California: A Global Climate Leader
California has played a vital role in climate and energy policy for decades. From pioneering energy efficiency initiatives for buildings and appliances nearly half a century ago, to setting America’s first tailpipe emissions standards for cars and one of the first statewide renewable electricity standards in 2002, to committing to reduce emissions to 1990 levels by 2020 with Assembly Bill 32 in 2006 then reaching the goal in 2016, California has helped lead America’s energy policy solutions for a low-carbon future.
In recent years, California continued advancing the frontiers of climate ambition. In 2016, California adopted Senate Bill 32, setting the 2030 target of 40 percent emissions reductions. In 2018, the state set two bold goals for 2045, with executive order B-55-18 calling for statewide carbon neutrality and Senate Bill 100 setting targeting 100 percent carbon-emission free electricity. A year earlier, executive and legislative leaders assembled a rare two-thirds supermajority to pass Assembly Bill 398, which extended the state’s cap-and-trade authority through 2030 – no carbon pricing program has ever garnered such a level of support in a legislative vote or citizen ballot.
Demonstrating Sustainable Growth
The state’s economy has expanded vigorously and outperformed other states and regions as it has decarbonized with record low unemployment, proving a clean economy is a strong economy. Since the end of the recession, California jobs have grown 50 percent faster and economic growth has been twice that of the national average, while carbon dioxide emissions have steadily declined.
Manufacturing revenue has expanded 30 percent compared to 10 percent in Texas, with California’s manufacturing exports increasing 24 percent, boosted by the clean tech sector, and electric vehicle manufacturing has emerged as a top export. Strong growth has bolstered public support and policymakers’ willingness to keep pushing the envelope on climate policy.
The California climate story provides an evidenced-based reason for optimism in the battle against climate change. Energy Innovation spreads understanding of the state’s success in combining air pollution reductions with robust job and income growth, while working to support success in the next phase of its decarbonization journey – the state will need to nearly double its rate of emissions reductions over the past decade to hit the 2030 goal.
Energy Innovation’s original analysis answers the most pressing questions facing policymakers, including the recent development of a California version of the Energy Policy Simulator (EPS). The California EPS analyzed the state’s expected future emission trajectory under current policy, and found existing policy reduces 2030 emissions by more than 100 million metric tons of carbon dioxide equivalent, but overshoots the 2030 target by an estimated 25 million metric tons.
The model also identifies six recommendations to strengthen California’s policy framework that together reach the 2030 emissions reduction goal, while yielding an estimated $7 billion in direct economic benefits and $14 billion in health and climate effects. These policy recommendations build on the state’s existing strategy, combining sector-specific performance standards with the economy-wide cap-and-trade program to sweep up remaining required reductions. The remaining emission reductions in our modeling are generated by strengthening existing policies in transportation and electricity as well as two new industrial decarbonization initiatives.
Our 2017 report Oversupply Grows in the Western Climate Initiative Carbon Market shed new light on market fundamentals and the likelihood that a buildup of excess allowances (the “private bank”) would emerge. Market trends have since largely validated concerns we raised that the buildup of excess allowances could weaken future price signals, dampening future effectiveness at the same time the program needs to drive more reductions.
We propose fortifying cap-and-trade design by explicitly linking program emission permit prices to the rate of statewide emission reductions through reforms to the program’s price floor—the minimum price accepted at emission permit auctions— where if emissions are not decreasing at a pace consistent with the 2030 target, then the cap-and-trade program’s price floor would rise more quickly.
California climate policy is a complex issue, and Energy Innovation highlights the simple truths behind the wisdom of bold action. We translate these policy topics into more digestible forms through editorials and other media, and regularly work with reporters covering these issues. We also seek to export lessons learned in California to other places including China, other countries, and other U.S. states. We are increasingly working to reflect lessons learned in California, as well as other sub-national and national carbon markets, into discussions around China’s pending Emissions Trading System.
Energy Innovation periodically engages in regulatory proceedings at the California Air Resources Board or other state energy agencies through public comment letters and oral testimony.