The Legislative Analyst’s Office’s review of the state’s now-named “Cap and Invest” program (formerly “Cap and Trade”) reinforces what critics have long argued. It provides politicians with a slush fund to spend on virtually anything vaguely climate-related. It has funded electric vehicle incentives and a high-speed rail project that — at least during the construction phase — boosts the release of pollutants. But now it’s just using the funds to backfill other budget items.
California’s program was the brainchild of Republican Gov. Arnold Schwarzenegger and the Democratic Legislature, which passed Assembly Bill 32 in 2006 with a start date of 2013. Supporters argue that it takes a market-based approach toward reducing climate emissions, whereas opponents view it as a punitive tax on businesses and ultimately consumers. We agree with the latter, although the courts in 2017 rejected a legal case calling it an illegal tax.
The program “is a key element of California’s strategy to reduce greenhouse gas emissions,” explains the California Air Resources Board. The system is clever in a way. It imposes an overall statewide emissions cap on manufacturers, which declines every year until the state meets its emissions goals in 2030. Companies then buy and sell emissions allowances at an auction. The proceeds go into the state’s Greenhouse Gas Reduction Fund to pay for various greenhouse-reduction programs.
There’s plenty to debate about the value of the program. California saw a marked drop in emissions in 2023, although it’s not on track to meet its 2030 goals. Most studies credit the program for driving down emissions, although some studies argue that they’ve come with a steep economic price. A study in November from the Cato Institute found that the program has had “the unintended consequence of increasing toxic emissions by causing firms to cut back on their voluntary environmental efforts.”
The LAO’s report — and our goal here — isn’t to re-litigate the costs and benefits of a program that has strong political support in the Capitol. We’d like to focus on the best way to spend the proceeds. The LAO recommends that “the Legislature dedicate GGRF to its highest budget priorities across the entire state budget, not just within climate- or environment-related programs.” We don’t agree with that conclusion as the fund is designed specifically to combat climate pollution — not to become another revenue line item in the state budget.But we do agree that the state needs to prioritize the climate programs that make the most sense. LAO notes the program now earmarks “$1.25 billion to backfill California Department of Forest and Fire Protection (CalFire) costs” related to wildfire protection. That’s one of our hobbyhorses. A single particularly bad year of wildfires can set back many years of the state’s climate goals because of the pollutants fires spew into the atmosphere.
That expenditure should top the list of the fund’s activities, but note the word “backfill.” The fund should provide new funds in addition to the existing budget earmarks, not replace funds that will be spent elsewhere. As CalMatters’ Dan Walters noted, the Legislature has earmarked most of the funds for spending that will have “minimal impact on greenhouse gas emissions.” Sadly, then, the state seems more interested in plugging a budget hole than meeting its climate goals. Lawmakers’ priorities need to change.
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