California Economy and Climate Policy

Since 2000 the state’s GHG emissions per capita has decreased by 15%, its carbon intensity has fallen by 23% and the state has enjoyed strong economic growth, with GDP up 24%.

Last February, Richard Corey, the Executive Director of the California Air Resources Board, addressed a local meeting in San Francisco to commemorate the 50th anniversary of CARB. He spoke about CARB, the importance of AB32, and CARB future directions. This article takes a brief look at the effects of AB32 on California’s economy and its emissions.

The CARB was established in 1967 by Governor Ronald Reagan. The goals of the CARB have always been centered on improving public health by attaining and maintaining healthy air quality and protecting the public from harmful pollutants.

In 2006 CARB’s role was expanded to include reduction of state greenhouse gas emissions with the passage of the bipartisan Bill, Global Warming Solutions Act, commonly known as AB32. AB32 was unique legislation that set ambitious goals to reduce greenhouse gas emission in the state. It committed the state to achieve a 10% reduction in carbon intensity below the 2010 level. Carbon intensity is the ratio of greenhouse gas emissions produced to gross domestic product.  Its passage was applauded by environmentalists and prompted dire warnings from others, most notably the California Chamber of Commerce. It is instructive to take a look after ten years to see how well this policy worked and evaluate it based on three criteria: where GHG emissions reduced, what was the effect on California’s economy, did the burden of GHG emissions fall disproportionately on disadvantaged communities.

In a recent article,The California Climate and Clean Energy Policy Story,” Busch, Harvey, and Pike of Energy Innovation report that, since 2000, “emissions reductions have outpaced steady population growth, driving down per capita emissions by 15 percent. GDP has grown strongly during the same period, bringing emissions per unit of GDP down 23 percent.”

A Blended Policy

The success of California’s approach stems from its blending of performance standards, incentives, investment in sustainable technologies, and a campaign to inform the public about reducing energy use. Complementing these policies was the establishment of the Environmental Justice Advisory Committee (EJAC) to ensure that environmental justice concerns are integrated into the fabric of the State’s climate programs.

Some of the state’s performance standards, such as building energy codes, predated AB32, started in the 1970s. Examples of other standards include a minimum level of renewable energy in the portfolio of utilities and vehicle emissions standards such as the Low Carbon Fuel Standard. Incentives include the California Solar Initiative and programs to convert lawns to drought tolerant spaces.

California’s approach combines setting emission standards with a cap-and-trade program. Cap-and-trade refers to a system designed to reduce harmful GHG emissions by putting a price on carbon emissions. Governments employ a cap-and-trade system by imposing a limit on the amount of GHG released by industry and then issuing a finite number of permits for emissions. Those permits are then auctioned or given away by the state. Businesses are also free to sell excess permits that they don’t need, allowing market forces to distribute and price these allowances.

California’s cap-and-trade system was implemented in 2012. By 2015, regulators had capped the allowed emissions for the covered industries at 334 million metric tons. Polluters that emit more than 25,000 tons of CO2-equivalent a year get permits from the government for their emissions. Most of these permits are free and the rest are auctioned off. Businesses that exceed their emission limit can permits from businesses that emit less than their allotment. Each year the total allowed emissions decreases putting pressure on businesses to reduce emissions.

California’s energy policy is an excellent example of a bipartisan policy that has resulted in healthier air, growth in the sustainable energy sector, and robust economic growth. It should be used as an example for policies at the national level.

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