Joint Legislative Committee on Climate Change Policies

Okay. Good afternoon, everyone. Joint Legislative Committee on climate change policies will now come to order, joined here by a few Members as well as my Vice Chair, for our annual oversight hearing today. We're going to be hearing from the Administration as well as a number of experts. But I did want to make a comment at the outset in terms of just the format for the hearing. Public comments can be very important today.

So the stakeholders who are here, we'd like to give you a robust opportunity at the end and to give you an opportunity also to potentially aggregate comments and take a little longer time. So we're not going to just do the standard. You get a minute, you get a minute. But if folks want to come up in groups and aggregate some of their time, we're open to doing that.

And we're going to try to leave a good chunk at the tail end of here to let you guys have a chance to have a little back and forth with the Committee as opposed to just a sort of cursory remark. That said, I did want to get started with some opening comments. Happy to defer to any of the Members here. I'll start with the Vice Chair for any opening remarks.

Thank you, Chair Stern. Good afternoon, everyone. Looking forward to another robust year? Starting with our annual oversight hearing. And maybe just to set the context a little bit, we arrive in 2024 at somewhat of a midpoint. Roughly two decades after landmark legislation set California on the path to addressing climate change.

And just over two decades from our state's ambitious climate goals in 2045, climate change is here, impacting the everyday lives of Californians in the form of record heat waves, cycles of devastating drought, interspersed with widespread flooding and wildfires on an unprecedented scale. This point in time presents both significant challenges and enormous opportunities. We have developed and are implementing a set of potent tools to address emissions. But there is also an emerging consensus that we must accelerate what we are doing and the pace of emissions reductions.

To achieve our goals, we have committed to overhauling the types of vehicles we drive, how we generate electricity, heat our homes, grow our food, and manufacture goods. These changes will be challenging, but they carry with them the opportunity to develop new, clean industries with widely available jobs, to improve air quality, particularly in areas which have long endured disproportionate and unjust pollution burdens, and to continue California's legacy of environmental leadership far into the future.

This Committee provides a forum to evaluate how we're doing in our efforts to address climate change, field ideas for what else can be done, and discuss how present and future actions can be maximized in their benefit for the people of California. So with that, I look forward to a solutions focused discussion, and I thank the panelists for taking the time to be here today.

Great. Thank you, Mr. Vice Chair Members. Any other opening comments? No, you're okay. All right. I appreciate and concur with my Vice Chair's remarks about the sort of inflection point, I think, as you'll note in the background paper, that Committee staff worked on very hard. And I want to thank them, both your staff and mine, as well as the policy staff in both houses.

I think we've had really good feedback and a sort of succession of hearings here, starting with environmental quality and our Subcommitee on the Senate side, as well as some efforts over in the Assembly to really take another look at Cap and Trade and to think about how it's serving our people here in California, what it's doing to deliver pollution reduction, its impact on jobs, and what more we can do to improve that program into the future.

I think that this is a moment where this has sort of been a backstop to all of our efforts on climate. And the headlines have been about ZEV programs or renewable portfolio standards or low carbon fuel standards. But here we have this emissions trading program that stands alone, certainly in this continental United States, as the largest, most important price on carbon that exists out there, and yet it's still not fully delivering what it needs to do.

So we're going to get into that and a number of other topics here pursuant to statute. My duty now is to call up our esteemed chair of the California Air Resources Board, Liane Randolph, to get not only into these issues, but to really look at an annual update on how the scoping plan is going and to take some of your questions. We appreciate your presence here, Madam Chair. Please join us. You'll be solo, and then we'll bring the rest up after. Thank you so much and welcome back.

Thank you.

Speaking of climate, you had quite a whirlwind tour, India, right?

Yes.

Okay.

Yes. We spoke to many policymakers and government officials in India. Our focus was particularly on heavy duty vehicle standards, setting strong, clear standards. But we had a lot of other great conversations. And our energy folks are there this week. So President Reynolds and Vice Chair Gunda are there this week. All right. Thank you for inviting me today.

Per the current requirements of AB 197, I'm going to talk about the trend in our air quality and greenhouse gas emissions regulation, including criteria pollutants and toxic air contaminants, and all the work we're doing in that area. And then our efforts to reduce GHG emissions and achieve our 2000 and 32,045 targets. Okay, we're going to start with our criteria pollutants. In California, we control oxides of nitrogen, the criteria pollutants commonly known as NOx, to prevent ozone formation, and that has been an incredible success story.

We've seen a 70% decline in nox emissions over the past 50 years, and last year was no exception. As carbs, clean engine, fuel, and vehicle standards, as well as air district programs for stationary sources continue to achieve reductions, toxic air contaminants have likewise continued to decline due to state and local air toxic control programs. The emissions of diesel particulate matter, unknown carcinogen, have declined by 80% since 1990. Our work is absolutely not done.

CARB continues to refine our existing efforts to reduce criteria air pollutants and toxic air contaminants and pursue new programs to achieve even greater reductions. Last year, CARB approved the advanced clean fleets rule, or ACf. The primary goal of the ACF regulation is to accelerate the market for zero emission trucks, vans, and buses by requiring fleets that are well suited for electrification to transition to ZEVs.

Where feasible, it will reduce 418,000 tons of NOX emissions by 2050, 8000 tons of reduced diesel particulate matter emissions, and reducing GHG emissions by 307,000,000 metric tons. This measure, along with our full portfolio of programs, are how CARB has continued to achieve reductions in criteria pollutants and toxic air contaminants. Now I'm going to talk about our efforts on implementing recently adopted regulations and ongoing implementations of recent statutes and updates to programs.

In 2022, we adopted the most recent scoping plan update, an economywide strategy that lays out the transformation needed for the state to achieve not only the more aggressive 2030 target, but the 2040 carbon neutrality goal that is essential to mitigating the negative effects of climate change and, importantly, an 85% reduction in anthropogenic GHG emissions by 2045, which will also support our air quality targets.

The scoping plan was informed by Executive Order B 50518 which set a carbon neutrality goal, and by Assemblymember Muratsuchi's AB 1279, which codified and modified that goal, as well as the governor's direction to carve to increase our climate ambition. Among other things. The one thing the scoping plan made clear is that the largest source of greenhouse gas emissions in California is the transportation sector.

It laid out three broad strategies for reducing GHG emissions, transitioning to zero emission technology, transitioning to low and zero carbon fuels and reducing vehicle miles traveled.

CARB has continued to pursue world leading vehicle regulations to increase the deployment of zero emission technology, including advanced clean cars, advanced clean trucks, and advanced clean fleets rules, on top of updates to our existing regulations on internal combustion engine vehicles, including our omnibus rule and very importantly, the heavy duty Inspection and maintenance smog check program for heavy duty trucks, which is a really critical rule that will result in over 100,000 tons of NOx reductions by 2050.

So California did what it needed to do to adopt those rules. Now we need the Federal Government to step up. We have seven pending waiver and authorization requests for clean vehicle regulations that are before the Federal Environmental Protection Agency, including our latest version of the Advanced Clean Cars Regulation and advanced clean fleets.

So getting those waivers and authorizations approved are a priority so that these programs can move forward, and we continue to engage with the EPA on that topic and push approval of those waivers and authorizations. We're also in the process of updating the Low Carbon Fuel standard to support the advanced clean trucks and advanced clean fleets regulations.

Greater stringency in LCFs will align it with the 2022 scoping plan, as well as drive the development of clean fuel capacity and infrastructure needed to support zero emission vehicles in all weight categories. Turning to stationary sources this year, CARB will begin the process of implementing SB 905 by Senator Caballero, which requires CARB to evaluate and set standards for carbon capture and carbon dioxide removal projects and technologies.

The scoping plan, as well as the IPCC are clear that carbon capture and sequestration will be needed to achieve carbon neutrality by 2045 and deal with residual emissions that will still remain by midcentury.

We must begin laying the groundwork for the first of these projects now so that the technology is mature by the time we need their larger scale deployment in the late 2030s and early 2040s. The Inflation Reduction act has provided us with potentially a once in a lifetime opportunity for greenhouse gas emissions reductions, and California has jumped at the chance to seize those opportunities.

One of the ways is the climate pollution Reduction grants, which includes over $5 billion in grants to states, local governments, and tribes to develop and implement climate action plans. We submitted our Priority Climate Action Plan, or PCAP, with a description of why federal funding is a once in a lifetime opportunity to achieve reductions at a lower cost to Californians.

California submitted its draft climate action plan on March 1 with 22 measures proposed for funding that if funding, could reduce emissions by over 40 million tons by 2045. Overall, the projects funded through this mechanism would achieve reductions that were identified in the scoping plan in ways that is a lower cost to Californians.

By taking advantage of the federal funding on hydrogen, CARB continues its work on SB 1075 to report on the development, deployment and use of hydrogen in all sectors as part of achieving California's energy, climate and air quality goals. CARB is engaging collaboratively with partner agencies, including California's hydrogen hub supported by arches, California's hydrogen market development strategy work called for by Governor Newsom California public utilities work related to blending hydrogen into natural gas pipelines and SB 100 and iperwork supported by the CEC.

I am going to briefly pivot now to discuss the cap and trade program. I'm going to give a really quick overview. I'm going to talk about some of the regulatory work that we are undergoing to discuss updates to the program. First, a brief primer cap and trade program is an economy wide cap on greenhouse gas emissions in California, covering approximately 400 facilities and 80% of the state's emissions.

A budget of allowances is set equal to the cap, and then reducing the number of allowances in the system each year ensures that we reach our greenhouse gas reduction goals. Each allowance corresponds to one metric ton of greenhouse gas emissions. Each entity regulated by the program is required to surrender one compliance instrument for each ton of GHG gases they emit, either as an allowance or an offset.

As the number of available allowances decline, this sends a long term price signal to regulated entities, encouraging them to decarbonize their operations. As for offsets, the statute limits offsets to 4% of an entity's GHG emissions, and half of those offsets must provide direct environmental benefits to California. Offsets represent verified GHG emissions reductions by projects that follow strict requirements in sectors and sources not covered by the Cap and Trade program.

The proceeds from the sale of state owned allowances Fund California climate investments via the Greenhouse Gas Fund Reduction Fund, otherwise known as GGRF. Cap and trade auction proceeds are appropriated by the Legislature, not by CARB, to a variety of programs. Over $26 billion has been raised by the cap and trade program to date, and more than half of that revenue has been directed to priority communities, exceeding the 50% required by statute. These funds are the only source of sustained investment for critical programs benefiting priority communities.

These funds have helped weatherize Low income homes, expand clean public transportation, provide rebates for electric vehicle deployment, and preserve and restore public lands. The over 567,000 projects that have been funded so far have reduced an estimated 78.6 million metric tons of GHG emissions.

The Cap and Trade program was first adopted by the board in 2011 and has been amended eight times over the past 13 years, reflecting legislative direction, the latest data and implementation experience the current program reflects legislative direction pursuant to AB 398, which added a price ceiling to manage costs, reduced the compliance offset usage limit to 4% with, as I mentioned, half of those offsets providing direct environmental benefits, and address GHG linkage concerns by directing CARB to treat all covered industry as high risk for leakage when distributing free allowances.

We're currently engaging in a public decision making process to update the cap and trade program to align it with the ambition reflected in the 2022 scoping plan. The most important change to the regulation we are considering is removing allowances through 2030. We analyze several different scenarios for doing that. One scenario is to align with the latest inventory update for the SB 32, 40% target by 2030.

But we're also evaluating the removal of additional allowances to align with a 48% reduction as called for in the scoping plan to achieve our 2045 carbon neutrality goal, and we are considering a 55% reduction target to evaluate increased ambition. As part of these discussions, questions have been raised about the approximately 5% banked or unused allowances in the program being held by private companies.

Evaluating this will be part of the rulemaking and will be considered as part of the forthcoming technical work and the public workshops we've been engaged in at this time. We are not currently anticipating changes to the offset program. Obviously, compliance offsets are one of the key levers CARB has available to help manage costs from the program, while also directing private funding to actions such as sustainable forest management and destruction of high global warming potential gases.

So before I close, I just wanted to share a few thoughts regarding the cap and trade program and the future of our climate program. More generally. For Cap and Trade, we must keep in mind that making a change to just one feature of a carefully constructed market program will impact the rest of the program. So as we're considering design features in our regulatory work, we have to keep in mind that no design feature can be considered in isolation.

And we must keep in mind the context that we need a more stringent program for the rest of this decade and beyond. During the development of cap and trade, there were many predictions that it would ruin our state's economy. But we have achieved our 2020 GHG emission goals six years early in an era of sustained economic growth.

So while we know that the market will have to tighten, AB 398 makes it clear that we are statutorily required to find the most cost effective solution to our climate goals. And so we want to avoid considering high prices just for the sake of high prices, and really think about how the program functions as a whole. We are entering a period of transition to zero emissions in all sectors. This transition requires nothing less than an unprecedented transformation in our built environment and in our transportation system.

And this transformation depends heavily on implementation across multiple agencies and multiple levels of government. We need key climate infrastructure deployment to accelerate so that delivery of everything from light rail lines to utility scale battery projects to innovative carbon storage facilities is in place when we need it. We need continued partnership with the Federal Government in the form of the waiver approvals I mentioned earlier. All of this work is going to be more challenging and more complex than what we have done thus far.

This requires careful management, not just at CARB and at the Legislature, but amongst other state agencies, amongst local and regional governments throughout the state, to safeguard our most vulnerable communities and grow our economy. But we also know that we need to have a more complete and detailed analysis of the cost of inaction. The costs of climate action are known and specific, but too frequently the costs of inaction are incomplete and unacknowledged.

It needs to be clear that our choices are not between doing nothing or paying for climate action, but between paying for climate action now or paying dearly for climate inaction in terms not just of economic impacts, but in terms of lives and livelihoods. California is known for its innovation, for its determination to reach for things beyond the horizon. And that spirit lives on. And that is what is going to get us to the carbon neutral future. So thank you and happy to answer any questions.

Okay, thank you, Madam Chair. Yeah, let's take some Member questions and we'll come back. So start with Senator Blakespear and anyone else.

Well, thank you very much. I very much appreciate your comments and thank you for being here today. I was listening very closely to what you were saying, and one of the things that you mentioned was that there are three different approaches, and one of them is reducing vehicle miles traveled. And I'm wondering if in your role as chair of CARB, if you might reflect on what we could do better to invest in transit, to reduce VMT.

And when I say invest, I mean not just invest money, but also invest attention. Because it seems to me that the way things currently work is that carbs set certain standards that then MPOs and transit agencies are required to submit plans that comply with those standards.

But then it's up to locals, local agencies and sometimes very hyper local parochial interests, whether they raise sales tax to Fund expansions or even just funding of transit or fixed rail, and that those decisions are then pushed down to a level at which the investments are not statewide or regional concerns about how do people actually move around the state, because VMT is not actually going down right now. And it's concerning to me that we have underinvested our attention in this. And so I'm wondering about your reflections on that and if you have any suggestions for what we could do going forward.

Vehicle Miles Traveled is one of the most difficult challenges. Right. Because to your point, it is very, there's many levels of government that have to make these decisions. So I guess I would say a couple of things. First of all, I think as you all are thinking about making investments, thinking about the funding piece and making sure that the strategies that you're funding are consistent with overall climate goals is a key strategy. And some of those strategies can really come from local governments themselves.

For instance, the four largest MPOs have identified various road pricing strategies in their sustainable communities strategies. So that's an example where the MPOs have identified a strategy and giving them and supporting their efforts in getting their local governments to implement those strategies and ensuring that they have the legislative flexibility, the legal flexibility to do that, I think is a role that the Legislature could take.

There is legislative authority to study road pricing and there's a pilot program, but sort of thinking about taking the next step, that's a strategy that could be identified, finding ways for the Legislature to support increasing infill development, infill housing. That's a clear DMT strategy that again, many local governments are very supportive of. And they're just looking for help and assistance and authority to do what they need to do. So I think those are a couple of examples.

Thank you.

Assemblymember Friedman.

VMT issue. It's what I was interested in talking to you about. So just to follow up on that question, I have a couple of questions. First, if we are not able to reduce VMT, if we continue the trend line that we have now of VMT increasing, what's the risk? What's the impact of that going to be in your mind?

Well, one of the benefits of thinking about VMT reduction is that it has GHD emissions benefits, but it also has a lot of other benefits as well, right? More sustainable communities providing an opportunity for affordable housing with multimodal connections to jobs, to services. It reduces the friction of daily life, and it supports sustainable communities that further public health. And there are surveys showing that people in California understand that they need to drive more, but they would prefer not to drive more, right?

Like they know that they need to drive to get to their jobs. But if you say, if you had a different way to move around your community, would you take it now? Of course, the next step is getting people to actually take it.

And I think that's an important challenge for the Legislature and for transit agencies in terms of supporting the level of service that people will want and need to use to take public transit, but also having communities that are more walkable and bikeable and locating services and housing closer together as a key land use strategy.

All of these are things that we identified in our sustainable communities chapter in the scoping plan, and I think continuing to support the efforts of communities to actually implement those strategies could result in benefits beyond just GHG emissions reductions.

So I appreciate you bringing up all of the co benefits, but Table 2.1 of the scoping plan lays out the need for a reduction of VMT to be reduced by 25% below 2019 efforts by 2030 and 30% below 2019 efforts by 2045. So I am wondering what the implications are if you could spell out to our emissions needs, not to the co benefits, but to the emissions needs, if we continue on the path that we're currently on of increasing VMT rather than decreasing it.

Well, the challenge is that we need all of our programs to be effective and reduce emissions as laid out in the scoping plan. And as any pillars of the overall strategy are unsuccessful, then we have the potential of not meeting our targets. So we need each program to perform as well as or better than identified in the scoping plan in order to achieve our goals.

So do you have any specific thoughts about what changes we can do at the legislative level besides funding but actual changes? You made a reference to one of the Senator Blakespeare's questions to barriers to being able to reduce VMT. So do you have thoughts about specific changes that we could make here that would help remove barriers and help? You did talk about congestion pricing, so that was one. Do you have any other thoughts about ways that we could be helpful to this goal?

I think, I mean, I, I think that's one way. And to me that is the issue of congestion pricing, the issue of finding ways to accelerate infill development. Those are strategies that many local jurisdictions support and have asked for. And I think so to me, the first step is it's really kind of a conversation with the local jurisdictions at the MPO level, but also at the individual city level about what would best support what they're trying to achieve.

And we saw that happen with some of the issues around getting housing near the University of California, Berkeley, right, where the Legislature said, we understand that this housing is necessary, and in that case, that specific project needed to move forward. So I think working with local governments in areas where local governments are not supportive of VMT reductions, then listening to the communities. .

The communities have a lot of examples of areas where they feel that local governments have not fully stepped up in ways that reduce VMT. So I think they have probably a better sense of the right suggestions for specific action than I do.

Well, I hope that you're right about the local communities wanting infill housing and development. I think the Legislature's experience has been that it hasn't always been a conversation that local governments have been particularly receptive to. Hence a lot of, some of the biggest fights in the Legislature in my eight years here have been about exactly that, with local governments actually being extremely resistant to infill housing almost across the board.

Right. That's why I was saying for when local governments are being not particularly supportive, then I think community groups have good strategy ideas.

So I'm glad that we're focusing a bit on VMT because I think the scoping plan does point out, and as you say, without the scoping plan seems to put a lot of weight on VMT reductions as part of our emission strategy. And as we've seen with electrification of vehicles, that in some, it's a little spotty.

Right.

I mean, we've seen ebbs and flows in the public's interest in zero emission vehicles. We can't count on that. That transition is not going to happen very quickly. The VMT reductions are extremely important in the scoping plan, but it's hard to see the connection. It seems very aspirational without having as much weight of regulation or a very clear strategy as to how we get these VMT reductions.

And that's my concern is that I think that the Legislature and you all and all of the agencies need to have a very clear roadmap for how we achieve these VMT reductions year by year. I don't think it's enough to just throw out we want to reduce VMT.

When we see a trend line moving in the opposite direction without really knowing how do we get these reductions year after year, what does that look like and how do we guarantee we do that otherwise the scoping plan is aspirational without we really don't know as far as I'm concerned. I've been working on two bills on this that are now in the Senate side, AB 6 and AB 7, that are looking to try to help with some of that roadmapping.

I would certainly love for stakeholders to come and help us with all the stakeholders. We want to do this in a way that everyone is comfortable with who are majorly invested in this space, whether it's our friends in labor, whether it's CARB, whether it's our local governments. We want everyone at the table because we're all going to have to be rowing in the same direction or this is all just going to, it's just not going to work.

And if we're really committed to these GHG reductions and to setting that standard, plus to all the Copenenefits you mentioned that are extremely real and very, very important to everybody's quality of life, not to mention to our ability to put roofs over everybody's heads. Because you rightfully pointed out the connection between housing and transportation policies that aren't always so obvious, and equity and public health and everything else, we could have such a better future if we're all on the same page about this.

So I would love to have help with that legislation. I'm certainly willing to help with anyone else who's working on this. I also want to make sure that the state is invested in programs like ReAp 2.0 that will Fund those investments in affordable housing and transit in existing communities rather than trying to further sprawl. That's very important to my communities and they're very worried about clawbacks to a lot of those transit programs and the funding sources. So I really appreciate you're here. I really appreciate the chair beginning these conversations and thanks.

Thank you. I'll just put a little finer point and then move over, I think, to the Senator and the Assembly Members points. If those emissions reductions don't show up, there's going to be pressure on the other programs to hit our targets. So say we have a 48% adopt as our midterm path for 2030 and those VMTs go up and not down, programs like Cap and Trade or other sources become even more central. Is that fair to say?

Yeah.

Okay. We'll get into some of the other sort of big promises that. What happens if they don't get met? I know that the scoping plan contemplates. Let's see if I add it all up, almost a billion tons, 920,000,000 tons of abatement from things like biomass with CCS, direct air capture. Again, if those don't show up in the near term, that also puts more pressure on cap and trade or other sort of parts of the program. I mean, how would you characterize like VMT?

Yes, but then these other things too, if they don't show up with the same quantity that is predicated on in the scoping plan, what does that do to the right.

The bottom line is we frequently in the Administration call this the era of implementation. And that's absolutely true. Right. I mean, the scoping plan lays out strategies and lays out a way to get there, but we need to make sure that the energy that needs to power all of those strategies happens.

We need to make sure that all of the deployment anticipated, deploying heat pumps in homes, reducing vehicle miles traveled, deploying CCs, deploying direct air, mean there are opportunities to reduce emissions if we deploy at the scale that is identified in the scoping plan.

Senator Allen, did you have a comment?

Yeah, well, a couple different things. First of all, I was really intrigued by this conversation that Michael Warren and his folks from Stanford brought up with regards to looking at LCFs and cap and trade, basically considering the final changes to those two side by side because they both impact fuel prices. And I wanted to see if you had any comments on that. And then I'd like to ask you about something else.

I think as we look at these programs, there is an opportunity to, particularly with LCFs, to reduce sort of the overall kind of cost burden for moving around if we do it right, if we support transitions to cleaner fuels and away from using fossil fuels. And that's what we're really trying to do with LCFs and our energy programs.

So I see some huge opportunities, and I think we are, as we're working through this incredibly detailed regulatory process, I think by the time we are finished, we will come up with a program that results in transportation that is cleaner and ultimately more cost effective. Relying on fossil fuels is no way to make people's costs more predictable and more sustainable. So these programs really have the opportunity to move us in the right direction.

Presumably, you don't see your LCFs work and your Cap and Trade work in silos. I mean, I understand they're separately authorized, but how do they interplay from your perspective as you're trying to analyze?

I guess I see all of our programs extremely interrelated to some degree. Right. Like, for instance, LCFs is as we are restructuring it, as we are considering the level of stringency, it provides financial support for zero emission infrastructure, which then helps reduce costs for utilities and companies that are trying to deploy that zero emission infrastructure. Right. So these programs have a way of building on the benefits that can ultimately lessen the burden.

Okay, I want to just ask a little bit about, obviously, part of why we're having all these hearings this year is because we know that the program is expiring. We're trying to figure out what reauthorization ought to look like and what we ought to learn from the past and where we want to go.

I think it's my sense, and I know the chair feels this way, that the deal struck in the Legislature for the last Cap and Trade reauthorization ended up being fairly prescriptive in some ways for everyone over at CARB. And I was wondering about whether you might be willing to speak to some of those decisions made by the Legislature and how you feel that they're faring today, specifically the designated limits on offsets, the decision of how to treat industry assistance factors.

I know leakage is a very real risk, and we don't want to drive all business out of California, of course, and I very much appreciate all that you're doing on that, the considerations that are part of your analysis to ensure that we have a robust business climate. But I guess just how much of our total allowance budget goes toward free allocations to keep polluting industries operating within the state.

And understanding these weren't all decisions that were made by CARB, how do you feel about how they impact our ability to hit our goals and provide benefits to Californians? I'd like just your thoughts on the system that you've been handed and where we go, because we're, I think, really trying to go through an evaluation of these questions as we're considering a reauthorization.

Well, I come from the perspective of having spent the last three years kind of watching this program function and how it's implemented. And I think the structure that the Legislature ended up with, I think has worked well. And some of the decisions that were made at the time, I feel like, to my mind, have addressed some of the concerns. Right.

I mean, the fact that there's a very clear sort of piece that says we're going to have offsets, but only to a certain level, I think that's worked well. And so I think overall, the structure of the program, as I was sort of mentioning in my remarks, it all kind of has to fit together in a way that incentivizes companies to reduce their emissions, recognizes that it's sometimes very challenging for them to do that.

Sometimes when I talk to facility operators in other parts of the state that have very specific processes to do what they're doing as part of their steel production or manufacturing or processing, the conversation is usually sharing the efforts, the technical efforts they have undertaken to improve their efficiency as much as possible, and a recognition that the goal is to reduce those emissions as much as they can at the site, and then an appreciation for the fact that they recognize that for some of these facilities, they don't yet have a path to zero.

And I think the state is doing as much as it can, and we can do more in terms of helping identify some of those technological paths to zero or to capturing the emissions that are there.

But I think overall, the legislation has functioned well to push companies to either reduce their emissions as much as possible and also think about how they're investing in the future and how they are positioning themselves and acquiring the allowances they need to continue to do the work that they need to do and recognize that that cap is going to continue to decrease and they are going to need to either have the allowances or make the reductions to meet the goals in the statute.

And of the concern that we've created far too many allowances.

Well, that's the regulatory conversation we're having. I think, as I've discussed before, the allowances help smooth out action as we, if we want to increase ambition towards 2030, them, those banked allowances can be part of that strategy in terms of smoothing out price spikes as we think about past 2030 and what the program looks like. Again, those allowances can sort of help companies plan and figure out their trajectory going forward, which I think is the intent of having that level of flexibility in the program.

Yeah, obviously, it's been subject to a lot of criticism, and I'm sure we'll talk about it at the next panel. I know this isn't directly in your Baileywick. But to the extent that it's directly connected, any comments or thoughts about the continuous appropriation side of this? Because that's also going to be part of the conversation. One of the things we talked about at the last hearing was the Washington model. Not perfect, but certainly some things we can learn from.

I know that it's part of your mission to ensure that the work you do is really resulting in tangible benefits for regular folks. Obviously, the GGRF also has to have that mission and goal. What are some things that you would like us to be considering as we think about the future of the GGRF as well, understanding that it's not under your direct control, but certainly very close to it, your work?

Yeah, I guess I would say at a high level that to me, one of the greatest benefits of the GGRF has been the ability to Fund community programs like community focused programs. In many instances, those programs are structured starting from with community proposals. Right. And I think the challenges of those programs is that they are sort of every year there's a conversation about them. Right.

Every year we have to think about, you all have to think about how programs like clean mobility options, for instance, is funded. And I think that's something that you all should keep in mind as you're thinking about the next iteration of GGRF. It is, as we administer these programs, the whole stop and start of them is really hard as air districts or community groups or others that are receiving these funds and are using these funds to help communities every day.

It is challenging for them to have such a short line of sight on the future of these programs. So I just think that's something that you all should keep in mind as you're thinking about GGRF, because to me, that at least 50% to disadvantaged and Low income communities, I think is an important hallmark of the program. And I think there are ways that can give communities more confidence that those funds will be available.

Yeah, I know we want to go over there to Assemblymember Muratsuchi, but just quick point. I think it's probably worth clarifying for the record.

So the allocation formula that we locked in as a Legislature, actually that Governor Brown insisted on when we went through this last negotiation to give free allowances to the industrial sector, sort of blindfolded as to leakage risk, setting aside any of your analysis about who's been more efficient, who's been less, what the baseline ought to be, who's leading where, you really don't have those leakage exposures, all that sort of set aside and we just have to operate with blinders on in terms of the allowances that are allocated. And is it fair to say that those are easily, in the billions annually in terms of the allowance value that we give away for free within the program terms of.

I assume so. I don't know for sure. Okay. Yeah.

I mean, I think it's about 50%.

Yeah.

So you figure if it's bringing in 10 to 12 billion a year, we're talking about 10 to a billion a year that's being given away free, and then 10 to 12 billion a year that's coming in through an auction. I don't know. That's very rough math. I get that. It's not exact. But the point I would just want your confirmation on is that when we're talking about things like interregional transit that Assembly Member Friedman has been talking about.

So funding things like Metrolink or the REAp 2.0 program in terms of housing, $1.0 billion was cut out of the infill Fund in the proposed budget this year, right. From the Governor. Cut housing by a billion, cut transit by proposing to cut it at least by three to 4 billion. So that's $5 billion in investments already that are going to be pulled out from under the VMT strategy this year, potentially. And meanwhile, we're giving away double that in free industrial allowances.

So if the program didn't give all those allowances away for free, and we left discretion to CARB to evaluate leakage risk, could you foresee that actually providing more incentive, say, for industry to deliver and actually getting them going further? Is there a concern that by just giving away for free that the industrial sector sort of doesn't have our refineries, our biggest polluters in the state don't have the motivation to change?

Well, I guess I would say I will kind of let the industrial sector sort of talk about their motivations. I will say one of the things that the legislation did require us to do was to do additional further study and analysis on leakage, and we are undergoing that right now. So that may help inform the discussion about sort of what leakage. We are seeing how we understand Next year? Yeah.

When is that dues Is that right?

Next year? Yeah.

Okay.

So I think that can help inform the.

Okay. Senator Muratsuchi, sorry to slow you down.

No, thank you. Following along the lines of the questions regarding the allowances, I think we might have talked about this at last year's hearing, but I wanted to revisit it, see if there's been any changes or progress but I'm looking at the legislative analysts report that was part of our Committee's Bill packet, and it's reminding me that according to the LAO, they believe that cap and trade, I'm reading here, cap and trade currently is not stringent enough to drive the additional emissions reductions needed to meet the state's 2030 GHG emissions reduction goal.

This is because over the past several years, covered entities and outside investors have accumulated and banked a significant number of unused allowances. What is your response to the LAO's position.

As part of the process that we go through to update the cap and trade program? We have held workshops on that question of allowances. As I think I mentioned earlier in my comments, we came up with sort of three different scenarios. One is to align with sort of the latest thinking in how we are. We recently updated our inventory process, and so we need to align with that. That would sort of keep us kind of at the 40% target.

So that's one scenario we analyze that is sort of like the minimum I think we would need to do. But as you note, we are also evaluating an increase in stringency, 48% or 55%, that would align with the reductions we would need to achieve carbon neutrality by 2045. It keeps us on a trajectory to get increased reductions in 2030 and then on to 2045. So that is part of the discussion in the regulatory process. We've gotten a lot of comments already on that topic.

There are concerns, for instance, the utilities are concerned if they decrease their get, are subject to a decrease in their allowance allocation. What does that do to costs? There's concerns amongst other regulatory and regulated entities how that would impact their costs. So, I mean, it's not like there's not sort of competing interests we have to consider. The statute requires the program to be cost effective.

And so a lot of the strategies, as I mentioned, allowing for banking allowances allows covered entities to kind of smooth out their compliance strategy and cost. So all of that kind of has to be taken into consideration, which is why we go through such an extensive regulatory process. But the short answer to your question is we're absolutely considering that as a possibility, and we are undertaking the analytical work that would underpin that. As we're considering the regulatory process, we haven't gotten to a decision point yet, but we are working on it.

Okay. I understand that pursuant to statute, you're required to consider the most cost effective way of achieving our climate goals. But according to the LAO, we're not on track because of the banked allowances. We're not on track to even meet 40%, much less 48% to 55%. And they have this wonderful graph here that shows all the banked allowances and how the only way that we're going to get to the 40% is with all the banked allowances.

But that assumes things that entities will do with the banked allowances, which may not turn out to be the case. Right. So, for instance, if the Legislature were to continue the program as is post 2030, entities would probably be more likely to hang on to those allowances spread out over a longer period of time. Right. So the potential impact assumes, zero, all these allowances will be dumped on the market at some point in time that may not come to pass. So I think I would not take it as a given.

Okay, fair enough. That makes sense. You said that CARB updated its inventory of allowances. So could you describe the current State of. How transparent is it? If I looked up Chevron, can I see X number of allowances? X number of offsets?

Sorry, no, that wasn't clear. We modified our emissions inventory accounting methodology, which had an effect on sort of how we calculated natural gas emissions. And so that sort of has this knock on effect. So that's what I was referring to.

Okay, so is there a publicly available disclosure of what polluters in California have? How many allowances, how many offsets?

We have data on that, but to my knowledge, most of that is not public. That's considered confidential. But when CARB staff comes up in the next panel, they probably have more detail on sort of what aspects are public and what aspects are not.

Generally speaking. Can you tell us why it's treated as confidential instead of publicly disclosed?

Because it's confidential business operation information.

But that would, in terms of our exercising oversight over whether we're on track to achieve our climate, that clearly, without that information, we're kind of blindfolded in terms of not knowing exactly how many allowances the major polluters in the State of California have. Is that fair to say?

Well, we know the total amount as was discussed.

Okay. But not a breakdown of the. What is it? 400 GHG emitters. We don't have it on that level. Okay. Switching to another hot topic in the Legislature, the growing concern about our efforts with our various climate programs and the impact specifically on electricity rates in the State of California.

There's interesting chart that I'm sure the chair is going to be following up on as part of our briefing packet that talks about the California climate credit, and it talks about a scenario that if the average household energy Bill could see if half of all new revenues above the current GGRF revenues were to be set aside for the climate credit, that we can cut the average electricity bill per household by over almost $360 by 2026.

I'm not sure actually if this is within carbs jurisdiction, but is that something of active consideration in terms of the interplay between our efforts to strive to our climate goals with the impact on bread and butter consumer issues like electricity rates.

Well, I guess first I would say it's very important to keep an eye on electricity rates. Right. Because we are trying to rely more and more and more on electricity for how we power our day. So we don't want to send the rates you in an increase in an unsustainable way. As I was mentioning earlier, the current electricity rates do reflect some of the costs of inaction. Right.

The need to go back and re-harden old infrastructure to address climate impacts is a cost that is reflective of the climate crisis that we're in. And it's reflective of sort of things we probably should have listened to back in the 80s about what was going to happen going forward. So we don't want to continue that mistake. And that's why the work that the utilities are doing is necessary. Funding to increase distribution and transmission to handle that new existing load is really critical.

Ultimately, as that load increases, increases and you have increased volume of the use of electricity, the overall system costs will go down. So I think there is reason for optimism, but that does not ignore the fact that rates are currently high and it can be challenging for families.

So supporting strategies that the energy efficiency strategies we need, the new technology we need, the things that will make rates more manageable, both on the utility side in terms of reducing costs of operation and then families ability to manage their energy burden are all going to be important considerations. The climate credit is managed by the PUC. It was originally a way to sort of give back to the ratepayers the costs that they were paying for compliance.

So the Legislature could sort of think about, zero, do we want to approach that differently? Do we want to approach GGRF less as a Fund to support programs that reduce greenhouse gas emissions and more of a sort of refund to customers. I think there's pitfalls with that if you are. And this sort of gets into the larger conversation of all the things that go into fuel prices and energy prices, it's not just climate action that affects prices. There are so many other variables.

And if you kind of decouple the GGRF from actual greenhouse gas emissions reductions and turn it more into, well, we're just reducing your cost of energy. I'm not sure that incentivizes the companies that are providing that energy to do it in the most cost effective way. So I just think those are some things that you all will need to think about as you're grappling with those questions.

If I could just make this my last question. Mr. Chair, people have been talking about. A Carbon fee and dividend for many years. And while I agree with you that just giving money back to consumers to help them with their electricity bills may not drive increasing capacity for projects and programs to reduce greenhouse gas emissions, clearly we need to do that juggling act of making sure that Californians are not suffering from our climate. Yeah, I just want to comment on that. Thank you, Mr. Chair.

Yes, Mr. Vice Chair.

Thank you, chair. Just wanted to go back to the scoping plan and follow up on a couple of issues. The scoping plan scenario assumes that petroleum refining will decline in line with reduced petroleum demand. How confident can we be that that will actually play out as modeled? What if declines in petroleum demand lag behind expectations, or if refineries continue to operate to the same degree, but shift, for example, to exporting refined products? And then I have one more question.

Yes. That was specifically an issue that we talked about at the time the scoping plan was adopted. And so our strategy at the time was to form a working group to look into that question. Then subsequently in the special session, you all actually codified that proposal in law. So there's a couple of pieces. The Energy Commission is working on an assessment of fuels demand that would be needed, and that assessment is an input into our working group work.

And so we are just getting started on pulling together a working group. We've identified kind of a list of the, which is also in the statute. Right. A list of sort of the key stakeholders that need to be there.

And so we're working on structuring that working group now with a goal of getting started this spring with a series of conversations about how do we think about this fuels transition, how do we think about the demand assessment that the CEC is going to be providing us and what that looks like in terms of our regulatory work and our anticipated uptake of for know vehicles, light duty vehicles, heavy duty vehicles, in terms of uptake of zero emission, and kind of how that's all going to play out so that work is forthcoming.

Thanks. Are we keeping pace to meet the building decarbonization targets outlined in the scoping plan? I particularly liked your reference to heat pumps in an area of interest which we know are critical to that effort. What is being done to ensure that there is robust supply of heat pumps and affordable price for consumers? So broad and then specific.

Yeah, that is an issue we are also working on in our state implementation plan for the 2037 ozone standard. We identified as a measure in that plan the issue of zero emission heating and space heating and water heating, and a potential appliance standard to support the deployment of zero emission space and water heating. So we are at CARB going through the process of looking at how a regulation like that might be structured. We've just gotten started sort of in the public workshop conversations around that.

And of course, our sister agencies are working on building standard strategies and sort of figuring out what their next steps are going to be in terms of deploying zero emission appliances as part of new construction. So that work is ongoing.

Okay. I just want to give you a chance before we wrapped up any other barriers you wanted to identify here, I know we've talked a little bit about challenges with VMT. Challenges. Say, I thought the electric sector was supposed to be the easy to decarb sector, but somehow it's becoming harder. What are those barriers that you've identified here that stand in our way to hitting both 2000 and 32, 45 goals? I'd say with more emphasis on the near term.

Yeah, I think one of the key barriers I see is, as I mentioned earlier, kind of getting the clean energy deployed that we need. And I will say that there has been a lot of progress on reducing those barriers. I mean, the independent system operator and the PUC and the CEC together have made huge progress on speeding up transmission projects and updating the demand forecasting, updating the tracking of deployment. It still needs to happen faster. We still need projects that are proposed to proceed quickly.

And I think continuing. The Legislature has supported some of this work, for instance, in the Bill allowing the CEC to do some of the permitting for renewables. Continuing to support faster and more consistent deployment of resources I think is going to be incredibly valuable.

So on the streamlining side, but are there tools that you've got in your toolkit? I'm thinking there's PUC, there's ISO, there's CEC, there's all these other jurisdictions. But what do you have in your toolkit that you can either motivate the market or push these things forward further? I mean, you have a direct permitting role on the carbon removal side, right?

So on the CCS and a Becks project or a direct air capture project, those would all have to, in theory, go through you and through a siting.

Well, yes. Our task is to set forth some guidance that the lead agency for particular projects can use, which we think will help make things move faster because there'll be sort of a common set of, here are the things that we are laying out as guidance for projects. So I think that will help. And so as I mentioned earlier, we are getting started on that. So I think that'll be helpful.

I think anytime you talk to anyone at the US EPA, maybe reminding them that they have some waivers pending for us would be very helpful. I mean, we are really trying to get these regulations moving as quickly as possible.

Yeah And the fear is not just our light duty waiver or the heavy duty side, but also the fact that they look like they backed off on their power sector regulations, at least in the near term.

In the near term.

So I guess after the election we have to wait and find out if the rest of the country is going to be playing by some kind of rules for greenhouse gas regulation. But right now it's a question mark. Does that undercut us? Does that make more capital? Want to come here and sort of launch mean, is there a way to be first, like we always tend to be in terms of these new projects? Or do you think that there's something about California where it's not the place that they want to go right now with that kind of project level capital?

Well, you know, the power plant rule, know sort of what the requirements are on existing plants and what requirements are on new plants. They sort of kind of bifurcated the two. I think, for us in California, I think we are really focused on taking advantage of the moves that EPA is making around their light duty standards, which while the EPA does it a little differently than us. Right.

They don't specify you have to have x percentage of zero emission vehicles. Instead, they set forth a GHG standard, and the effective result of the standard as it moves down is an increasing number of zero emission vehicles. My understanding that is that the completion of that rule is imminent. They're also working on similarly their GHG standard for heavy duty.

And both of those rules I think are really important for supporting the overall zero emission market, which I think is to the benefit of California that more zero emission vehicles get deployed throughout the country.

Is it fair to have a take home point, though here that we have lots of ambitions? We want to see more folks step up ZEV marketplace, VMT reductions, new pathways, but that in every one of these cases, when the projects don't show up or the tons don't appear, everything goes back to the hard cap and the cap and trade program.

Is that the right way to look at the mechanics here, that we're going to sort of keep pushing our ambitions for deployment all these sectors, but whatever doesn't arrive somehow finds its way back to the cap and trade program. So a lot of pressure, I would imagine, between now and 2030 or now in 2035 for that program to do the heavy lifting, to drive those changes. Is that a fair way to look at it?

Yeah, I mean, I guess I would say it's always been a key pillar of our strategy and will continue to be. And I think there is an opportunity to show more ambition there. That doesn't mean that we can avoid pushing as hard as we can on transportation as well. I mean, transportation is a huge piece, 50% if you include the extraction and refining parts of it.

There is some overlap between the Cap and Trade and some of those transportation emissions, but we cannot forget the fact that our vehicle strategy remains a key air quality and climate strategy. So I do not want to contemplate failure. I mean, right now we're ahead.

I mean, everybody's all tied up in knots about how, oh, there's a tiny blip in the overall deployment numbers in a particular quarter, but that doesn't mean that overall there's not a huge amount of progress and that momentum is going to continue. And as I think the battery standards to get tax credits, as all those issues smooth out, will continue to make progress there.

I guess I'm trying to understand, do you think that the extension of the cap and trade program beyond 2030, so say it went to 2045 statutorily, will that make our program stronger? Do you think there could be benefits to that? Or do you think it actually could put too much onus on that program and maybe detract from these other complementary measures that you're looking at?

No, I think it's a benefit, full stop. I mean, I think having clarity that this is a climate strategy that has worked and will continue to work and could be even more effective. The more certainty that companies can plan for the better.

And that extension to point, I mean, the concern about this overhang, these unused, the sort of stockpile allowances, and we'll get into that modeling a little bit more through the IEMac in the next panel. But that extension itself could help deal with that sort of oversupply problem with market confidence.

Yeah, I believe so. Yeah.

Okay, we'll dive deeper. Any closing comments before we let you go?

No, I just want to thank you for your engagement and your really great questions. I mean, this is hard stuff and we don't have the option to not be successful. So continuing to iterate and talk about how we can be successful is incredibly valuable.

Thank you, ma'am. Chair.

Thank you.

We appreciate your time. All right. Thank you. Thank you, Members. So we're going to move to our experts panel, Mr. Burtraw, Ms. Fowlie, Ms. Sahota, Cornett and Dr. Garoupa. If you guys wouldn't all mind coming up, I think there's five total here. Thank you.

So what we're going to do, Members, for those of you who have the endurance to keep going here, we're going to go quick, three minutes each, three to four minutes each, try to land on a singular point and they may have a slide or two each. And then we'll keep going for questions. And then those who are the brave stakeholders who want to keep waiting, again, we encourage you to work together.

And what we're going to do for the last public comment panel is we're going to keep up here. We're going to try to keep up LAO to the extent they can stay and potentially carve to the extent they can stay, and then let the rest of you all go. And then go three at a time for our public stakeholders to come up and we'll kind of take you all in chunks, if that's okay. That way we can afford a little more back and forth time, too.

But to kick off, Dallas Burtraw is chair of the Independent Emissions Market Advisory Committee and he's also the Darius Gaskin senior fellow at resources for the future and a longtime watcher on the wall for this program of ours here in California. Welcome to the Committee. Welcome back to the Committee and thanks for taking a moment. So sorry for giving a short Runway on this one, but let's go three to four minutes at the outset and we can do questions and dig deeper. Thank you so much.

Thank you so much. You have my slides. Thank you. Thank you, Senator Stern, Assemblymember Connolly, and the Committee. My purpose today is to share the main findings of the 2023 annual report and elaborate on one special topic. California has recently increased the pace of its emissions reductions, but as we heard, it's not yet on track to achieve the statutory target for 2030. The report, and indeed the market in General, is shaped by CARB's informal workshop series examining a potential update to the market.

As an introduction to the report, we revisited several issues we've been talking about for years, including how to reduce allowance supply and the opportunity to rebalance between freely allocated and auctioned allowances and the implications for affordability, leakage and proceeds to the greenhouse Gas Reduction Fund. The Committee also discussed the accumulation of banked allowances and how the program update will affect the financial value of allowances that are accumulating in the bank.

We have emphasized the value of rule based approaches, such as an emissions containment Reserve, to lock in emissions reductions. We seek to ensure that emissions are achieved to the benefit of disadvantaged communities and that the overall program performance will hinge on clarifying the future of the program after 2030.

The report's first new chapter talked about greenhouse gas accounting, and it pointed out that updates to the statewide inventory had the practical effect of weakening California's statutory policy targets, which could be mitigated by updating the 1990 emissions baseline. The second chapter talked about affordability, and I'm going to defer on that in the interest of time to Professor Fowlie, who's going to go into that specifically. The third dealt with market links and applauds the state's leadership role in providing technical assistance to other states.

But the Committee encourages ambition and support with linking with other markets, including Washington, and would like to push that as much as possible. The fourth chapter addressed point source carbon capture and storage, which we were just hearing about, including direct air capture, which could play an important role in achieving emissions reduction in industry. However, deployment raises significant questions about climate, social and local environmental impacts, and there's general uncertainty remains about the protocols for accounting within the carbon slide.

Those issues must be resolved before those pathways are available. Now, as finally, as noted, next slide please the central issue in the program update is how to adjust allowance supply compliance. Entities obtain and surrender compliance instruments through four channels, the free allocation, the auction, the bank and offsets, and parties have expectations about the value that flows through each of these channels, which will shape perceptions of fairness about the program update. CARB has described the need to reduce cumulative emissions by 115 to 390,000,000 tons by 2030.

That is, reducing cumulative supply and illustrative scenario options have focused only on adjustments to free allocation and auctioned allowances. This would boost the financial value of other sources of compliance instruments, including, for example, the banked allowances and offsets. I personally estimate the financial value that would flow to holders of banked allowances would be between six and $14 billion due to CARB's program update.

CARB has not discussed potential adjustment to the tons that flow through the allowance bank and offsets, which could reduce the reductions that otherwise will be necessary to the allocated and auctioned allowance pathways. In Low end case, I estimate the banked allowances could be assigned a compliance value of 0.7 tons per allowance, that is, just redenominate their value, and this would enable an additional 100 million tons for free allocation or the auction.

And in combination with reduced overall supply, this would leave the financial value of the bank fully intact because prices go up at the same time the quantity goes down and it would still leave an extra margin of increased value. Now, one might view a bank adjustment as an exposed change in the rules, which might undermine market confidence or seem unfair somehow, however, other stakeholders are also vested in the program and affected by the program update.

Perceptions of fairness will play a large role in stakeholder acceptance, and so we might look holistically. Another approach, for example, that might appeal might be that the CARB changed the compliance value of all allowances equally as a way to achieve its tighter cap both all channels of supply through the end of the market. And I've estimated in the 48% budget scenario that CARB has been discussing, this could be realized with a compliance value of 0.9 tons per allowance.

Now, I've mentioned the financial value is determined by price times quantity, and the impact on price is not just affected by the rather dramatic change in the program with more stringent allowance supply, but we've also promoted the idea of an emissions containment Reserve that has its own virtues, which I'd love to get into with you, but the introduction of emissions containment Reserve would also push up the allowance price.

So we're looking, as Chair Randolph said, at approaches that bring all these things onto the table at the same time as we move forward with the program. These are policy issues, including potential shifts in value across vested entities that IEMAC has identified, and I believe they must be front and center in the needed update for the carbon market. Thank you.

Thank you. Looks like I screwed up the whole order here, but we're just going to keep going after thinking it through. Talking through it, yeah, just totally ruin that. But let me dig myself out of this by going next to Rajinder Sahota, our Deputy Executive officer for climate change and research at California Research Board.

Good afternoon, chair and Vice Chair Members. It's a pleasure to be here with you today. I'm Rajinder Sahota, the Deputy Executive officer at CARB. So I want to first start by talking about some of the things that we've done in response to some of the IEMAC recommendations over the years.

We have two studies looking at leakage, one retrospective on electricity to see if people have been resource shuffling and some of the contracts are actually valid that are bringing clean power to California and being counted in our inventory. The second study is potential for leakage, which is also for the industrial sector and part of the response to AB 398, where the report is due next year. We also have another contract that is looking at the buffer pool for forest offset credits.

Should that be increased because the risk of wildfire has also increased with the effects of climate change? And should projects be contributing more to that insurance pool to make sure that it's sufficient to cover the future of that part of the offset program? Another contract that we had was in 2022 for the 2020 scoping plan.

Looking at the social cost of carbon, we actually were able to get census tracked social cost of carbon values that we could add to the global social cost of carbon to more accurately quantify the more acute disadvantaged pain that you see in frontline communities in response to climate change, because they just aren't that resilient as everybody else. In total, these contracts equal $1.7 million.

So in response to the IEMAC recommendations, we have engaged in a very robust process to engage and to put resources toward the issues that they have highlighted. To be sure, there are other recommendations broader than the cap and trade program relative to the scoping plan, but there's one in particular that I'd like to really focus on, and that is the 5% of unused allowances to date in the cap and trade program. And I have one slide for that. So I hope that can be.

Yes, that would be great. So that 5% savings bank represents emissions that did not happen and we still met our 2020 target. They could have happened and we could have still met our 2020 target.

It is also early investment in the cap and trade program where the resulted funds went to GGRF and were used for AB 6117 priorities and were also used to Fund other climate and state priorities per the budgeting process at the Legislature with the Administration, that 5% savings bank is going to be critical as a tool to help slide into a more stringent cap and trade program.

So, whereas before, it may have been seen as a potential issue that did not materialize, but it is going to be critical as a tool if we are going to make the program more stringent. And for this part, I'd like to focus on that graph behind me in front of all the Members here, and what we have are three scenarios, 40% at the top for the adjusted inventory scenario, 48% and then 55%.

You will see that the bar charts from 2021 to 2030 have different color bars in those, and I want to go through what each of those represents. The top part, which is a bit of a hash, is 5% of the actual allowances each year that go to cost containment. The light blue bars are the amount of allowances that go to natural gas utilities that come back as a climate credit to ratepayers in California.

The darker blue is the amount of allowances that go to utilities each year, electric utilities that comes back as a climate credit or is used for compliance by the publicly owned utilities. And that in total is about just a second. That's about 38% of the total allowances. The yellow is what we give to industry each year to help with minimizing leakage. That is about 16%. And in the last few years, it's probably averaged about $1.3 billion of the total budget that's created.

And then whatever is last, because we, as the state, give ourselves whatever is last each year goes to auction, and that is about 41%. This is a zero sum game. So as we think about changing the caps, we have to think about where do those allowances come from? And what you see in those colored bars from 2025 to 2030 is how those bars would have to change.

If we were to start removing allowances for the 40%, we would be removing about 118,000,000 allowances from 2025 to 2030. For 48%, we're removing about 264,000,000 allowances. And for 55%, it's about 392,000,000 allowances. They have to come from somewhere. And so the question is, how do we remove those allowances, make the program more stringent, and still make sure the value is appropriately placed to one, protect ratepayers, minimize for leakage, and still have money for state priorities on climate and AB 617.

So with that, I want to talk about some of the modeling that has come through recently, because we've been in a workshop process for about a year. And what the modeling shows is that if we did nothing to the program, that 5% savings bank would be gone in the next decade with a program extension. If we make the program more stringent, that bank goes away faster and prices start to rise faster.

If we take away that bank and we make the program more stringent, we take away offsets, and we actually reduce the allocation to industry. Program costs go up significantly. And the modeling shows that. So the more we take out, the faster we take it out, the more impact on costs.

And so the balance for us and the work that we have going on in the remaining few months of this year and maybe into early next year will be to make sure that we're coming out with proposals and modeling that reflect what is appropriate and technically sound in terms of the statutory guidance on ratepayer protection, minimizing for leakage, and then what is left over for the state for GGRF?

The one last thing that I want to leave everyone here with is that making the program more stringent is important because the 2022 scoping plan indicates it should be. And as chair Randolph indicated, the 40% is the minimum that we need to remove to make sure that we're realigning for the SB 32 target of 40% below 1990 levels. So some amount of allowances do need to come out of the program. The modeling talks about how quickly and how fast that can happen.

We're going to continue to refine the modeling and put it out into the public process. But again, it's a zero sum game and we have to figure out where on day one that value goes. And then is it sufficient for the statutory targets of repair protection, minimizing leakage, and what's left over for the state?

I will also say that there are programs where the state has decided to take their money first and set aside x percent of an overall annual compliance or annual cap to be set aside for state needs for auctioning, and then the rest is distributed for the other purposes and other parties. So that's something to consider, and happy to take any questions when the time is right.

Thank you so much. Guide me back through here. Okay, next, Meredith Fowlie, also Member of IEMAC, but UC Berkeley Department of Agricultural and Resource Economics and endowed chair of energy as well. So thanks for joining.

Thank you so much, chair and Vice Chair. Really appreciate the opportunity to be part of this really important conversation. I do not have much time, so I want to hit my three points that I want to leave you with, and then whatever time I'm allowed to take, I'll elaborate. So the first point is one that Chair Randolph already made, and that is that the cost of inaction is really, really high. We're already seeing it in damages from extreme weather events and the cost of adaptation.

So I think given the title of this session, we're all on board that inaction is not a strategy we should be seriously considering. So I'm not going to dwell on it. I'll use it as my point of departure. So what that means is that we're all here to talk about increased ambition, reducing our emissions and adapting to the climate change that's sort of baked into the atmosphere already. And that leaves us with some really hard choices.

And so my second point is that how we choose to reduce our greenhouse gas emissions. How we choose to adapt to climate change and how we pay for all this has huge implications for how effectively we make the transition and who pays. And my third, which is related, is if we're serious about affordability and we're serious about an equitable climate transition, we need to be more serious about cost containment and fair cost allocation. Next slide.

So I'm showing you some pictures because it's late in the day, but the basic idea is the following. There's been a lot of work to try and think about what it costs. Let's start with greenhouse gas emissions reductions per ton of emissions avoided. And so this is just a graph we included in our Imac report.

It's some of the estimates that are out there of a cost per ton avoided for different types of strategies that we're either deploying or scoping out as part of the scoping plan. I should say there are other parts of the scoping plan that are off the charts. The costs are just so high. And so what I really want to emphasize is that we have an obligation to seek out and deploy the least cost abatement options. But that's really, really hard.

Regulators don't have all the information they need. It's hard to predict the future, but we have an obligation to contain the costs. The good news is we do have a functioning cap and trade program. The point of a cap and trade program is to seek out and find the least cost options and deploy them. The not so good news is that we're not really relying on that cap and trade program to the extent that we could. It's been a backstop in the background type of policy.

So there are lots of issues we need to deal with. With the cabin trade program. It is not perfect and that's why we're here. But it is functioning. It has great potential. And if we want to identify and deploy lease cost options, we got to lean into that program. The second graph I wanted to show you, this is a little bit of mission creep, but I think it's important to think about. We also have to adapt to climate change.

This is a picture that is taken from a paper we just released where we looked at the cost per ignition avoided of different strategies we're using to reduce wildfire risk in the power sector. And the story is the same. There are a lot of different strategies we can choose from. Some are high costs, some are Low costs. These estimates, we have to be really careful. There are assumptions behind them. They're not comprehensive. But the point is that some strategies cost more than others.

And we seem to be leaning towards more expensive risk mitigation options in the power sector right now in California. So just as with the greenhouse gas mitigation options, we should try and choose low cost options. When we choose higher cost options, we need to think about what benefits we're getting with those high cost options because cost containment is key. I think I'm almost out of time, so let me finish with the cost allocation question. Right.

And there's been some really good questions about electricity prices and sort of how we're paying for all this. If we mandate technologies and we mandate abatement as we build distribution and transmission infrastructure that we need to support electrification as we mitigate risk of wildfire in the electricity sector. Let's focus on electricity in the interest of time. The typical way we recover those costs in California is to raise the rates. Right.

So we've been doing some work together with Severin Bornstein and Jim Salee, and we raised two big concerns about that strategy. One is that high prices getting higher really undermine energy efficiency because who wants to buy a heat pump? Who wants to get an electric car with electricity prices this high? So we've shown that high prices are really slowing our progress on electrification. The second thing we argue is that this is a really regressive way to raise needed revenues.

More aggressive than an income tax, more aggressive than the sales tax because Low income households spend a larger share of their income on utility bills. So we need to make these investments. But I hope it's not. As I'm an economist, I enjoy thinking about this stuff. Other people, not so much. We really got to think about how we're paying for this because it can undermine the equity, the efficiency, the durability of our climate ambition and our climate goals. So I'll stop there.

Thank you. Packed a lot in. We'll move next to Catherine Garoupa, co chair of the CARB environmental Justice Advisory Committee.

Yes, thank you. And also Executive Director of the Central Valley Air Quality Coalition, or CVAC. We recently became a permanent body, which I appreciate took the leadership of chair Randolph and the Office of Environmental justice at CARB. And one of the critical aspects of this role is having dialogue with bodies like the Independent Emissions Market Advisory Committee.

While overall EJAC and IEMAC may not agree on the effectiveness of the cap and trade program, we have found alignment around topics like the need for better data and analysis. The 2023 IEMAC report assumes that the program is extended without detailing necessary reforms and issues that have been raised in previous reports.

There's a comment letter included in your background packet that I co authored with Dan Rest at Center on race, poverty and the environment that I will just highlight a few of the issues and some of the solutions regarding harmful impacts of the cap and trade program. EJAC has repeatedly expressed concerns that the program, as implemented by CARB, does not sufficiently reduce emissions and in fact, increases pollution in environmental justice communities.

The fundamental goal of the program is to reduce statewide greenhouse gas emissions at the lowest cost to industry. Racist practices such as redlining and purposeful permitting of major pollution sources in Low income communities of color leads to a concentration of environmental hazards. The ability to trade or purchase emissions credits at a fraction of the cost of direct reductions fails to create sufficient cost incentive, meaning those facilities will continue to produce pollutants detrimental to public health and the climate, particularly for frontline communities.

Most of the offsets so far have been proven to be fake or vastly inflated. It is unacceptable for CARB to continue subsidizing dubious reductions in a manner that allows continued emissions in California communities. CARB should eliminate offsets or at least evaluate course corrections for credits already used for compliance that are not delivering the assumed reductions. CARB should also continue to prohibit international credits, what I'm generally calling tailored trading, which has also been referred to as facility specific caps or no trade zones.

But those mean different things, and we still need to clarify what we mean when we say those is just one tool to address environmental justice issues. And Mr. Burtraw, not in his IEMAC role, recently conducted an analysis on the implications of such a policy, showing little to no adverse impact on credit prices. Carbon Capture Use and Storage, or CCUS, should only be deployed in the hardest to decarbonize sectors or not at all.

CARB must implement a variety of policies and strategies on CCUS to complement and not compromise emission reductions. Research disputes the feasibility of biomass carbon capture actually resulting in a net reduction of emissions and risks perpetuating harm in frontline San Joaquin Valley communities such as South Stockton, Madera and Delano. CCUS is not a good fit for most emission streams on refineries.

Space requirements make it questionable, and it is infeasible to ensure safe transport to appropriate sequestration sites that would have to occur over hundreds or thousands of miles. SB 905 is intended to both facilitate deployment and constrain it, not accelerate it.

Community protections in SB 905 that need to be acted on are a pipeline moratorium until federal rules are updated, a prohibition on use for enhanced oil recovery, and, most pressingly, the requirement that CARB produce regulations that ensure operators minimize copollutant emissions to the maximum extent technologically feasible. The Central Valley Air Quality Coalition has worked to build consensus on a community based platform, and we are waiting for CARB to act on their regulatory authority. If we could go to slide two, please.

This slide depicts overarching concerns and solutions from a 2022 San Joaquin Valley workshop with over 80 residents from frontline communities. So providing this image is one way of bringing their voice into the people's house, and it is also a reminder that we need holistic solutions. The cap and trade program is meant to be a backstop.

So while I appreciate attention to equity issues like pass through costs, EJAC has previously supported solutions such as cap and dividend, and not just a flat dividend, but one that is tailored to priority communities. CVAC is also supporting the climate bond to Fund sustainable communities and climate resilience such as cooling and clean air centers. And we have to keep in mind that clean air is a human right and the focus ultimately must remain on direct reductions.

It's difficult to put a price tag on the ability to let your kids play outside or years and decades taken off of people's lives. If cap and trade is to be extended, much can be done to address EJ concerns. CARB should clarify where it needs legislative direction and meaningfully incorporate EJAC recommendations. The Low Carbon Fuel standard and Cap and Trade both equal carbon markets and should be considered together.

As just one example, crediting carbon capture, use and storage is counterintuitive, undermines carbon neutrality goals and risks extending business as usual, and if done in both programs, increases the potential for double counting. The Golden State has an abundance of financial, physical and cultural resources, and we must do more to ensure prosperity, dignity and quality of life for all, with a focus on those most impacted. Thank you.

Thank you so much. I know we've got LAO here on hand if we have any technical questions for follow up. Did you want to make any comments though?

We were asked by your staff to make a few comments about GGRF. Would you like us to do that still? Okay, so I'm Sarah Cornett with the Legislative Analyst Office. So just for some kind of context about the GGRF conversation, GGRF has raised between three and 5 billion per year over the past several years. And because the revenues are authorized in a way that's akin to a tax, the Legislature could in theory use these revenues for broad purposes.

Most of the revenues, as you know, are directed to continuous appropriations with the remaining available for discretionary spending and the Governor's 24-25 budget proposes to use most of these discretionary dollars to backfill reductions in General Fund spending in climate packages, primarily the ZEV package. However, depending on how the budget situation evolves, these revenues could even help backfill reductions to core ongoing programs, which is something our office has recommended or noted to you over the past couple of months.

There is also considerable uncertainty with revenues because it is not yet clear how CARB is going to make changes to the program. And allowance prices may decline the longer the Legislature awaits to extend the program beyond 2030. So with this in mind, we recommend the Legislature monitor auctions and adopt spending levels that reflect evolving revenue trends, focusing GGRF on your highest priority activities, whatever those may be.

Thanks for that. We'll bring it back to the dais. Members have follow up questions for our panelists. Anything off the bat, unless you want me to dive in. All right, I'll take a we, I wanted to drill down on Professor Fowlie's points in terms of the sort of cost of inaction.

How much do you think is sort of being, if we were to say, take the $5 billion of wildfire mitigation spending that we currently put on utility bills and push that, say, into a bond and finding sort of other ways to, in other words, pull sort of public purpose spending off of those utility bills and find other tools like the GGRF or like a bond, which I would note in Ms. Garoupa's slides were two ideas identified, a Cap and Dividend idea and then the sort of climate bond idea.

Have you analyzed what breathing room, I guess, for lack of a better word, we could give ourselves as we seek deeper penetration of electric vehicles, a building decarbonization, things like that.

Great question, and I'll answer briefly and then please push back or ask further questions. So we've been thinking a lot about this because rates are getting higher and looking for opportunities to shift pieces that we're paying for in electricity rates off of rates onto, say, the state budget. And one thing I just want to, for context, a lot of this is the cost of climate change adaptation. We don't put, I don't know, flood walls on water bills. It seems a little bit arbitrary.

And to just underscore the arbitrariness, when there's vegetation management done close to a power line, it's on the bills. When it's far from the power line, it's on the state budget. So we should really be thinking about what's on these bills and why we've done a little bit, and this is more your job than mine, trying to figure out just the political palatability of taking some of this stuff out of the rates and put onto the state budget.

And it suggested that there's some potential there, but it's not going to mitigate the problem. So I think in my view it's going to be a combination of one, cost containment. I really think we need to bear down on how much we're spending on wildfire mitigation and other things on the bills. Two, exactly as you're suggesting. Are there things on the bills that we can take out of the bills and pay for them using other less regressive tax instruments? And three, restructure the rates.

I mean, we are paying so much more per kilowatt hour than it actually costs society, even at a carbon price of $200 per ton. It's slowing electrification progress and it's really regressive. So I think in my humble opinion, a combination of those three things. I think your idea is good, but I don't think it's going to get us where we need to be if.

We want just the scale of the dollars. Yes, but even $10 billion more annually.

There's no question it would make a dent. But when you look at how we're getting from $0.10, which is really what it costs in terms of local air pollution, climate, and what we're paying, which is coming up on 50 cents a kilowatt hour, some of that is just electrification distribution infrastructure, which probably will need to get paid for in the power sector, although you probably know better than I. So it's a great suggestion.

My sense, and you're the experts, is that it's got to be some combination of cost containment, rate restructuring and reallocation of these costs off bills and onto the tax base or other creative solutions that you will all come up with.

Okay

Okay so your point is were basically asking ratepayers to pay for too. Much of the electrification and infrastructure build. Out and we're putting it straight into the rates.

Yeah, I guess just because I have the opportunity, we're asking them to pay for a climate change adaptation in terms of wildfire risk mitigation and weatherization and shoring up the grid for more extreme weather events, subsidies, public purpose programs, things that we like and we want are showing up in the bills, distribution, transmission, infrastructure that we need to decarbonize the power sector and electrify the building sector.

And it's all piling up to a point where it's really hard to convince a household to buy an electric car and then they lock in a gas powered car or buy a heat pump and they lock in a natural gas furnace. It's really detrimental.

And, I mean, the irony is that right now mailers are being sent out and billboards are being taken up around the state by the Western States Petroleum Association blaming us electric vehicles climate policy for why rates are going up. Looking at a mailer that went out even this weekend says your residential electricity rates are up 70%, gas prices are up 35%, and meanwhile, California lawmakers are moving us to electric cars.

This is a very dangerous narrative if we swallow it whole, because as Press Fowlie just pointed out, and I think our other experts would back me up on this, the price driver to attribute all that to our climate policies is just factually inaccurate, right? That low carbon fuel standard and the cap and trade program are not the primary thing driving up gas prices or electricity rates. It's that it's really getting a lot hotter.

There's a lot of fires or there's wars all over the world and prices are getting compressed and Russia's deciding to pull back and we're exporting more oil and gas. And so all these things. But the classic playbook here is that the oil industry scares everyone about climate policy as the sort of bad guy here. But in fact, what I'm hearing from you all is that if we actually had a more robust approach to carbon pricing, we could actually reduce bills at the same time.

Increasing not just having a dividend or a credit only approach, but uplifting disadvantaged communities, investing in resilience centers, meeting some of the stop gaps we have in transit or housing. In other words, it's currently factually not a liability, but we can turn it into an actual sort of driver and guarantor of some benefits in this future. I don't know.

Yeah, and I'd be happy to share after the ratepayer advocates and CPUC has done some analysis of this recent rate increase and wildfire mitigation, climate change adaptation, and, some know, supporting subsidies and things for relatively expensive initiatives were what they identified as sort of the three key drivers. So I completely agree with your characterization, but I do think there are narratives out there that can misplace the cause and the drivers.

One other point I want to just drill down on before we wrap up or give you guys a chance to say something. Dallas Bertraw, you made the point about this concern of the stockpile allowances. You said six to 14 billion is your recent estimate so is your point that if we don't pursue an extension and an update to the cap and trade rule making in the right way, that could all be windfall profit to early stockpilers? Is that what we're running the risk of here?

Well, I hesitate to use the word windfall profits just because it's pejorative term, but I want that transfer of value to occur in the light of day, for one thing. And I ask, whose money is it in the first place? To the extent we want to see prices of carbon allowances go up because it'll drive the right kind of purchase decisions by businesses and households, that's great. The value that that creates, to whom should that value accrue?

And if it were to some extent, or the change wholly accruing to the Greenhouse Gas Reduction Fund, for example, then that revenue would be available to drive yet further investments. So that is the issue. There's multiple precedents. The federal level in mid course in a program where they change the compliance value of instruments in order to achieve environmental goals. And that's what this increase, the program review that CARB is doing now is about enhancing the environmental goal of the Cap and Trade program.

And so the question is how best to achieve that. And what we haven't looked at yet is the compliance value of banked allowances and drawing some of that into play, because to the extent that we do that, it's a zero sum game. And so once you decide what the goal is going to be, a 48% scenario or whatever, then you've identified a cumulative allowance budget, and then the question is, how are you going to get from here to there?

Are you going to take it all out of the auction? Are you going to take it all out of industrials? Or could you look across the whole program and try to change the whole program proportionally? I think those ideas should be on the table.

And Ms. Sahota, I'm wondering, he mentioned the sort of rules based approach and coming up with sort of different adjustment factors. But if I understood your testimony right, the other tools, the mere extension itself and an increased stringency could also help mitigate some of that. I don't know what the word to use is, other than windfall profit, undue benefit, unfair benefit to stockpilers. I don't know. I'll use the term windfall profit.

But besides this sort of rules based adjustment factor to these banked allowances, are there other tools you think, that accomplish that as an extension with increased stringency?

One of them, there's a couple of things. Extension definitely does help because some of the people that own those allowances aren't hedge funds or voluntary participants. They are regulated entities, and it helps them moderate their costs for compliance in the program, which means it moderates any potential pass through they may have. As we think about being, having steeper caps, the holding limit, the position limit for both voluntary participants and regulatory entities drops each year.

So if you're at your Max in year one, by year two, you have to release some of that back into the market at whatever the market price is at that point. And so there are a couple of features that do not let you hold on to a huge bank of allowances in perpetuity in the program.

I think the other piece that is worth mentioning is that as we think about the extension, it's the extension and how we think about the steepness of getting into that post 2030 period and how do we smooth that out as much as possible. And so when we talk about the schedule, I misspoke.

And what we're trying to do is have something that's going to our board this year to make sure we give a long lead way for people to plan for a steeper target and so that we have multiple years to pull allowances out so we're not just stuck in the last three or four years trying to pull out allowances and hit a steeper target.

And going sooner than later actually lets us give that market signal that I think you were talking to with chair Randolph about certainty and investment maximizing federal dollars, all of those good things we want to see happen.

But CARB has the discretion under current law to make some of these adjustments to the mechanics of the cap and trade program through this rulemaking this year. But the extension piece, that's not been officially recommended to the CARB. I mean, we heard the CARB chair.

Say that, but we're working through the modeling for that. And so we've been doing the modeling all along, and we've been doing it with Quebec and with UC Davis in our public workshops to show how a post 2030 program can help moderate being steeper in this decade and then gliding into the reductions we know we need to hit AB 1279 targets.

Yeah. Mr. Muratsuchi, thank you.

So I feel like I should know all this, but I'm going to reveal my ignorance in asking the questions. It's my recollection that it was IEMAC that first proposed the public banking metrics for the allowances. Is that correct?

I think you would find all economists who advocate carbon pricing in a market that would advocate banking as a good element of good program design. So if that's what you mean, yes, banking is a feature of the program that's built in, and that's great.

But banking, I'm thinking about banking in terms of. I'm thinking about the open and transparent disclosures of data.

Yes, absolutely. Thank you very much. Yes, we have addressed that multiple times.

It seems to me that. Am I correct in understanding that only CARB knows how many companies have how many allowances?

Yes, we know every individual account holder's allowances we put out by sector, how many allowances are given away for free to, like refining oil and gas or cement, and every individual facility when they comply with the program. We note which amount of allowances or offsets that company is using for compliance. We also have quarterly reports that show in aggregate how many allowances the state holds, how many voluntary participants may hold in their single accounts, and then what the regulated entities might have in their compliance accounts.

But of course, the companies also know how many allowances they have banked.

That's correct, yeah.

But in terms of the overall picture, CARB has a monopoly on access to that data. In terms of one of the 400 covered entities have how many allowances?

Because we have a joint program with Quebec, their market staff have insight into the joint tracking system just like our staff do, and so does the market monitor.

Okay, but in terms of the California covered entities, only CARB has the full picture of who has how many allowances.

That information is within a few staff within CARB. It's not even all of CARB that knows that because of the market sensitivity of the data and the active secondary market.

Okay, so turning back to mean, as much as we generally like to have transparency in terms of trying to ensure accountability, I can see how CARB basically has more power to drive emission reductions by having that monopoly and control over those allowance information. What would be IEMAC's response to?

Well one point we've made previously about the data observability is that at the end of a compliance period, in some 11 months, I think after the end of a compliance period, finally, the size of the bank is publicly declared and certified by car. But within compliance periods, which are three year compliance periods, especially in previous compliance periods, there were a lot of changes as there was accumulation in the bank. And since 2021, we've seen over a doubling in the allowance price.

So while this bank grew to be very large when allowances were inexpensive, there's been tremendous amount of value that has already accrued to those bankholders. And that's the kind of issue that I'm afraid sows mistrust in the carbon market. So we would like to see, to the extent plausible, we'd like to see more transparency.

Again, I should know this, but at the end of every compliance period, the number of allowances that the 400 covered entities.

and other entities have holding accounts also.

So every quarter there is information in aggregate as to where those allowances are, whether it's state accounts, the compliance accounts, or the trading accounts for the entity. So it's an aggregate value after every compliance event, which happens 11 months after the end of the emissions year, takes that long to report the data, get it verified, and then get it in the system.

That is when we then publicly post for this compliance event, this company A or Company B use this many allowances or this many offsets or some combination with that offset limit or no offsets.

But at any point is there a reporting of how many allowances Company A and Company B have banked?

No, there isn't.

Okay.

They do have position limits, so you do know the maximum they can.

So turning back to IEMAC, wouldn't that put CARB in the driver's seat in terms of doing this complicated balancing act of how much do we draw down the cap, given that it's only CARB that knows the big picture of how many allowances are out there to try to prevent leakage, try to minimize cost impacts on California consumers, is that an argument in favor of CARB? Continue having a monopoly on that information?

I love CARB, so I'm not going to say anything bad about CARB, for starters, but I think it's absolutely correct. They hold all the cards on this question. And so if the Legislature, for example, wanted to look at the bank and look at the change in the value of the bank and say, gee, we could maybe accelerate the stringency of the program because the bank is accumulating over a period of time. That's what happened historically.

Now, going forward, Regender says that the bank is going to be drawn down, and I expect that to be true also. It's going to be important part of compliance, and also important part of compliance is the reduction of 390,000,000 tons of issuance through the greenhouse gas reduction Fund or to industrials. And so that's the sort of balancing that I think could be part of the public discussion.

Could I maybe just step in and talk about the value? Because I feel like the question is really about value and who benefits from the value from the program. So at the very beginning I had the bar chart which showed the tranches of where, who gets allowances. That's where we initially, as the State of California, through regulation, give value to utilities, save some for cost containment, give some to industry for minimizing leakage, and then hold the remainder for auctions. So that is step one.

And I think there's an opportunity to go back and say, are we doing that appropriately? So not just about what's sitting out there, but moving forward, we get to define what that looks like. And that gets back to Dallas's point, who gets how many allowances, where do you pull them from? And that should all be on the table. And there are statutes that clearly talk about minimizing leakage and ratepayer protection. And it's a balance. And so that is somewhere we are trying to workshop and have some discussion as.

So when you talk about these workshops and the balancing, I mean, that's where you're taking all this information and trying to balance all those competing interests.

That's correct. And you can imagine that anytime we say we want to take any allowance away, everybody wants to hold on to it, but it's a zero sum game. And so nobody's going to get everything that they want is what's going to happen here.

Sure. Okay. Turning, if I may, to Dr. Fowler, Fowlie. So you're recommending that wildfire mitigation, climate mitigation, that we don't put it on rate, know, if we want to minimize the impact on California consumers, we need to look for alternative sources of funding for wildfire and climate.

I mean, I'm trying to elevate that conversation because I think for a long time, if there's costs incurred in the power sector, it showed up in the power bill. And that was fine for a while, but it's not fine anymore. And so, yeah, basically the two points we're really trying to elevate and make people think judiciously about is what it's doing to energy efficiency and electrification and what it means in terms of just a regressive way to raise revenues.

So given that rising electricity costs are disincentivizing our efforts to meet our climate goals, wouldn't it be an appropriate use of the greenhouse gas reduction funds for a wildfire and climate mitigation?

It could be. I feel like the opportunity costs of those funds are really high and it feels a little bit not like band aid is the wrong word, but we've got a structural problem with how we are recovering costs in the power sector, and that could help us for a bit. But then there's all these other important programs we're not paying for. So mechanically, yes, it addresses the problem long term. I'm concerned that it kicks the problem down the road at a high opportunity cost.

If you were to identify the top three structural priorities that would be in line with our efforts to fight climate.

Change, I mean, one which we've been advocating, but I'm not a politician, I'm an economist, is an income graduated fixed charge which reduces the volumetric rate down. Addressing the problems we've discussed, that leaves a lot of revenues not recovered. We could shift some to a different tax base. And those costs that we can't find a home for, we recover them, but we don't recover them from the households who can least afford to pay. But there's some political headwinds there.

But I guess also, just like the cost containment is so important because why are we in this predicament? We've got costs that are just rising and rising and rising, and we can see where they're going. And so just leaning into that cost containment, while we also think about cost allocation, I think obviously the two go hand in hand.

All right, thank you.

Yeah, wrap it up, please.

No, I appreciate the discussion. So kind of a wrap up question. Cap and trade has been cited as being one of the leading cost effective ways to drive emission reductions relative to other programs. As we've been discussing, allowance prices are rising right now, including to a record prices in the recent February auction. If prices continue to rise as much of the modeling suggests, will cap and trade remain one of the most cost effective options we have to reduce emissions?

Because actually, I will invite Professor Fowlie to speak up to tee it up for her. I think everyone at this table, I don't want to speak for Catherine, feel that the most cost effective pathway for achieving missing reductions is through the market. So the market can't do all the work for us for a number of reasons we could get into, but it could do more than it's doing right now. And that implies a higher allowance price.

Just follow up. Although Dallas is always impossible act to follow. One of the reasons I showed that graph is you saw the carbon price. You could barely see it. The prices are high, but they're $40. But when you compare that to other costs, we're estimating from some of these other options we're thinking about, they're hundreds and hundreds and hundreds of dollars. Now, we got to be super careful because those costs are, there's co benefits that vary across mitigation, alternatives that are not accounted for. But I continue to believe that we need other measures and we certainly need Catherine. Raises really elevates really important issues in the redesign of cap and trade and some design concerns.

But I firmly believe we have to lean in. The price is going to go up. It's got to, because our ambition is going up, but it's going to be critical, I think, to containing the costs of meeting our targets.

We'll wrap this one up. And then for the endurance crew here of public stakeholders, here's what I'm going to propose. Can we do anyone who's here from industry, regulated entities or sort of related associations, can we do a first group there? Because we haven't heard from the regulated community. So if anyone's left from that sector, let's start there. So maybe take five minutes total with this group and then we can move to another group. We're not going to be doing individual. Okay.

Any other emissions trading associations, folks interested in carbon market work? Regulated entities? So we'll do five minutes here with this panel, and then we're going to switch over to see whoever's left from our environmental. Environmental justice community. I see a few here. We may have to break that into two, but we'll try for that. And I see. I think CAPCOA might have left already, but we'll try to get this all done. So let's just do a quick round of introductions and then you guys can maybe take a minute each. Unless one of you wants to take the lead and take all five and be greedy.

I'll go first. Virgil Welch, California Carbon Solutions Coalition. First of all, thank you, Mr. Chair Members, for the hearing, I wanted to just briefly highlight the point that Chair Randolph underscored with respect to the role that carbon capture and removal technologies are going to have to play for the 2030 and certainly the 2045 climate goals.

And Senator, you ask both sort of questions with respect to existing barriers that may be perceived, but also levers, and we do know, with things like 951279 have some of the policy framework in place to try to start to move more expeditiously on deployment of these technologies, which obviously have to be done responsibly and with appropriate protections and things of that nature.

But the reality, of course, is that we've got some significant goals embedded in the scoping plan as well as nel legislation that know underscore the import of this whole suite of capture and removal technologies. And final point I'd just like to briefly make is one of the things as highlighted in the IEMAC report, which Dallas and Professor Fowlie didn't cover, was the need to align the Cap and Trade program with affording credit for emissions avoided, undertaken via carbon capture technologies.

And that is something, as I understand that carbon is looking at as part of this process. But it is another important incentive regulatory way in which we can really try to drive some of these emission reducing technologies. So thank you.

Thanks. Please.

Yes, Senator, Assembly Members Mikhael Skvarla. I'm here on behalf of the California Council for Environmental Balance. We're a business labor organization consisting of a number of the compliance entities as well as their unions. Cabin trade is a critically important program as our suite of climate policies. And I think the thing that I wanted to highlight is Dr. Fowlie, who's an absolute expert in this territory. What she's suggesting is a heavier reliance on Cap and Trade.

But what she's also saying is that our reliance on the complementary measures are increasing costs. These are cumulative costs across a suite of policies, some hidden, some visible. Cap and trade LCFs, RPs, very visible. LCFs is the higher of those, but it's currently at, what, $58 a credit? Cap and trades RPs are kind of floating around in the right. These are visible things. What are not visible are some of the costs from our GGRF expenditures.

I think LAOhas taken a shot at a couple of those things. Some of those are very high, $15,000 a ton. When we have tons out there that are available for 35, $40. We've got to think about this in the terms of the millions of metric tons that have to be reduced between now and 2045 in order to achieve carbon neutrality. And each lever that we pull has a different consequence.

We've developed a program that's kind of unique to carbon policy in the United States from the standpoint that we are off the floor and we're below the ceiling. We don't want to make the same mistakes of pulling too many levers at the same time, poking through the ceiling, and all of a sudden we have a repeal on the ballot like they have in Washington. So I think there's a delicate dance that has to be done here. We're faithfully engaged and want to participate.

We appreciate everything that the staff of this Committee has brought, and we will continue to engage in this conversation. But we want to be certain. Since the last Committee hearing, prices and Cap and Trade have dropped 7%. There are some scary conversations taking place in the Legislature right now, and there's uncertainty being created because of that. The rules of the road that were developed by a two thirds authorized policy have kind of really dictated confidence in this marketplace.

And we want to maintain that confidence in a way that no other jurisdiction has had because the compliance entities have been at the table the whole time. And we need to remain at the table and on these panels so that our voice is also heard.

It's not just the academics, it's not just the regulator, and it's not just the environmental community, but it is the compliance entities and their unions that ultimately matter in this conversation as well, which is why our program is so much different than those others. You have the consent of the governed right now. Don't lose that.

Okay. Thank you, Mr. Costantino.

Hey, thank you, Jon Costantino. On behalf of the Verified Emission Reduction Association, which would be the offset developers, the ones that go after the fugitive methane, protect the forest. And the idea that offsets aren't real are statutorily inaccurate. They have to be real, quantifiable, permanent, enforceable, and additional. And those barriers to a compliance offset are in place, have been in place, and offset protocols are conservative by nature.

So I want to just respond really quickly to the question that was asked about statutorily putting offsets in the program and how that has benefited. That certainly provides the stability that folks need to invest, and offsets bring in broader capital markets. They bring in innovation. We could talk about the mail in program for the can of refrigerant, your car refrigerant, that somebody developed the machine that turns the refrigerator upside down. The fugitive methane it mines, that's collected that would otherwise not be collected.

So I'll leave it short and say that offsets have been a valuable cost containment provision of the program, and we'll leave it there. But if you have questions about offsets, happy to answer them.

I'll follow up with a question on that. How much of offsets actually without offsets during this last period of time, what would have happened to program costs, in your view? Do you have actual modeling or any quantification around that? Potentially?

I don't. Yeah, we know that for every offset that you use in the usage limit, it's a savings of the program. But the marginal modeling of, if you didn't use your 4% or 6%, what that would do? I don't have that at the top of my hands.

Is it your sense that all the regulated entities are maxing out their 4%?

No, not at all.

Why?

Offsets are, there's a lot of overhead and there's some risk because of invalidation, so the smaller entities don't fully utilize their offset potential. There was an offset protocol task force recommendation that, that be a tradable item so you could maximize the cost effectiveness of the program. That hasn't been introduced as a mechanism yet, but usually the larger, more sophisticated entities are the ones that take advantage of offsets.

And to the earlier testimony from Mr. Welch, to my question to the chair earlier, if the tons aren't showing up from carbon removal, some of the other things your coalition advocates for, what happens to the Cap and Trade program, do you have a sense, and Mr. Skvarla, you might have a perspective too, but does Cap and Trade start to become a market driver? Is that actually what starts to make these projects pencil? If we hit $65 a ton, that's still not enough to push one of your projects online.

Well, first of all, it depends, as I think we all know, project by project. Right? But you're right. So you do need multiple incentives depending on a project specific on a project by project basis, which is we've got the federal incentives that are currently there for a few more years. We've got, in some instances, LCFs can play a role.

The provision in the cabinet trade program that would effectively not count emissions that weren't emitted would obviously be another incentive that you start to sort of make these projects actually viable. Additionally. Yeah, sort of. The first question, the Cap and Trade program, I mean, it's always been looked at as it's going to pick up the emissions that aren't accounted for elsewhere.

I guess I would wrap up with you, Mr. Skvarla, and just on that point, but I think to the broader mean, I was talking earlier about the messaging going out there statewide about sort of ruining the carbon pricing schemes in the state and blaming all these, as you said yourself, very well worked, stakeholder consensus driven proposals and sort of still blaming them.

So if we as a Legislature are going to then stick our necks out and look at an extension, and yet we're getting hit with billboards saying if you do that, you're going to drive up people's power bills. How do we enter this conversation with that same trust, I guess that's been built up to this point through an extension? If that sword is hanging over our head. Yeah, it's a hard one, I know, but yeah.

No, to Virgil's question, there's marginal abatement cost curves. Very fascinating how you look at what point things are going to come online. We're sending that signal through Cap and Trade, but a bunch of other direct programs. So be interesting to see how that follows up. The cost thing is prevalent right now. Right.

We've got this income adjusted fixed rate or fixed charge. We've got the issues around the SB 1 X two proceedings and things like that. Question is, are these the same issue? And I would say that the costs that we're talking about in cap and trade, you probably don't find the same resistance on from those parties that are running billboards and other ads. Right. And whether the messaging is intended to come after this program specifically.

Now, it's hard to tell because of the debates that taking place to our neighbor in the north and things like that. But I do know that in the State of California, the compliance entities have been at this table for at least the last seven years. And we want to continue to move the ball forward on this program as well as some of the other visible programs. We've got a strong legacy here on RPS. It's a great program.

It's really how you construct those programs to keep everyone's table. I don't think that there's a direct like, this is not the direct point of conflict. And I think there's an opportunity right now while we're talking about needing to possibly bring revenues forward, which there's mention of in this with Prop 1 and the implications of that and how it plays out with schools and everything else that we're trying to do in the State of California.

What does the role of Cap and Trade play in the out years? And to be honest, the sooner that we start to have the reauthorization conversation, I know you guys are trying to in earnest, the better we are outside of the investment cycle already. We're looking to send a signal for a certain period of time and investability. You're looking for about six years out time was last year. It's go time the next two years to try to get something done here.

But ultimately, I think compliance entities are looking to this program to help guide their investment decisions. This program's done a lot to preserve kind of with the allocations and those things. We're mitigating risks. We're also providing great benefit through GGRF to other programs that we can't necessarily get at because of. This program is designed to get greenhouse gases. We can't do anything on kind of the community issues, but we can certainly Fund them. And so there's a creative way here to find a path forward for everyone.

Thanks for that. On that hopeful note, we'll wrap this one up. Those who are still here from environmental, public health and environmental justice groups. I just saw Phoebe leave, unfortunately, so I feel bad. Whoever knows her, apologize for going long. But do we want to have a little cohort here? I think we've got five seats, so whoever might want to join, we can size it accordingly to amongst five of you. Let's take it in two phases. So first four or five up? Yeah. Caitlin, come sit.

You want one more? You got one more. Let's have one more. And then we'll roll through, and then we'll come with another succession. Yeah. Great. This is supposed to encourage, by the way, collective action, but I don't know. I think I failed at that mission. My apologies in advance. Start right to left in no particular order. Please welcome.

Good afternoon, everyone. My name is Garza. I am here representing CEJA, the California Environmental Justice Alliance. We are a community led alliance which serves to achieve environmental and racial justice by advancing bold and equitable solutions. As California citizens and California taxpayers, we eagerly want to partner with California elected officials and agency heads to meet California's ambitious emission and pollution reduction goals, all while centering equity and driving direct investments to our most disadvantaged communities across the state.

California, our home, is the fifth largest economy in the world. We all know that very well. But we are in a prime position to show the world how cutting edge policy changes can lead to a just and equitable transition away from fossil fuels. And that way, disadvantaged communities can benefit from the benefits CEJA partners are in alignment. We wanted to ensure our emission process considered improving cap and trade with the following reforms. One, eliminate free allowances.

Two, eliminate offsets, and three, restricting trading impacts in disadvantaged communities. We recommend these reforms for the following reasons. Number one, our Members are concerned. Greenhouse gas emissions from facilities located in Egypt communities are not substantially dropping, even though overall greenhouse gas emissions have declined, EJ communities are concerned. Cap and Trade creates sacrifice zones as local emissions reductions fail to benefit the EJ communities that they're in. Research shows greenhouse gas emissions have increased in several sectors, including cement, hydrogen and oil gas production.

Two, EJ communities are disproportionately impacted by large greenhouse gas emitters whose emissions are correlated with harmful toxins. PM 10 emissions compound and potentially exacerbate existing environmental impacts. Large greenhouse gas emitters are more likely to be in neighborhoods with already high pollution burdens. Three, offsets give polluters a loophole to avoid localized emission reductions. Based on the state's research, large climate polluters are benefiting from cheap offsets. To meet greenhouse gas emission reductions, many of the largest emitters are buying credits.

76% of those credits were purchased from projects outside of California. This means we have been exporting our potential climate benefits to other states and also even other countries. Four, we also recommend regulators to consider restricting trading. And in disadvantaged communities, create no trade zones based on research. These are growing unjust consequences. There's growing consequences in maintaining these sacrifice zones. Carbon emissions accumulate in one area in a big local mitter, and then those greenhouse gas emissions will stay in that local area.

The fifth thing we would like to recommend, and we are pleased to hear that the conversation has already started, transportation. Transportation accounts for 50% of our greenhouse gas emissions. And CEJA and other EJ organizations are beginning to take transportation in our portfolio and to really drive a reduction in VMT. And we've already acknowledged that housing, transportation, equity are all interconnected. So this is something that we are barely starting to explore.

Laura Freeman we've already engaged with Laura Freeman's office on AB 6 and AB 7 to see where we can engage on this issue. But this is something that's emerging for all of us. And we are very interested in finding equitable solutions to reduce PMT, not only in urban centers, but also in rural centers where we acknowledge that there's a difference in transportation methods. Those solutions are different for every community, and every community has a voice in what works for them.

So we'd be happy to partner with everyone else in those future endeavors. And also, this is a chance, I'll say it out loud, philanthropy is also jumping on board, and they're barely starting to see this as an option as well. So it seems like we're all going to be in a crossroads together where we can do some real good for the community. So I like to say that out loud. So, yeah, off the scripts, back onto the scripts.

We're looking forward to working with all of you to reform, cap and trade. But we do acknowledge that there needs to be some reforms. And just like industry asked to be at the table, we will politely ask as well to be at the table to make sure that frontline communities have a chance to voice their concerns and be a part of the decision making.

So thank you. Thank you, Garza. You can count on that. Yeah. Welcome.

Good evening. I'll be quick, I promise. Isabella González Potter with the Nature Conservancy. We just wanted to take a quick moment to uplift the role of natural and working lands since that hasn't really come up yet in the discussion, we recognize that the restoration, protection and stewardship of our natural and working lands are a critical part of state efforts to address climate change.

Without intervention, we risk them becoming an increasing net source of emissions instead of a healthy net sink of carbon due to climate impacts and land use change and conversion. We need a comprehensive set of strategies and incentives that extend beyond offsets, as has already been discussed. And the Legislature does have a key role to play here.

In addition to considering new solutions, this role also includes providing oversight on the implementation of policies such as AB 1757, which required the development of actionable climate targets for the NWL sector, natural working land sector by January of 2024. Notably, that has not yet been produced and it is March of 2024. So just throwing that out there. We ask that this Committee hold a hearing kind of more tailored to this topic, focusing in on the suite of strategies we need to support nature based climate solutions.

And we'd be happy to follow up with your excellent staff on that topic. And then finally, I'll just uplift what Chair Randolph was in particular, uplifting around the cost of oftentimes we don't have. The money right now.

Well, it's just going to get increasingly more expensive, not only in terms of physical dollars, but in terms of people and the impacts to nature. So we would always uplift the idea of having a climate bond. Senator Allen has a great proposal in SB 867, so we'll continue to advocate for that. Thank you.

Yeah, thank you. Next. Thank you.

Hi. Thanks. Nicole Hutchinson, on behalf of CALSTART, the Cap and Trade program plays a critical role in California's climate strategy, and the funding it provides through the greenhouse gas reduction Fund has been essential in furthering transportation, electrification and ZEV deployment, which, as the chair noted in her testimony, are important to our overall greenhouse gas emission reduction strategy.

In addition to looking at increasing program stringency for the future, we look forward to participating in the conversation surrounding how to best focus these climate investments in order to ensure that we're meeting our climate goals and providing public health benefits for priority populations. CALSTART is committed to taking action to help the state meet our goals, which will require focusing on transforming the transportation sector as it is the single largest source of greenhouse gas emissions and is responsible for nearly 80% of smog forming NOx emissions.

We know this is just the start of the conversation, and we look forward to working with the Administration and the Legislature as you work to examine and reauthorize this program. Thank you.

Thank you. Next.

Hi, Clayton Munnings from let's try it one more time. Okay, that one's just not working. Clayton Munnings from Elevate Climate we're a mission based consulting firm focused on ambition and equity and carbon markets. So I don't like quite neatly fit in this group or the other group. So sorry. So I'll make three points. The first is, I think, the correct aperture or lens to look at the cap and trade program, or evaluate the cap and trade program within is not with LCFs.

It's actually with the whole suite of the state's climate policies, which includes several dozen other policies. And when you look at it through that lens, several things become clear. First, as others have said, if direct policy fails, like our ambitious VMT goal, which will likely fail, the cap and trade program does indeed pick up those reductions. And that is the backstop role that we're so used to discussing. The second bit, as others have pointed out, is the cost effectiveness measure. Dr. Fowlie spoke eloquently towards that.

But I'll point out that CARB has to actually do cost benefit analyses for any of their policy updates called Syrias. So there have been about 30 of them over the last decade. And if you start looking into those Syrias, as I have, you'll find out that many of our popular policies, like advanced clean cars, forklift, reductions in locomotives, these policies cost $600 or more. So the policies are quite per ton abated. So these are not small numbers.

And another point I'll make is, definitionally, Cap and Trade is the most cost effective. And don't forget about the other policies in the suite. For the record, I support all these other policies, but the question we have before us for the next year or so or two years, we'll see, is how low to go on the markets and costs should not be a barrier to going harder on the markets or lower with the caps.

And the other thing I'd mention is cap and trade is a force multiplier. So even that number of those three policies I mentioned, the $600 per ton number, in almost all cases, if Cap and Trade or LCFs were to magically go away, those cost per ton numbers would go higher for the direct policies. I think to focus the conversation here on the ambition side, since others have spoken to the equity side, CARB is going to pick a lower cap.

So I think what the Legislator could do constructively is extend ASAP. The number one question I get when I talk to non compliance entities is, will the program be around in 2030? So that uncertainty is felt today? I think the Legislature is well positioned to speak to cost containment measures.

CARB has identified DAC, ccs, and to some extent renewable hydrogen as things that perhaps should be integrated in the cap and trade program, and whether to integrate them and how and appropriately staffing CARB is something the Legislature is poised to do well, and I think needs to get started because these issues are very, very complicated. And the last thing I would say is maintain banking. Don't touch the banking rules. And on that last point, I'll speak to the proposal that Dr. Bertrar mentioned.

I think that concept really changes the rules of the road while we're driving on it. It will erode credibility with compliance and non compliance entities. And I think to some extent, depending on how it's done, it punishes folks who are either compliance entities and participated in early reductions or were non compliance entities and decided early on to believe in the program when the price was still at the floor. So I would say look forward, not backward.

If we're going to cut caps, let's do it at auction allocation in a forward looking manner, not a backward looking manner. Thanks.

Yes, thank you.

And I will be quick here, since I think you've all heard me say all of these things before. Katelyn Roedner Sutter with Environmental Defense Fund I also sit on the IEMAC with Dr. Fowlie and Dr. Burtraw. But specifically from EDF's perspective, I mean, Cap and Trade is absolutely essential to meeting both our 2030 and our 2045 goals. I mean, we've heard this conversation about a backstop. Cap and Trade uniquely can pick up the slack if other policies don't deliver the level of abatement that we're expecting.

So it's an essential policy both right now and in order to meet our net 2045 goals. I also want to say that I appreciate the work that CARB is doing on the current rulemaking. I am encouraged by this focus on increasing near term ambition in the program. I'm very eager to see this program align with our scoping plan goals. So I'm pleased with what CARB has been doing in this rulemaking.

I want to underscore a couple of the recommendations that have come up in the conversation this afternoon. One, Dr. Burtraw briefly mentioned an Emissions Containment Reserve, which is something the EDF is also very supportive of as a way to basically help increase ambition in the program should prices be low. So it's a very easy sort of self ratcheting mechanism that makes a lot of sense from our perspective.

We've also heard both Dr. Gurupa and my friend Garza at the end of the table talk about no trade zones or facility level emission caps. I think facility level caps are something that we have also really encouraged CARB to take a look at for the cap and trade program.

As you all start to think about a program post 2030, I think that needs to be in the mix to make sure that not only as we are increasing our climate ambition, but we're also increasing the air pollution benefits that we are getting in the most polluted communities. And then the last thing I'll point out is banking allowances is really, really important from a climate perspective.

And I think sometimes we focus a lot on the cost containment argument, but for climate, banking allowances brings emission reductions forward in time, and so we can get more near term emission reductions. Now just redundant, but you take my point, and that's really important for the climate, because if we get more near term reductions, we have less cumulative pollution.

So we need to not only preserve the ability to bank allowances with all of the restrictions in place that Rajinder Sahota talked about in terms of holding limits and all of that. But I would just really caution against measures that would disincentivize banking allowances because it has real climate benefits. And I will stop there. Thank you very much.

Any follow ups? It's okay. Yeah. As opposed to drilling down, let's just keep going for whoever's left here, because I want to make sure we get to everybody. Thank you all for your testimony. Whoever else is remaining. Some of you may be some environmental stakeholders. There could be others, though. I think some of our labor partners might have cleared out, but anyone's welcome to come up for the final. Last but not least, it's going to be big. Yeah. No particular order. Yeah, let's start on the right.

And I did get some comments from Phoebe, so I will be happy to make some comments on behalf of Leadership Council for Justice And Accountability, as well as my clients, Cal Bike, Greenlining Institute as well as Transform. I want to thank you. Despite the staff report, there's been a lot of discussion about VMT at this hearing.

So I want to appreciate your colleagues, some of who have, of course, left, but all the attention on the need to reduce driving and how that really is central to the scoping plan and to our goals. These questions really need to be central to the Legislature's focus. My clients all work on transportation, and as Chair Randolph said, this area of reducing driving is one of the hardest nuts to crack.

And I think part of the reason for that is because we really need to rein in spending on highway expansion, which is really difficult. There's a lot of momentum in the system behind those projects, but every time we expand a highway, we are increasing driving, we are moving ourselves in the wrong direction and undermining investments in sustainable transportation. We have several bills this year that we're working on.

One is specifically to go after this issue of raining and highway expansion, focus on the trade corridor enhancement program, which is expanding highways in environmental justice communities, the communities that are most burdened by the goods movement sector. We want to try to limit that and also make sure that we're investing in electrification of the heavy duty sector, which we can do with transportation funds. Really important in a year where there's budget deficit on General funds.

Also on the side of increasing and strengthening investments in sustainable transportation, we're working on SB 960 with Senator Wiener as well as AB 2086 with Assemblywoman Schiavo. So lots of opportunities, and we really want to work with you to shift investments and particularly reduce harms to environmental justice communities. Thank you.

You said SB 960 and AB 2086?

And AB 2535 was the first one. Thank you.

Great. Thank you so much. Welcome.

Thank you, Senator. Thank you, panel. First, I'd like to associate myself with Ms. Ward Waller's remarks and thank you for your discussions. Well, today, tell everyone who you are, if you don't mind. Yes. David Weiskopf, Next Gen California.

If you wouldn't mind, I would like to address comments for both of the panels today. For the first panel regarding the VMT discussion in particular. One of the things that I think came up during the discussion, but that I would really like to underline, is that if we fail on VMT according to the plain language in the scoping plan report, as well as the appendices.

We will not be on track to meet our 2045 carbon neutrality goal or our 85% emission reduction target in Carbs modeling in 2030, roughly two thirds of the emission reductions that they attribute to the transportation sector come from reductions in car dependency, and only a very small proportion from EV adoption. There's been some discussion of cap and trade and complementary policies and other things sort of picking up the slack if these policies fail.

The fact is, if you look at the scoping plan, every knob is already turned to 11. That includes cap and trade. That includes building electrification. We don't have the option to say maybe we just don't make it on VMT. There's some discussion, I think, also of VMT targets in the state. We don't have VMT targets in the state. We should. We should look at adopting them on the benefit side as opposed to just the risk side.

Creating a less car dependent California, according to a tool that was recently released by the Rocky Mountain Institute, could abate over roughly more than a full year's worth of carbon pollution. At today's levels, that's about 338,000,000 metric tons. According to the RMI tool, the average household could be $3,650 richer.

I think another way to look at this is if somebody in a household has opportunity to only have one car rather than two, the cost to own and operate a new car in California is on the order of $12,000. That's equivalent to $17,000 in salary. So providing ways for people to get around without having to sit in traffic in a car by themselves for a long period of time really is an economic justice issue as well. Excuse me, my notes disappeared on me.

But maybe most importantly, reduced traffic collisions, improved health, improved air quality associated with reduced car dependence could actually save on the order of 300,000 lives between now and 2050. So I just wanted to underscore the importance of this issue, as well as the urgent need for the Legislature to consider policy and adopt policy along the lines that Ms. Ward Waller mentions that really get at the cause of car dependency, which is continued freeway expansion. We can invest in transit, we can invest in infill housing.

But the way that road expansions work is if you expand, it's the same as building a coal power plant next to a solar plant. Building a solar plant doesn't reduce electricity emissions. Shutting down the coal plant does. If you're building both at the same time, great that you're investing in clean energy, but you're also still making the fundamental pollution problem worse, this is related to the second section, if you can bear with me for just a moment. Thank you.

Regarding cap and trade as a backstop or as a lease cost pollution reduction measure, it's really neither under current law, at current prices in the market, it's not clear that it's driving any emission reductions. I think this is implied in some of the IEMAC materials, but I just wanted to say it very bluntly. But why is everyone investing? I mean, why are we getting billions of dollars bid into the auctions if it's not really driving? Well, it's not driving emission reductions.

There's a finite quantity of a valuable financial instrument available. Compliance entities are required to cover their emissions by purchase of these instruments. But there's no evidence, really, that purchasing these instruments at these prices when we heard repeatedly emission reductions from different programs are not available at $40 a ton. Right. But we are treating the market as if it magically goes out and finds $40 a ton emission reductions, which I think is just not the way that it works from the perspective of a polluter.

There's no one who's saying, well, this would cost me another $40, so I'm not going to admit it. Towards that end, I think that some of the reforms, especially those proposed by the folks at Seha on the previous table, are worth considering. But I also want to note that there's no backstop mechanism currently in cap and trade. So the idea that if we fall short on VMT, then the Cap and Trade price or auction availability will take care of it.

We don't actually have a limit if we have a price cap, after which unlimited and number of allowances can be sold, and then, of course, some offsetting. The word offset is not in the statute, but some other mitigation is required for allowances sold above the cap. We haven't tested that theory yet to find out what that tool is or what it might be.

Last comment, and I appreciate you bearing with me for so long, is that in revising the Cap and Trade rules, one tool that was not discussed on today's panel that CARB does have available to it is to revisit the industry efficiency factor. In the free allowance allocation 8398 did fix the leakage allowance factor until 2030. That, of course, could be revisited by the Legislature. It did not require maintaining the current efficiency factor.

And so CARB, in addition to having discretion to adjust the emissions cap factor, can also adjust and revisit that efficiency factor. It's a good point. Thank you. Okay, thanks.

Good afternoon, chair and one Member. I'm Elmer Lizardi, here with the California Labor Federation. I just want to be brief and say that thank you all for convening this discussion and for allowing us to include labor in this important discussion on climate and infrastructure, as mentioned in the brief for this hearing. With historical federal investments, we have the opportunity to create thousands of jobs in the state.

But we want to ensure that these jobs are creating, that we are creating are good paying jobs and that they benefit our communities. So proper labor standards should be applied to all public funds to make sure that this is the case.

There was a study from last year that the UC Berkeley Labor center put out that stated that California will spend about 32 billion on climate projects over the next four years, and that 40% of that, which is about 12.7 billion, will be spent without any labor standards to ensure good jobs and community benefits. I think we have the power and the responsibility to change that.

Now, we at the California Labor Federation have been active in the SB 150 process, and we are looking forward to the upcoming report that the California Workforce Development Board is going to be providing with their recommendations. But we also want to make ourselves available to you all and everyone in the Legislature to collaborate this year and moving forward on how we can make sure that our public funds have adequate labor standards at every level.

As the hearing has discussed today, this is especially critical now that California is leading innovation in these industries that are going to be changing how we tackle the climate crisis. So thank you.

Thank you for that perspective. I mean, I was wondering, though, just to follow up, does the Labor Federation have a position on the future of the Cap and Trade program?

I mean, the presumption in the UC labor study is that Cap and Trade would be extended, that the revenues would keep going, that there would still be a program in line with your sort of bigger point about having good labor standards, do you guys have a perspective on whether we should be looking to extend the program, reform the program?

I can get back to you directly in office.

We would love that input. I know various slices of labor have different perspectives, too, depending on the sector you operate within. I know IBEW was just here a minute ago. They're going to have a certain view, or a steel worker will have a certain view, but an SEIU worker might have another view. But I would really appreciate just that, homework at the Fed and coming back to us with that.

Because if we are going to go down this road, it's certainly not going to be without you all. So appreciate you being here and taking time. And to the other panelists, too, thank you for doing that, for plugging the climate bond and noting what an important part of the discussion that's going to be, as well as sort of just tempering the expectations of the magic that Cap and Trade can solve everything. So thanks for forcing some hard work upon us. Mr. Vice Chair, any closing comment? I know you're the last man standing here, so thank you for staying long.

Yeah, no, appreciate it. And we all have a lot to do, but this was really good. Yeah. So stayed willingly and really appreciate all the comments and a lot to think about going forward. But thanks.

Okay, so we've been thorough here. Thank you all for sticking with us. And as noted in the Committee report, which I would still commend to everyone, very copious amount of footnotes, too, if everyone has some extra reading, but it's a tight 11 pages, I would say thank you to the staff. Really, I do appreciate you guys digging deep. This Committee is going to be going deeper throughout the year with that. This meeting is adjourned.