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Budget and Policy Post
April 15, 2016
Administration’s Cap-and-Trade Report Provides New Information, Raises Issues for Consideration
LAO Bottom Line. The administration’s 2016 cap-and-trade spending report represents a step forward by providing the Legislature with consolidated information about spending and greenhouse gas (GHG) reduction estimates for most programs. Based on the estimates that are included in the report, the cost-effectiveness varies widely among programs, but many programs appear to be relatively costly methods of reducing GHGs. However, we advise the Legislature to exercise caution when using these estimates to make future funding decisions because (1) estimates of co-benefits are not included in the report and (2) we have some concerns about some of the methods that are used to estimate GHG reductions. Consequently, we continue to recommend the Legislature consider the following: (1) the long-term benefits of cap-and-trade spending versus reliance on other policies, including the cap-and-trade
regulation, in achieving state GHG reduction goals, and (2) opportunities to improve the amount and quality of information provided to the Legislature to help inform future decisions.
Annual Report Consolidates Spending and GHG Information
2016 Report Provides Information on Projects Funded Through 2015. Cap-and-trade auction revenue has been awarded to over two dozen different programs that are intended to reduce GHG emissions. (For more background on cap-and-trade spending, please see our January 2016 report
Cap-and-Trade Auction Revenues: Strategies to Promote Legislative Priorities and our February 2016 report
The 2016-17 Budget: Resources and Environmental Protection.) State law requires the Department of Finance to submit a report each year to the Legislature on the status and outcomes of projects funded from state cap-and-trade auction revenues. In March 2016, the administration submitted its
annual report to the Legislature. The report (1) consolidates existing information on the projects that have been funded through 2015, (2) estimates of GHG reductions that will be achieved through these projects, and (3) estimates of the percent of funding that has gone to projects that either are located in or benefit disadvantaged communities. (
Disadvantaged communities are determined by the California Environmental Protection Agency.) Consolidating this information is a valuable step toward helping the Legislature evaluate the outcomes of programs that have been funded so far, hold programs accountable, and inform future funding decisions.
14 Million Metric Tons of GHG Reductions Estimated Over Life of Projects. Departments have awarded a total of $1.7 billion in cap-and-trade revenue to various projects through 2015. As shown in Figure 1, the administration estimates that the projects selected to date will reduce total GHG emissions by more than 14 million metric tons of carbon dioxide equivalent (MMTCO2e) over the projects’ lifetimes. (For context, the total
annual GHG emissions in California were estimated to be 459 MMTCO2e in 2013.) These GHG reduction estimates are based on methodologies that are developed by the Air Resources Board (ARB). The reductions are expected to occur over the estimated life of the projects, which span from ten years to more than several decades. The above figure does not include an estimate of the GHG reductions from $850 million awarded to the high-speed rail project, as such reductions would not be achieved until the total project is fully funded and operational. (In a
2013 report, the administration estimated that high-speed rail will reduce 44 MMTCO2e over a 50-year period once it is fully operational.) In addition, estimates of GHG reductions are not provided for a few programs where estimates have not been developed or completed.
edited: see entire article.
More Than Half of Funding Going to Projects That Benefit Disadvantaged Communities. State law directs the administration to allocate at least 10 percent of auction revenues to projects located in disadvantaged communities and at least 25 percent to projects that benefit disadvantaged communities. The administration estimates that it is has exceeded these minimum requirements. Specifically, it estimates that 51 percent of the funding has been awarded to projects that benefit disadvantaged communities and 39 percent has gone to projects located in disadvantaged communities. (For purposes of calculating these percentages, the administration includes a slightly different set of projects than the $1.7 billion that is included in Figure 1.)
Estimated Average GHG Reduction Cost Is High With Wide Variation Across Programs
Based on the data provided in the administration’s report, programs for which estimated data is available will spend an average of $57 in cap-and-trade auction revenue to reduce each ton of GHG. (As we discuss in more detail below, we have concerns about the methods and assumptions used to quantify GHG reductions.) As shown in Figure 2, the estimated average costs vary greatly among programs. Certain programs, such as diary digester research and development and organics composting and digestion, appear to be relatively inexpensive strategies for reducing GHGs. Other programs have substantially higher costs per ton of reduction. The cost per ton is more than $100 for about half of the programs.
Concerns About Accuracy of GHG Estimates. Based on our initial review, we identified concerns with some of the administration’s GHG quantification methodologies. Two of our primary concerns with the administration’s methodologies are similar to those we identified in our
February 2016 report:
- Ignores Interactions With Existing Regulations. In particular, the GHG reduction estimates provided in the report do not account for interactions with the cap-and-trade regulation. These interactions can mean that spending will not actually reduce total emissions as expected because the overall number of allowances issued determines the level of emissions.
- Does Not Adequately Account for Likely Activities That Would Occur Without the Program. Many estimates do not account for activities that would likely occur without the program. Specifically, the administration’s estimates implicitly assume that none of the projects funded would be undertaken without the cap-and-trade funds.
As a result of these limitations, at least some of the estimates probably do not accurately predict the program’s likely effect on GHG emissions.
