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Cap And Trade

Published on December 11th, 2015 | by Guest Contributor

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California’s International Model For Climate Success

December 11th, 2015 by  


By Chris Busch, Director of Research, Energy Innovation

The COP21 international climate agreement negotiations should be guided by California’s experience. While our transition is ongoing, smart policy and bipartisan leadership have reduced emissions and increased renewable energy while creating economic growth.

California has decoupled economic growth from greenhouse gas (GHG) emissions. Since 2000, statewide emissions fell 39% per unit of GDP, while GDP grew 61% and population grew 17%

California economic and greenhouse gas trends

California’s experience creates optimism in the climate change fight, starting with setting strong targets: In 2006, policymakers passed Assembly Bill 32 (AB 32), requiring statewide emissions to fall to 1990 levels by 2020 then decrease to 80% below 1990 by 2050. Choosing smart policies has put us on a path toward meeting these ambitious goals – and it’s not too late for other economies to catch on too.

California’s Policy Approach & Results

Successful climate action requires policymakers use multiple tools, but performance standards are the foundation of California’s approach, and require energy sources or energy-using devices to meet certain performance thresholds requiring a particular outcome but offering flexibility in achieving the desired result to encouraging creative least-cost solutions.

The state’s renewable electricity standard required utilities to achieve 20 percent renewables by 2010, and is a prime example. California utilities are at about 25 percent renewables today, with state law requiring 33 percent by 2020 and 50 percent by 2030. Much of this renewable electricity comes from solar energy – last year alone, California installed 4,300 megawatts of solar, more than America installed from 1970-2011.

California’s building energy code requiring building components like windows or HVAC systems to meet minimum energy efficiency levels is another prime example. The California Energy Commission (CEC) evaluates building energy codes every three years, automatically tightening them to reflect new cost-effective options, reflecting the policy design principle of continuous improvement, which have helped make building codes economically beneficial statewide. The CEC estimates California’s building energy code has reduced energy bills $74 billion statewide, and since implementation, 43 states (including Washington D.C.) have followed suit.

Overlaying California’s performance-based policies is the world’s most successful cap-and-trade program, setting a nearly economy-wide price on carbon through an emissions limit (the “cap”) and auctioned tradeable permits for emissions above the limit (the “trade”). Auctioning permits provides an efficient revenue stream to the government, dedicated to programs driving decarbonization and ensuring benefits for low-income and disadvantaged communities.

Permit prices started at $10.09 per ton of carbon dioxide equivalent in the first auction held November 2012, hit $12.73 in November 2015, and the price floor will continue increasing at a rate of five percent per year plus inflation.

California and the Canadian province of Quebec have already linked their cap-and-trade programs and discussions are underway to link to New York State and the Canadian province of Ontario.

The real magic in the California approach comes from blending a carbon price with performance standards for maximum cost effectiveness. Implementing performance standards means cap-and-trade does not need to strain to change behaviors that are unresponsive to prices. Likewise, cap-and-trade encourages industry to produce lower carbon products and services, often aiding adherance to current and future performance standards.

A Decarbonized Future Can Be A Prosperous One, Too

While economists may continue to debate AB 32’s macroeconomic effect endlessly, California’s economy has grown faster than America’s as a whole. Since the recession ended, jobs have grown 14.4 percent statewide, compared to 9.8 percent nationally. The San Francisco Bay Area attracts 50 percent of national venture capital dollars, as state policies combined with market forces attract and support dynamic new companies, putting the state in a strong competitive position.

On a microeconomic level, California boasts 500,000 green jobs, including nearly a quarter in manufacturing, generally recognized as better-paid work. More than 50,000 of these jobs are in the solar energy sector averaging wages of $20-$24 per hour, usually without requiring advanced degrees, with greater diversity than most national industries.

As nations negotiate an agreement in Paris to manage the world’s emissions, California provides a real world model for creating a vibrant economy run on cleaner energy. Innovative companies and better environmental quality combine in a virtuous cycle, enabling the state to expand climate policy efforts. California’s low-carbon story shows immediate decarbonization benefits while demonstrating the technology and designs needed for a sustainable society are cost-competitive, practical, and economically sound.


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