California Air Resources Board

According the CARB's 2022 Scoping Plan (Appendix H, pages 115-116): "Achieving carbon neutrality in 2045 under Alternative 3 will cost California households an average of $6 a month in income [in] 2045." That amounts to $76/yr. The cost in 2035 is somewhat higher, $187/yr/household. Achieving carbon neutrality in 2035 under Alternative 1 would, according to CARB's estimates, cost $950/yr/household in 2035 and $537/yr/household in 2045.

To put those figures in context, the average household income in California is currently $200,000/yr (compared to the median income of $85,000), and is projected to rise to $246,000 in 2035 and $293,000 by 2045. (pages 108-110 in Appendix H) Alternative 1, which CARB rejected as being too costly and risky, has an estimated average cost of 0.4% of household income in 2035 and 0.2% in 2045. The cost of the adopted Alternative 3 plan would be 0.08% of income in 2035 and 0.03% in 2045.

Individuals and local communities who are willing to spend more than 0.08% of their income on climate action could accelerate the pace of decarbonization, in support of statewide policies, through unilateral action. However, CARB's Cap-and-Trade system operates, by design, to nullify the environmental benefits of additional emission-reduction actions via the waterbed effect. Such actions would only affect statewide emissions in capped sectors when emissions are determined by price controls, not by the cap.

CARB should consider reforms to its Cap-and-Trade system to accommodate, facilitate, and help coordinate complementary and independent climate actions in support of the state’s climate goals, rather than undermining and discouraging such actions by nullifying their environmental benefits. This issue is addressed in a recent publication*, which has been brought to the attention of the state advisory bodies: IEMAC, EJAC, and LAO, who could help provide guidance in answering the following basic policy questions:

- To the extent that Cap-and-Trade operates as a quantity-constrained instrument, it nullifies efforts and actions to further reduce emissions in capped sectors because statewide emissions in capped sectors are predetermined by the cap. A fundamental question for CARB and the state legislature is whether regulatory climate policy in California should operate to encourage and support, or to undermine and neutralize, individual and local actions to accelerate decarbonization. Should California citizens, institutions, and local governments have the ability, and the right, to influence the scale and pace of statewide decarbonization by reducing their own carbon footprint?

- To the extent that Cap-and-Trade operates as a price-constrained instrument, would the policy rationale for price containment not favor a straightforward price instrument over a hybrid instrument? Does the policy rationale for a price floor and ceiling in California’s Cap-and-Trade system provide any basis for setting the price floor at a level lower than the price ceiling?

* "California’s ambitious greenhouse gas policies: Are they ambitious enough?" [https://doi.org/10.1016/j.enpol.2023.113545], attached herewith