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Blog Post · February 18, 2014

Testimony: Using Cap & Trade Revenues to Bolster Climate Policy

The Senate Budget and Fiscal Review Committee focused Thursday on the governor’s proposal for spending revenue from the quarterly auction of emissions allowances that is part of California’s program to reduce greenhouse gases. The committee took testimony from the Legislative Analyst’s Office, the administration, and a panel of independent experts. Ellen Hanak, PPIC senior fellow, was part of that panel. Here are her prepared remarks:

Thank you for inviting me to address you this morning. I’d like to focus my remarks on ways to think about achieving multiple benefits from the use of cap and trade auction revenues. In addition to a primary goal of reducing greenhouse gas (GHG) emissions, the governor’s budget proposal emphasizes two types of co-benefits: supporting disadvantaged communities (as required by Senate Bill 535) and creating jobs. It’s also important to recognize that the cap and trade revenues have the potential to strengthen an integrated climate policy for California that focuses both on reducing GHG emissions – or “mitigation” – and on helping the state prepare for some of the negative impacts that are anticipated from climate change – or “adaptation.” This approach to using the auction revenues is consistent with the legislative guidance provided by Assembly Bill 1532, which included climate adaptation as one of the desirable co-benefits of a spending plan.

A significant body of research suggests that the impacts from climate change will be significant in California, even if global efforts to reduce GHG emissions are successful. We are already seeing rising temperatures and accelerating sea level rise, and the science points to the likelihood of increased frequency of extreme events, such as more frequent droughts, wildfires, floods, and heat emergencies. Although it is difficult to attribute any specific weather shock to climate change, the current severe drought facing California highlights the importance of making investments to reduce our vulnerability to these types of extreme events.

Some mitigation and adaptation actions are complementary, in the sense that they simultaneously reduce GHG emissions while making us better able to cope with the expected impacts of climate change. Examples include efforts to improve energy efficiency in buildings, to manage energy demand, to conserve water, and to build more transit-oriented “sustainable communities.” All of these efforts reduce energy demand and hence, GHG emissions; they each also make it possible to better handle one or more of the anticipated negative effects of climate change. Energy efficiency and energy demand management lower peak energy needs during extreme heat events. Water conservation helps us cope with water scarcity. And denser, more transit-oriented, and walkable communities reduce the urban footprint, making it possible to lower the water use devoted to landscaping (which helps cope with water scarcity) and to keep more habitat available for California’s plant and animal species that are also being threatened by a changing climate. As another example, forestry management can help store carbon (providing GHG benefits), while also reducing the risks of wildfire and the potentially harmful consequences of such events for the state’s water supplies. (Last year’s Rim Fire, which threatened the water supplies for many Bay Area communities, illustrates this risk.)

The governor’s proposal for spending the cap and trade revenues includes some activities that are clearly complementary in this sense, including weatherization of homes, energy efficiency in state buildings, water use efficiency, and forest fire prevention. Other parts of the governor’s proposal have the potential to be complementary if implemented carefully. For instance, urban forestry can lower energy demand, but it can also raise water demand unless care is taken to plant low-water-using tree species and to design the tree planters in ways that capture stormwater. (This type of approach is known as low-impact development, and it can help increase water supplies and reduce the water pollution associated with storms.) The same is true for the sustainable communities’ grants: They can provide multiple benefits if planning considers other factors besides encouraging transit use, like energy- and water-efficient buildings and landscapes.

In all, as much as a $300 million of the $850 million of proposed spending for next year falls into categories that potentially can contribute to an integrated climate policy addressing both mitigation and adaptation. At a minimum, the state should be attentive to the specifics of how these programs are implemented to ensure that they meet both goals. It could also be valuable to consider some rebalancing of the overall spending proposal to favor measures that contribute to these dual goals. As one example, it could be very beneficial to expand the effort on forest management in California’s upper watersheds.

In closing, I’d like to leave you with a couple of reflections on this idea of using cap and trade revenues to support an integrated climate policy. First is the question of reducing costs of climate change policy for Californians. In contrast to the view that cap and trade revenues should be focused solely on reducing the costs of GHG mitigation, I’d like to suggest that it’s also appropriate to think about using these revenues to reduce the costs of preparing for a changing climate. The cap and trade program itself is designed to help lower the costs of reducing greenhouse gas emissions, because it allows trading of emissions allowances to meet the cap. Preparing for a changing climate will also entail numerous costs for Californians, and using these funds in ways that also support such efforts will help reduce those costs.

Second is the question of what Californians think about the state’s role in climate policy. In PPIC’s most recent survey on this issue eight out of 10 residents said it is important that the state pass regulations and spend money now on efforts to reduce global warming. And eight out of 10 residents said it is important to pass regulations and spend money now on efforts to prepare for the effects of global warming. An integrated approach to using cap and trade revenues will help California meet both goals.


cap-and-trade climate change global warming