A Secret Ingredient in the Climate Action Arsenal

Erica Morehouse photoIt’s summer time and many Americans are perfecting their grilling techniques and outdoor recipes. This week, EPA’s final Clean Power Plan rule is giving states a cupboard-full of ingredients to create signature recipes for climate action. The rule signals what the finished product must look like – the nation’s first limit on power plant pollution – but states can pick and choose elements that deliver the right combination of energy bill savings for customers, cleaner air, and clean energy investments. Fortunately, California and nine New England states (known as the Regional Greenhouse Gas Initiative or RGGI) have cooked up successful solutions in the past decade, implementing effective cap-and-trade programs that limit total pollution and demonstrate how strong climate action can stimulate economic growth.

California and RGGI have added a secret ingredient to their climate recipes, a catalyst that can not only drive further pollution reductions but can strengthen communities, create jobs, boost local economies, and improve health. Both programs are reinvesting dollars from the sale of carbon allowances (the currency of cap-and-trade that polluters must hold for every ton of pollution they emit) into further efforts to reduce climate pollution.

In RGGI, where cap-and-trade covers the electricity sector, states primarily reinvest auction dollars for energy efficiency projects and renewable energy. As the Acadia Center explained in a report released last week:

Energy efficiency projects reduce consumers’ bills and reduce demand for power.  Lower power demand means fewer emissions from power plants, and less money leaving the region to pay for imported fossil fuels.  Consumers’ energy bill savings are spent in part within the local economy… Independent macroeconomic analysis found that programs supported with revenue raised over RGGI’s first six years of operation would generate over $1.73 Billion in energy bill savings.  These savings create over $2.73 Billion in net economic gains and 28,500 job years of employment.

California’s cap-and-trade program has been in place for two and a half years and over $3 billion in climate investments have been budgeted so far, with the first $500 million starting to find its way into communities. Like RGGI, California will reinvest proceeds to further reduce climate pollution. However, with a cap covering electricity, industry, transportation fuels, and natural gas, California’s investment scope is larger. California’s first priority is to ensure low-income, pollution-burdened communities that are hit first and worst by climate change are first in line to receive benefits. At least 25 percent of all auction proceeds will go to these communities and the state is preparing to exceed this minimum every year. In the first phase of cap-and-trade investments, California focused on bolstering existing programs that will help the state meet its goal of reducing emissions to 1990 levels by 2020 along with promoting other economic, environmental, and health benefits. This included projects like providing free solar panels to low-income residents, delivering rebates for zero emissions cars, trucks and busses, planting urban forests, supporting sustainable, affordable communities, and conserving water and wetlands.

This week California is launching a planning process for the second phase of cap-and-trade investments which will build on and expand current successes. Governor Jerry Brown recently issued an executive order pledging the state reduce emissions 40 percent below 1990 levels by 2030, and the Air Resources Board (ARB) is currently soliciting feedback and holding workshops on what transformative investments would move us toward this bold 2030 goal. Among the new ideas are integrated projects – especially in disadvantaged communities – where investments in clean energy, clean transportation, and walkable communities would compound and complement one another. Another proposal involves innovative financing tools such as loan guarantees or revolving funds (not just traditional grants) that could be self-perpetuating and could also leverage private investments for critical climate projects.

These actions don’t just cut pollution, they deliver on other societal values and public policy goals including strengthening the economy, creating jobs, and improving health. Each of the nine RGGI states and California have customized their investments based on their own state needs, showing how auction proceeds can be a secret ingredient in a well-prepared and easily digestible climate action recipe.

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