THE BLOG
10/01/2014 04:41 pm ET Updated Dec 01, 2014

Expanding on the California Climate Credit

California's climate change program lowered millions of households utility bills last April, but very few people noticed. And it is about to happen again with the return of the semi-annual "California Climate Credit" applied to October bills. The credit deserves more attention because it is the rare case where funds raised by a price on carbon are sent back to households, rather than creating more government programs.

Carbon pricing is in need of a public relations boost. The European Emissions Trading System was heavily criticized for giving away too many emissions permits for free to polluting companies and shuffling funds among fossil fuel corporations or to politically favored programs that may or may not reduce emissions. Yet a program here in the U.S. has the potential to show that carbon pricing will not destroy an economy, and that household purchasing power can be protected by returning the funds back to people.

The state has many options for raising awareness of the climate credit. The easiest is to transition to an off-bill return of funds on a separate debit card. No matter how many inserts you include, people just do not notice a line item buried in the bill. The utilities complained about the high administrative cost of an off-bill return of funds, but that cost is worth it for building a long-term solution that provides an income stream to millions of households in an economy with persistent unemployment.

This off-bill climate credit could become a component of the State's set-asides for low-income and disadvantaged communities. The current plan is to let State Agencies dole out the funds for certain programs, but an argument could be made that it would be better to return the funds directly to households. In the international development field, researchers are studying the effects of programs that provide direct cash transfers on the poor (a well-known one is called "Give Directly"). Such transfers put the onus on programs to prove they are more effective than cash. Residents in low-income communities must wonder how do regulators in Sacramento know if a family has health care expenses, or needs funds for bus fare, or any number of other impacts that a carbon price may have? According to the recent book "With Liberty and Dividends for All" by Peter Barnes, it should be up to the individuals receiving their share of the atmospheric commons to decide how to spend their windfall. Of course, the State can still encourage families to spend their dividends on low-carbon products such as Energy Upgrade California, transit subsidies, or donating it to a group advocating for more dividends.

The state could also get positive publicity by expanding the Climate Credit to include funds raised from transportation fuels, which enter the system in January 2015. Governor Brown recently signed into law an electric vehicle incentive program that attempts to address criticism that the State's electric vehicle rebates mostly benefit affluent residents along the Coast. Some would argue that market transformation requires that costly new technology must target elites first (that is Tesla's business plan), but it gives ammunition to critics who already see the carbon price as regressive, and it accentuates the urban-rural/red-blue county divide as farm workers and rural residents watch cap and trade funds go towards affordable housing in cities and high speed rail. The Democratic Legislature and Governor may not have intended it, but the city-centric programmatic focus does not build the broad bi-partisan statewide constituency needed for a rising carbon price that a per-capita dividend would.

Governor Brown recently spoke in New York to an international audience about California's carbon price. Sure, the price is $13/ton, the auctions are a highlight of the program, and the upcoming expansion to transportation fuels is a big step forward. But to make the system a real model for the international community, California should build upon the foundation of the California Climate Credit and return more funds back to people: one person, one share.