generated by the Cap-and-Trade program.
A second way that Californians are benefiting from the Cap-and-Trade program is from Climate Investments, via the Greenhouse Gas Reduction Fund. This fund is providing billions of dollars for low-carbon transportation, clean energy and other programs that reduce carbon pollution throughout the state. Through 2015, $1.7 billion from the Greenhouse Gas Reduction Fund has been spent on programs that help families save money and energy while cutting greenhouse gases, creating jobs and improving public health.
These include investments in public transit as well as rebates when Californians purchase clean vehicles. These savings could be even higher for a low-income Californian who participates in a Climate Investment program like the Replace your Ride (EMFP Plus-Up) program. This program provides up to $9,500 for low-income drivers to help replace their old, polluting car with a second-hand, fuel-efficient car (getting above 35 miles per gallon) that would save hundreds of gallons of gasoline every year. Thus, the program was designed to have both environmental and social benefits.
Regrettably, most Californians do not even know they are benefiting from the state's Cap and Trade program. In fact, a study by Opinion Dynamics in 2014 found that less a quarter of recipients knew they were receiving a credit and only 3 percent made the connection between California Climate Credits and the state’s efforts to fight climate change.
However, the state deserves credit for its thoughtful policy design and implementation that is allowing for a smooth transition to a cleaner future for us Californians. In particular, it deserves credit for designing a carbon-reducing pollution program that is providing financial benefits for Californians who need it the most.
Given that fossil fuels are non-renewable, it is inevitable that at some point in the future we will need to rely on a cleaner energy mix. By acting now, the state is avoiding large increases in energy and fuel prices while helping Californians to reap job and direct financial benefits of a well-planned transition to a clean energy future.
Yet the future of Cap-and-Trade program is currently under debate and the uncertainly among stakeholders may have contributed to lower revenues than predicted for the latest carbon auction this year. To help get back on track with a stable carbon market, state policymakers should see the benefit of eliminating the current uncertainly. Clearly the benefits that Californians will receive from Cap-and-Trade over time will ultimately depend on the program’s longevity and its ability to generate revenues while cutting pollution. Such climate programs improve our lives today while supporting a more sustainable future for our children.
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J.R. DeShazo is director of the Luskin Center for Innovation, Colleen Callahan is deputy director and Julien Gattaciecca is project manager.