Senate Standing Committee on Environmental Quality

All right, our distinguished Chair from the California Air Resources Board is here, so we're going to get started.

We got a really very interesting hearing today and I just want to thank my good friend and colleague and all my friends from the EQ staff, my, my former team for helping to pull this together with our budget sub staff.

As we look at cap and trade, which is an incredibly consequential and important program, and of course we're looking at reauthorization and there's a lot of complexity and nuance to that process and we're going to be touching upon some of it today.

Obviously, there's a lot more than we will possibly be able to touch upon today, but we've got some really good speakers and good discussion coming together. And you know, I think as we approach 2030, this is ultimately about our opportunity to, and our responsibility to revisit cap and trade, ensure that it's on track to meet our targets.

And you know, we obviously know we've got some real challenges to meet our 2045 carbon neutrality goal. And that implicates so many things as we think about a program moving forward. You know, the allocation of assets and allowances and all the consequences.

I'm personally very interested in what's happened in Washington where folks voted to protect their cap and invest program in spite of a massive, massively well funded, intensive attack on their program. And that was during an election when affordability was all the rage.

And yet the voters up there in a state pretty similar to ours in some respects, politically decided to support the program. But part of it was that they had really strong expenditures in place that people could see the tangible benefits of real folks, not just special interests.

And free transit passes, access to affordable heat pumps, improved air quality in the communities that needed it, funding for programs that help with energy, insulation and things that both drove down people's energy costs while also doing right by the environment.

We know we certainly have done a lot of good with our cap and trade program proceeds, including direct payback to people through the climate credit on utility bills twice a year. But as we've discussed, sometimes that doesn't land as effectively.

And a lot of the programs that we do Fund, there are varying levels of real efficacy for regular people, but there's obviously a lot of good. We've incentivized zero emission vehicles. There's been some success on funding home electrification and support for air protection programs.

But I think we're really looking to improve the expenditure system in a way that will meet our environmental goals, but also really create tangible improvements that people can feel in regular Californians lives. So that's one of the many things I want us to talk about. I know we're going to be touching upon many issues today.

I'm just excited about not only the folks who will be speaking, but also the Senators who have come together to participate in this discussion. And I want to hand it over to my good friend and colleague Senator Blakespear, see if she's got some opening comments.

Okay, thank you. Well, hello everybody. It's nice to see a packed house. When I look up at the screen and there's no ticker tape that is at the bottom that says what is this that people might be watching? I think it can be hard to follow at home. So I'm going to just announce what this is.

This is the joint oversight hearing and there are two committees who have come together. Two chairs here and then other Committee Members and other Members of the Senate. So this is the Senate Budget and Fiscal Review Subcommitee number two on Resources, Environmental Protection and Energy and then also.

Public access that I'm talking about that I'm really unable to provide.

And then second it's the Senate Environmental Quality Committee. So I'd like to sincerely thank the EQ chair emeritus Senator Allen, who used to chair this Committee and I'm the relatively new chair of eq and it's great to get to work together on these things.

And then also I want to thank all of our panelists for their time coming today and for carbs chair for coming in the flesh. Thank you for coming. So these are big conversations and I know that they've been going on for some time, but they really are the most important issues of the day.

It's California leading on climate change, it's managing affordability, it's investing in our green and clean future. I appreciate the expertise that we have in the room and I'm opting optimistic about building understanding around what can be very technical but also very consequential decisions that we are currently facing in the Legislature.

And I'll admit that as I was getting up to speed on what cap and trade is and how it works, I went onto the trustee Internet and said could I please have an explanatory video that would be aimed at a student on California's cap and trade program so that I could hear it presented visually and then also of course read all the briefing documents and things as we dive into this area which I do believe is very technical.

I've had the great pleasure of working on the Senate working group for cap and trade as well. And through that, we've had a lot of conversations about, on the one hand, the design of the program and on the other hand, what the money that's raised is used for.

So those two sides rely on each other to be successful. And I think the Legislature in particular is the right place to reconcile them.

And talking specifically about what role CARB has and what role the Legislature has and how those two roles fit together, but specifically who does what, I think is something that's really topical and hopefully we'll be diving into today on program reform.

Obviously, CARB has world class expertise on emissions reductions and carbon markets, and we couldn't have the cap and trade system that we have without them. But at the same time, we know that we don't have a monopoly on good ideas.

And, and as my colleague mentioned in Washington and other states, they're also exploring different ways of doing different parts of things. And we should be evaluating all good ideas. I'm hopeful that we can work collaboratively to learn lessons from the first 12 years to make the future program work even better.

And the questions about how to spend GGRF are in some ways they're easier to grasp and understand, but they're in some ways harder to answer because we have so many good projects in California and not every single one of them can be funded continuously out of ggrf, especially if we're reserving any amount of money to be able to tackle new problems that we see emerging.

So I'm looking forward to hearing from some of our panelists about the best ways to make GGRF work for us as we build the climate ready California future that we're all striving for. And I'll leave it there and turn it back to the budget sub chair to get us started.

And thank you again to everyone in attendance today.

Thank you. Any opening comments from colleagues? Okay, let's get started then with our CARB Chair. Liane Randolph was here. I know Rajinder Sahota is here as well, and they're both here to present. And let's get started. This is an update from CARB.

All right, Good morning. Thank you so much for having me. And I will start with a few. Opening remarks and happy to answer all the questions. First of all, I think we all recognize that we are dealing with unprecedented uncertainty in California as we face new and direct attacks on our values and policies launched from Washington, D.C.

every day. Amid this, one thing should be clear, which is that this Administration will stand firm in defending our clean air and our climate protection programs. We have law and science and public. Support on our side and we need. To stay the course for public health, for our economy, and for a sustainable future for all Californians.

With your support, we will continue to advance the policies that have made California a global leader in climate action, sparked clean technology innovation, created opportunities here and around the world, and that's exactly what we're here to talk about today.

Cap and trade is a foundational part of California's climate policy portfolio and needs to be extended to achieve the state's goal of carbon neutrality by 2045. It's been a major part of the portfolio approach that the state has taken since the first climate change scoping plan, and that portfolio includes performance standards and incentives.

Cap and Trade establishes a declining limit on major sources of climate pollution throughout California. It covers the largest polluters, including large factories, energy companies, oil and gas suppliers, accounting for 80% of the state's total climate emissions.

The program creates a powerful economic incentive for covered entities to invest in cleaner, more efficient technologies to comply with the program, like replacing old boilers or maintaining insulation. It is four to six times less costly than alternative approaches to addressing climate pollution.

In a nutshell, it's a cost effective policy tool to address climate and air pollution by making polluters pay and reduce their emissions over time. Thanks in part to cap and trade, California achieved its 2020 climate goal four years ahead of schedule while our economy continues to grow.

And the program has already delivered billions of dollars in real benefits to Californians, including $28 billion in climate investments, delivering more than half a million projects across the state and 15 billion in Bill credits back to utility customers.

Over the last 12 years, the program has demonstrated a track record of success that includes eight updates to reflect legislative direction, implementation experience and new science and data.

The design of the program has been robust and legally sound, having been defended against a number of legal challenges, from the role of auctions to the rigor of the offset program to our linkage with Quebec. Our success has attracted partners like Quebec.

The program has been linked with Quebec's program for over a decade and we are working towards linkage with the state. State of Washington Cap and Trade was adopted as California's approach to carbon pricing because it strikes a balance that provides flexibility to industry while ensuring emissions reductions.

The program includes a price ceiling and price speed bumps to protect against price spikes, multi year compliance periods, smooth annual variability and limited banking of allowances supports planning and hedging to balance compliance costs offsets which make up a small part of the program are an important part of the program that keeps compliance costs low and ensures that California can achieve its climate goals.

Offset projects include sustainable forest management and protection, reforestation, and projects that capture emissions from mines that would otherwise go unaddressed. California has developed the strictest and most rigorous methods in the world to measure, verify and enforce the amount of carbon these projects store or reduce.

$1.5 billion worth of verified offsets have been issued to tribal projects, an important source of revenues to help tribal governments repatriate their land. It's important to note offsets can only be used to cover 4% of an entity's compliance requirements through 2025 and 6% going forward, and half of those must provide direct environmental benefits to California.

We are currently engaged in a public decision making process to update the cap and Trade program to reflect and align with the 2022 scoping plan that was approved by the Board in December of 2022, which means removing some number of allowances to address a technical adjustment and increasing stringency for this program.

We must keep in mind that it is a closed system. Any changes to one feature will ripple across the system and impact the overall program. Changes to cost containment levers, such as removing the ability to hedge or removing the ability to use offsets, will increase costs and may require more free allowances to minimize leakage risk.

So moving forward, all changes must be considered in the context of a more stringent program for the rest of this decade and beyond. I have a few closing thoughts. The issue of an affordable cost of living is at the forefront of all of our minds.

As the chairs have noticed, we are acutely aware of how Californians are feeling price squeezes across our economy and are committed to ensuring that our actions deliver net benefits. As we look to provide Californians needed relief from the increasing costs of living, we must consider all sides of the affordability landscape.

A 2024 national report ranked California the worst state for natural disasters fueled by climate change, with expected annual losses totaling more than $16 billion statewide. Beyond the cost in lost lives and shattered dreams, the recent wildfires in Southern California are estimated to have caused over $250 billion in economic losses.

While California has always grappled with national disasters, there is no doubt they are made worse by climate change. Affordability is a real issue and California must serve as a model of considering affordability in a comprehensive manner. Improving standards of living not just through reduced energy costs, but through a safer environment and investment in cost saving.

Climate policies, especially in communities that are overburdened by air quality and climate impacts. Californians are watching us. Other governments are watching us. We must not falter in our shared commitment to protect public health, grow a sustainable and resilient economy, and protect the. Environment for future generations. So I'm looking forward to answering your questions.

I will note a familiar refrain that. With an upcoming auction, as the market administrator with a fiduciary duty, I may need to be brief in some of my responses to avoid sensitivities to influence the market. But I am looking forward to our discussion.

Great. Thank you. Thank you very much. I've got a ton of questions. I know Members do, too. Do folks want to. We can make a free flow. I wanted to just get a. And again, I recognize especially the sensitivity of your final comment about impact, so obviously only share what you feel comfortable.

But I'm interested in the extent to which you've been thinking about just changes to Syria to reflect the cost increases of the New Federal Administration and the impacts of the economy and all the volatility that's happening. So how you're thinking about that.

Yeah. So in the Ceria, we analyzed several different scenarios. And our ultimate decision making could range from taking the minimum amount of allowances out just to adjust to changes in the inventory and could also include sufficient allowances to continue us on our track to reach carbon neutrality by 2045.

In the 2022 Scoping Plan, we analyzed that we would need a 48% reduction in greenhouse gas emissions by 2030 to continue on the trajectory to carbon neutrality by 2040. As you know, the statutory requirement is 40% below 1990 levels by 2030. So the Syria considered options that would include increasing that stringency to get us towards 2045.

All right. I mean, I guess to the extent that there's a lot of. It's wrapped up in various infrastructure projects that are now potentially implicated. Arches and the ZEB tax credits and CCUs. I mean, is that obviously you have to. You're sitting, you're carefully analyzing all of those impacts and thinking about the strategy, I would think.

Yeah. And you know, one of the things that I remind folks about the 2020 scoping plan, because a lot of people. Haven'T read every page, is that we.

Included an analysis of sort of some of the uncertainties that we recognize are real, that without the renewable energy build that we anticipate, without projects being permitting and actually coming to fruition, that it will be more challenging to meet our 2045 carbon neutrality goals.

And so we need to be cognizant of that as we move forward and think about the steps that are within our control that we can take.

Okay. All right. Yeah. I'm just trying to think about some of the things I want to ask about. You can ask.

I was curious about your thoughts on carbon capture and removal and what role that might play in cap and trade moving forward.

Yes. So we did in the scoping plan, we did analyze the need for carbon capture projects and as well as potentially the need for direct carbon removal. And we assumed that there would continue to be an opportunity to sequester emissions through offset programs.

And as you know, we did a chapter on natural and working lands looking at potential sequestration opportunities there. I think it's an important policy consideration that an opportunity for compliance with cap and trade obligations could be to reduce emissions through means of capturing carbon.

Okay. Do you want to say anything more? That's very brief, but I would invite any additional.

No, I mean, I would just say I think it's an important opportunity for covered entities.

Once again, I mean, this is a program where we are looking for opportunities to reduce emissions through new technology, through capturing carbon through offset programs, through just purchasing allowances as in the interim, as technology evolves, as opportunities to use direct emissions reductions evolve.

And I think it's important to have a lot of those compliance opportunities on the table.

Thank you.

Yeah, let me turn over to Senator Stern. I know he's got a series of questions he wants to ask.

Let me just stay with the flow that you were pursuing earlier in terms of changed circumstances. Do you see the cap and trade program playing a bigger role in our emissions reduction strategy, potentially moving forward, given some of these others, other uncertainties we played? I mean, sort of. How important is the.

Your MIC is on, by the way? I think in the past it's sort of been there in a way as a backstop or sort of. It's not necessarily the driving factor in all the decision making being made by emitters out there for what technologies they pursue.

Maybe LCFS has been doing that in some cases, or the ZEV regulations or rps. So just comment on that sort of those complementary policies versus this market based one. You think this is.

Would you call this sort of an indispensable piece of our strategy or could we meet our goals without it relying on some of those sort of classic command and control tools that have been out there?

I would say two things. One, I do think it's an indispensable strategy that needs to continue and be available to achieve the reductions we need to see. I think your Points about federal uncertainty and the attacks on our direct regulations are really important.

I also remain optimistic that that is going to be a temporary speed bump and that we will push forward. And as the recognition of the impacts of climate change, the importance of public, you know, continue to be, to be clear that the national winds will shift and we can continue our direct regulatory programs.

That said, we need to be prepared that there will be some delay. Right. We already know we were unable to implement the locomotive rule and the advanced clean fleets or most of the advanced clean fleets rule. So that does have an effect on our air quality strategy and our GHG reduction strategies.

And so we want to make sure and continue to push through with the things that are within our control that we know we can implement.

Do you see an increasing role for using the revenue side to achieve some of the, to accelerate some of the. Our sort of Clean Air Act and Transportation goals more broadly?

In other words, if you don't have say, the regulatory push on one side, are there ways to get more strategic about using the revenue side to sort of stop gap some of that uncertainty in the near term both on stationary and mobile?

I'm sort of, I'm thinking about, you know, what both sectors are going to go through now just from a Clean Air act compliance perspective and looking into the black box and searching for the tool.

But is there a different way to think about that when you add say continuous streams of revenue into the picture or sort of treating the mobile source side the same way, say we've been looking at some of the broader, other long term infrastructure plays?

Yeah, I mean, I would say the. Short answer to that question is yes. Because we always look at this as a portfolio approach of, you know, direct regulatory strategies, the market programs and the incentives. And sometimes the market programs Fund the incentives.

And so one of the things you all will have to think about as you're thinking about GGRF is are there strategies to use the funds that make the overall transition more affordable both for mobile and stationary sources?

Yeah, I want to just ask a little bit more about just the way that you're thinking about allowances. You know, obviously you're going to.

We're going to hear from some critics and folks that are concerned about the extent to which the current program is not sufficiently stringent enough to drive the emissions reductions needed to meet our 2030 goals. And obviously a lot of it has to do with the way that we. The excess number of allowances.

This is a long standing debate. I know you're considering decreasing the number of allowances in the new emissions trajectory to account for this. Could you just give us a little bit of an update as to how that process is coming along and. Yeah, let's start with that. Let's start with that.

Yeah, I guess I'll be very direct and kind of say, you know, as you all are thinking about this process of reauthorization and what comes next, I think we are being very mindful of that process and sort of watching that process and thinking about the trade offs around reducing the number of allowances and how that affects the program going forward.

The thing that is so critical to the program is clarity and certainty for investors as they're thinking about planning their next moves and the companies that are planning their compliance strategies. A lot of those compliance strategies for the next few years have either already been made or in process of being made.

So the sooner we can sort of get that clarity and get that certainty about what the next steps are, then I think the stronger the market will be and the stronger the program will be.

I hear you. I wanted to ask a little bit about enforcement. You know, the extent to which ARB is taking steps to ensure that offset projects aren't violating their permits. You know, we have, you know, the extent to which we're really doing a deep dive into the.

Into dairy facilities and manure digesters and other offset projects to make sure they're not contributing to air pollution. That's been a big debate here. You know, the extent to which carp should even be providing offset credits to facilities that pollute groundwater or violate surface water discharge requirements. How are you thinking about the pollution issues that are.

Sometimes I think some people are scratching their heads at some of the folks that are given offset credits and how it relates to their polluting activities.

Well, I guess I would say a couple things. First, there's offset projects, and then there are other projects that might be receiving LCFS credits or other credits. And those are kind of, in many instances, different universes. Yeah. And then the second thing I would Say is, you know, we have taken action against facilities in the past.

That is really kind of a bit more of a question for staff because I'm typically not in the weeds on sort of specific enforcement steps we've taken. Happy to have staff come up and dig a little deeper into that.

I'd appreciate that, actually. I mean, if someone, if someone could give a philosophical approach, because I think we've, you know, the law, the code section talks about how these programs have to be designed to prevent any increase in the emissions of toxic air contaminants or criteria, air pollutants. And.

Yeah, love to get some sense of how that philosophy weighs in on enforcement.

So. Good morning, Senators. It's a pleasure to be here on that very specific question about offset projects. There is a requirement that all projects be in compliance with all local, state and federal regulations if they are found to be not in compliance with those regulations. For the actual project itself, we have invalidated offset credits in the past.

If offsets that are invalidated have been used for compliance by any company, they must replace those with allowances or valid offsets. So we have taken action in the past when we've been able to enforce on projects because they have demonstrated they were out of compliance.

We have had individuals reach out to us to say, were you aware that there's this permit violation or this notice of violation on this project at this agency? We follow up and we do our due diligence and carry forth the investigation and take action on those projects.

But are you willing to pull back credits to facilities that have been found to be polluting, including non air discharge violations on the water side? Those kinds of things.

We have, we have actually investigated issues where there's been water issues and water concerns raised and notices issued because the removal of the material from the digest and then the application of it as it came out of the offset project was not up to the local requirements for how that should be managed or distributed on that land type.

So it doesn't have to be just air. It can be any of the other media because the regulation says all applicable.

Exactly. Yeah. Okay. All right. Senator McNerney.

Well, I think the Chairs and I think the witnesses. It seems to me that you have a lot of leeway in terms of how you produce the rules and how you enforce those rules. And the reason to say that is because I was in Washington when we created the American Clean Energy and Security act.

That was 3,000 pages, very prescriptive AB32 was 30 pages. And so, I mean, you have a lot of leeway in terms of rulemaking. And the reason I ask that is because I have, say, farmers in my district who have propane forklifts. And they're saying, well, CARB is going to make us go to electric forklifts.

It's going to cost us a heck of a lot of money. We're really struggling and it's a very marginal benefit in terms of reducing carbon emissions to go from propane forklifts to electric forklifts. Could you respond to that a little bit?

Yeah, I'll say a couple things. First, it is true that we have a lot of discretion in terms of implementing AB32. It is also true that the Legislature over the years has given us a lot of direction. I mean, if you look at AB398, the last time cap and trade was reauthorized, there were several very specific issues.

For instance, changing the limit on offsets that the Legislature has directed us to do. So it is not that the Legislature has sort of said set it, forget and forget it. I mean, you know, you all have kept a close eye on our work with regard to the forklifts.

That's an example of our core air quality mission, protecting public health and protecting the community from the impacts of air pollution as well as GHG emissions. And I would respectfully push back on the notion that the forklift rule is not necessary. I think it is absolutely necessary.

And we see entities like just the, you know, just in the last few days, the Port of Los Angeles transitioned some of their, one of their tenants transitioned all of their propane forklifts to zero emission forklifts.

So I do think basic air quality rules like that are consistent with our mission as an agency and are important for us to do.

Okay, I appreciate that. And there should be some leeway though, in terms of those specific rules. And I believe that you have that leeway. My other question has to do with imports and exports of energy intensive products to and from California. It might be more expensive for California manufacturers because of cap and trade costs.

How do you offset that for imports and exports?

Yeah, that's a very critical piece of the program and it's a critical piece of legislative direction that has been given to CARB over the years. AB32 in its original inception and then AB398 when it was, when the program was updated or reauthorized in 2017.

Specifically talk about leakage and avoiding the concern that the program would cause businesses to leave the state. And those laws have really. Or that direction has really led to there are some provisions that are specifically in the law.

For instance, in AB398, the legislation directed that all industries be considered trade exposed and that they all be provided free allowances to recognize that fact. It directed us to do a study on leakage and what the program's impacts on leakage would be. That study is underway and is due at the end of the year.

We expect it to be finished by that point. And so there are very clear legislative direction that we need to structure a system that does not push businesses and jobs out of the State of California.

So, I mean, they can be offset, right? You can lower costs to exporters or tariff sort of costs for products that are imported to California. Is that kind of what you're doing?

So I think what you're referring to is the concept of a carbon border adjustment mechanism, which we do not have in effect right now.

In AB398, there was direction for us to study a carbon border adjustment mechanism, and we have gotten feedback from industry stakeholders, particularly the cement industry, which has a lot of concerns about that, and they have given us ideas and concepts around the potential for a border adjustment mechanism.

Okay, thank you. Thank you, Chair. Thank you for that presentation. I have a more broader question. California Air Resource Board's mission is to achieve clean air, basically. And you set the date 2045. And I'm curious fundamentally how that year 2045 has been set as a target date. And that's my first question.

Number two is that air pollution sources are so many vehicles, vessels, forklift or anything, even picnic barbecue or even smoking people, cigarettes, all sorts of we can think about. I'm curious whether in your opening statement you mentioned that wildfire forest management is one of your goals.

And as you know, each year in California we are facing wildfire issues. Last January we had the devastating two major fires among several smaller ones. Pacific Palisade was one and the Altadena was another one. And that two fires burned several days and so many thousands of homes were burned down.

And I wonder whether those two major fires alone, how many years put you back to achieving your goal of zero carbon air by 2045.

So we have two fundamental responsibilities. One is to implement the federal Clean Air act with regard to air pollution, you know, with particulate matter, nox, socks, other pollutants that affect public health, cause asthma, cause cancer, reduce life expectancy, particularly particularly in communities close to these sources. Then our second responsibility is to implement the state's climate change laws.

And the 2045 carbon neutrality goal is a statutory goal that was set by the Legislature in 1279. So we are working toward that statutory goal for carbon neutrality. Your point about impacts, air quality and climate impacts from wildfires is very, very important.

AB32 did set up a specific inventory that we track on an annual basis that we monitor and verify through our mandatory reporting regulation, where entities provide us with detailed information about their emissions. So we. The wildfire smoke is not part of the AB32 inventory.

However, it is something we very closely track and we monitor and we keep track of the air quality impacts of wildfires. And our climate work is intended to reduce. Well, let me back up. The increase in wildfires. The incredibly intense increase in wildfires. Both the frequency and the intensity of these wildfires is exacerbated by climate change.

And the work that we do to reach carbon neutrality has the benefit of eventually reducing the impacts of climate change, mitigating those impacts and we hope will reduce the intensity of wildfires as well as the additional measures we need to take, such as more forest management, such as more prescribed burns, all of those steps that are really important to reduce the intensity of wildfire.

So this work is interrelated. We need to continue making progress on climate change in order to reduce the effect of wildfires, but we also need to continue working on our basic air quality responsibilities. To your point, there are many, many sources of air pollution in the state and there are many solutions out there that are available.

And it's our responsibility to analyze those solutions, figure out which ones are ready for implementation, cost effective ways to meet our federal Clean Air act responsibilities. For CARB, it's for mobile sources, and then for the local air district, it's for the stationary sources.

Yeah. My main point was that to achieve our carbon neutrality by 2020. I'm a little bit confused. You said wildfire is not in your scope of authority or responsibility. At the same time you are monitoring and. What did you say? Monitoring and also gauging.

To me, the volume of the air pollution by the wildfire offset so many efforts that you have put in and so much money you have invested. So many industries you have, you are regulating even miniature. To me, the. A forklift operation. Not from gasoline, not from. What was this? Propane. Propane. Propane gas to electric.

That's to me very insignificant amount in comparison to big black smokes that we have seen by the destruction of. Of the homes and shopping center schools by the wildfire. So I feel like, I think that our priority should be more fire mitigation and you should be cop.

Should be forefront in that effort together with the rest of the agencies dealing with the fire control and fire mitigation, fire prevention. And then I have introduced my Bill to do comprehensive study of undergrounding the high power lines and insulating how the the lines where fiscally, geographically, it may be difficult.

Which method will be more effective, efficient and is manageable. In other words, instead of mandating undergrounding everywhere. But some power lines go through very rugged areas. But fortunately I heard that there are some insulated wire lines available. So that's the reason.

And also some companies have realized that the high power lines are the course of the wildfire over 90%. So they have realized and utility companies are doing it. But some companies do. Some geographic areas are doing it, but it's fragmented. We don't know whether that should be statewide effort. So let's do the comprehensive study.

How many miles are left for the underground or insulated, how much it will cost, who's going to pay for the expenses? Will it be repairs, state investment? Walk off from your cap and trade. You have generated billions of dollars and I don't know where the money goes. Some of them have been refunded to ratepayers.

I don't know whether that is a good investment. I mean when I get $50 or $60, I mean that's to me negligent. But that money collectively millions of people contributing you have collected already.

Instead of distributing the insignificant amount of refunds to repairs that can be focused on major sources of pollution, that is fire prevention, such as undergrounding or mitigating the insulating high power lines.

I would strongly suggest for you to look at the items that the major source of pollution and deterring your effort, rather than controlling just our businesses that they drive out of our state and the cost of our gasoline goes up, all kinds of our cost of living cost goes up because of your regulations. Don't you agree?

I think we need to be cognizant of individual sources of air pollution and the larger climate, larger impacts of climate change. And we need to be addressing both. I agree that it needs to be as cost effective as possible.

And I think you all, as you are deciding how to spend things the greenhouse gas reduction funds can consider things like using some of those funds for specific emissions reductions projects or technology.

Would you be willing to contribute the cap and trade generated funds into fire prevention efforts such as undergrounding?

Well, that is a decision for you all to make.

Okay, thank you.

Yeah. Well, and I, and I will say I think one of the many discussions we're having is you Know, I think you've heard it reflected in a couple of the questions, including Senator Stearns, that we ought to put some, we ought to be thinking about on the Fund.

On the expenditure side, projects that, that, that will, that will meet multiple goals, including affordability. I mean, one of the massive problems of our current system is that we, we pass the, we want everyone to electrify and then we pass on so much of the cost of electrification onto the electricity rates, which is such a screwy strategy.

And so doing things like putting in some investments as long as there's a really strong nexus with climate benefit, both on the project side, but also on the affordability side. Right. I mean, in this particular case, this isn't just about lowering people's rates for the sake of it, which is an important thing to do.

It's also about encouraging people to use the very energy source that we want them to for our climate goals. So anyhow, I agree with at least some of the line of thinking that was raised by the Senator. Let me turn it over to Senator Stern. Okay, Sorry Senator Blakespear.

Kind of a quickish question. So I just wanted to ask your opinion about offsets and how we're defining them. So as the Committee report says on page 15, when we reauthorized in 2017, there was a requirement that covered entities that are using offsets must provide a, quote, direct environmental benefit to the state.

And then, you know, one of the programs that CARB approved was for providing for the reduction or avoidance of emissions in a forest management plan in Oregon. And so reducing or avoiding emissions from air pollutants associated with wildfire smoke.

Basically managing an Oregon forest when we have so many of our own forests here in California that need to be managed to avoid having a fire.

And so I wonder about if there's, if you have any thoughts on what seems to me like would be a clear benefit to us moving to having more clear in state benefits when we're using that direct environmental benefit to the state.

There are a lot of different ways to define to the state, but, but just, you know, conceiving of that in the bigger picture of where we're using our offsets. Can you just give me any thoughts you have about that?

Yeah, so the legislation requires at least 50%. Correct. 50% needs to provide direct benefit to California. So it does not prohibit projects from out of state. That obviously is a, you know, policy determination that the Legislature made in AB398.

The, you know, one of the key principles of AB32 is that, you know, we want to encourage emissions reductions not just in California but elsewhere. One of the provisions says that we need to work with international and national partners to encourage reducing emissions.

So we have offset projects that are both within the State of California, near California as in Oregon, and also, for instance, we have tribal offset projects in Alaska as well. Did you want to add anything?

I think it's important that when AB398 was being debated on this point about in state versus out of state, the question was how to craft that requirement to try and focus the benefits in state in a way that wouldn't draw any legal challenges.

And I think going back to some of those discussions, this is where the Legislature landed after consultation and discussion. I don't know off the top of my head right now if there's a better way to try and restrict those only to in state without attracting some kind of legal challenge on commerce clause basis.

So I think it's worth looking at. But I know exactly why it was crafted the way it was back in AB398.

Okay. I appreciate having that additional context because I understand that we need to do things in certain ways.

But that did seem like such a good example of, you know, if we have a wildfire, it's destructive in our state and we have not just the emissions but the responsibility of, of cleaning up and dealing with that wildfire and the habitat loss and all of the devastation of that.

So it just seems as if the urgency of our own forest management would take precedence over our neighbors forest managements. But I understand what you're saying, so thanks for providing that. Thank you. Chair.

Yeah. All right. Assembly Member Stern.

Yeah. I want to go back to this question you brought up, Mr. Chair, on actually that Senator McNerney also is raising in terms of discretion, legislative direction. I made my staff go through the unwitting act of printing out that bill you were talking about, which I staffed when you were congressman actually. So Waxman Markey, HR2454.

Here it is. Here it is.

You better read all that.

It's I only got the top sheets and everything else will be recycled, I promise. But this is how big it is. It's not 3,000. I think you might have seen the pre floor draft, but it ended up at I think 1,600 pages and then little, little AB32.

The difference is that this bill died in the Senate and never became law. And there is no national climate regulation that exists the way we anticipated. There's no national Cap and trade program as anticipated here, no national RPS.

That was envisioned here, energy efficiency standards envisioned here, low fuel standards, all are not in federal law, but they are in state law. And I'm sort of wrestling with this.

Some of these policy choices that are facing us right now and especially a lot of the advocacy we've been getting to kind of reach in and make prescriptive decisions statutorily about ideas like no trade zones, about out of state offset bans to do that for the Legislature and sort of say if we go to court, we go to court and the Legislature will weigh in on that.

Prescribing actual allowance allocation factors. So dealing with some of the leakage risks, I think that Senator McNerney was talking about and coming up with those formulas, which we did in legislation back in 2009, we gave direction in 398, but we didn't lay out sort of a quantitative or you know, direct, sort. Of.

Direct strategy for you all to pursue. And I'm trying to get a sense of how, how to strike that balance here.

I did look your regulations on this that you would you, you were on track to update and amend and provide that certainty before we reach this moment where now there's a deference to legislative process, which I'm sort of, I'm concerned about what the market impacts are going to be for that going forward and how long we, how long this conversation goes on and on while the market sort of sits there and wonders what we're all going to do.

I think time is against us on that front. And I'm concerned that if we try to take on the ultra deep dive and rewrite the entire regulation here in the Legislature, the amount of time, effort, political horse trading that is inevitably going to happen regardless of all of our good intentions.

You've seen our budget process work and basically if the regulatory setup looked anything like how the GGRF is laid out, it would be, you know, a lot of different tools, but I don't know if they'll all go in the same direction.

But I guess I'm wondering is there anything legally speaking that would prevent you all from publishing at least a draft eyesore with a proposal for us to then look at and stakeholders look at, is there any legal impediment right now to you all being able to just put out a draft proposal and let us and do some of the sort of technical work that I worry about us trying to do on our own?

There is not a legal impediment to that.

Okay. And so and that doesn't a release of a draft regulation doesn't Necessarily mean that a final regulation would need to be. How does the shot clock work on that? Like once a draft is released, what kind of timing?

Yeah, once you publish it, then you have one year, one year to adopt.

So even after we say take legislative action, there will still be a timing issue in terms of getting the regs up and running and certain. Right. So say we pass something in regular order and bill took effect in 2020, there would still then be another.

Then the Ayes or would begin then and then we'd end up, I guess into 27.

It doesn't have to take a year. That's just your. That's the standard. Yeah, that is the. It has, it's no longer than a year, but it doesn't have to take a year.

But in other words, the entities that we would want to be say, allocating private capital, in theory, billions of dollars to reach say a 2030 target to install, you know, better control technologies at their, at their operations to invest in clean energy, alternative fuel sources, whatever the things may be.

They wouldn't really know if you went in regular order and we went in our regular order here. You wouldn't know what you're having to comply with per se until about three years before the compliance date.

And actually isn't it sooner just because of how the allowance allocations work that you, in other words, to determine how many allowances you need to be buying to comply. You wouldn't sort of know what to do between now and I don't know what end of 27.

I'll start and you can respond. I think it's not quite so binary in the sense that you all can move quickly if necessary. We can move quickly. I think it's really about setting down that marker that this is an important critical climate program that it needs to continue, that we cannot reach our statutory goals without it.

And moving as expeditiously as possible on your end and on our end, I think would create that certainty.

Well, I'll just say no more questions, but I agree and I have concerns about us going so far into the weeds in the Legislature here that we cast uncertainty on the future of the marketplace, that we prevent you from actually doing the technical part of the work that we're counting on you to do in the hopes that maybe we'll come up with, you know, our own fix it scheme here that's going to be better than the allocation strategy that you have been putting forward.

So I guess my comment is just that, yeah, we need you to do your technical work promptly and I would urge the Administration not to just wait on the Legislature to do those initial phases. I don't think there's any harm in publishing a draft rule.

And this, this is to you, but also to all the folks that you work for and with. I think it's actually healthy and useful to see something come from the Administration and start to set some of the tone here.

And I think the joint statement from the leaders was really important in that regard, and I want to see more of that.

And I think that if we dig in in these kind of forums, but also, you know, through the legislative process, I think we can get an expeditious outcome and not find ourselves, say, in 2028, wondering, you know, what did we just do for the last two years while they're burning the entire house down from Washington?

And so that just. No response required. Thank you, Mr. Chair.

Senator Blakespear, thanks.

Yes, I just wanted to ask your opinion about. Part of the Committee report talks about a transition that deals with what happens if fossil fuel companies do leave the state at a time where we're still dependent upon fossil fuel and also our emissions are not going down very fast. So we haven't.

We're just not transitioning as fast as we wanted to. And it summarizes it as saying, considering, evaluating options, taking action before, et cetera, et cetera. Okay. So before fossil fuel infrastructure falls into disrepair and communities surrounding this infrastructure continue to face air pollution and economic uncertainty alike.

And just the idea that 50,000 to 150,000 people work directly in fossil fuel industry. Is there, should there be a role with cap and trade that does help with that transition of workers and accounts for the fact that.

That this could be very disruptive to our jobs, the jobs that we have in the state and the workers who need to have a livelihood. Do you have any thoughts on that?

Yeah, I mean, this is a significant topic of conversation in the 2022 Scoping Plan and then subsequently in special session legislation. This concept of a transition report with us and our sister agencies all working together to lay out the issues. That process has been underway. We've had several public meetings, several workshops.

We have done some extensive work with a modeling firm to understand sort of the transition of the. Of the industry. We work very closely with the Energy Commission. I talk to Vice Chair Gunda almost on a daily basis on this topic. It's a critical piece of what we're thinking about.

There are aspects of it that different agencies have different expertise and, you know, the internal sort of Working Administration working group that we have has been discussing these issues as well as this public process with the transition report, and many stakeholders have been participating in that.

We, you know, the Governor has the jobs first initiative, you know, which is really kind of trying to look at this in a regional way, which I think is really important in this transition, because you have these regional job centers, you have the extraction centers, and you have areas, communities that have refineries that are, you know, currently facing potential refinery closures.

I don't have specific answers for you yet. This is, you know, work that is continuing to be ongoing and will undoubtedly involve, you know, agency proposals and potentially legislative proposals. That is absolutely not something that card, you know, is equipped to do by itself. Right.

I mean, this is something that has to be a full Administration piece of work, and that is what is happening right now.

Yeah, Senator Perez.

I appreciated the Chair Blakespear's just question there. And I wanted to ask. I noticed in, in the document on page 19, when we talk about workers, you know, it mentions that it's unclear exactly how many workers are employed in the oil and gas industry. And it's a pretty big range and discrepancies.

It's this 45,900 from a 2023 report, and then that's based on 2021 data, and then as high as 148,000 in a 2025 report. So is there a reason why there's such a kind of a large discrepancy? Because I do think it's important for us to be tracking and looking at the those numbers.

I know that there's been several reports and we've certainly seen the headlines of some of these major refineries closing and the kinds of jobs impacts that that would have. So how are we measuring and actually looking at this data to see what the workforce is looking like and how it's potentially changing?

So this is. These numbers did not come from us. So I don't fully know the answer to that question. As I noted. I think, you know, we work closely with other agencies, you know, with labor and Workforce Agency and others. So I think they would be better equipped to provide that data.

Okay. Yeah, I'd love to know, like, who exactly is tracking that, because I think that those, those that gives us indicators. You know, I heard you when you said, you know, you don't think CARB is equipped on its own to kind of resolve this issue with the workforce piece. And I agree.

I mean, I think labor needs to be involved in that conversation as we figure that out. You know, before I got here, as I Traveled around different parts in the state and different roles that I had.

I noticed particularly, you know, in the Inland Empire, you know, this is such a, or not in the Inland Empire, in the Central Valley, rather this is such major industry for them and particularly for black and brown communities who, you know, might not have a college degree and really gives them the opportunity to be able to make, you know, six figures.

There's very few industries where you're able to do that. And for a lot of these workers that I spoke to, they were very concerned about what a transition might look like and it potentially leaving them behind. You know, where could they find another job like this, especially in the Central Valley.

And so I think as we think about that dress transition piece, that's going to look a little bit different for an area like LA County where you know, you know, you have a lot of other job opportunities. Right.

And other possibilities there versus somewhere like the Central Valley where it's maybe more rural, where you know, this industry is really makes up a large portion of their economy and it going away I think could have a really big negative impact.

So us getting them kind of an answer and helping them to figure out the impacts that this has for their overall economy. When you have a small city that has, you know, let's say like 30% of their workforce that's dependent on, on this industry, I think we need to be really mindful of that.

So yeah, and I think that's an important issue, you know, that we, as we look at the overall scoping plan and how the various strategies that we have identified that help us move away from fossil fuels, there are a lot of new industry opportunities.

I mean, first of all, there's one of the, I think important work, pieces of work that is happening in the state is plugging and abandoning old wells. I think that's obviously an important job opportunity, but also thinking about things like carbon capture, things like hydrogen, you know, new work that can continue to provide strong, high quality jobs.

You know, our renewable energy build needs to be significant. So there will be, you know, significant construction jobs to implement the work, you know, moving forward new opportunities like offshore wind.

So I do think that as we think holistically about this transition, it's not just about lining out old jobs, but it's thinking about what are the types and quality of potential new jobs as well.

Yeah, I appreciate that too.

I think as time goes on, one of the one, I think the pieces that would be really helpful to see is what those new jobs look like and what are the estimates in terms of some of those numbers, I think that would help folks to feel more confident, especially those that are being impacted by the job loss, to say, you know, yes, you know, we're making this transition, but there are X number of hundred new jobs that are going to be available as we transition to hydrogen, or as, you know, we do carbon capture, whatever that number may be.

And for us to actually figure out what those numbers look like. And I think that's what makes people nervous more than anything. Like, we say just transition, but, like, what does that actually mean? And how are we ensuring that. These.

Folks are actually going to find work that is somewhat similar so that they'll continue to be able to have a livelihood?

Okay. Senator Choi.

Senator Choi, I want to have a follow up question about the. You mentioned that carbon capture is. I don't know how. If you can explain more technical way and then neutralize. Are there studies done on that, how you can measure the amount of carbon being produced, for example, refineries. And once you capture that, can you neutralize?

What do you store underground? What do you do with that? What happens? So technical side, I hear that buzzword, but in reality, how it is possible, I'm interested in knowing. That's one of the questions. And secondly, I asked a question whether you have ways of.

You mentioned the wildfire emissions, the carbon emissions from the burning you are monitoring. If you can define what you mean by monitoring. Do you measure the amount of carbon that had been emitted as a result of two major fires?

And then I asked how many years of your effort have been offset by that fire carbon emission as a result of the fire?

So there are numerous different kinds of carbon capture and either utilization or storage. I mean, there are projects in other parts of the country that capture carbon and sequester it underground. There are projects proposed here in the State of California that would do the same thing, capture carbon, inject it into underground underground storage.

There's also projects that are looking at technologies to take that carbon and make other products from it. There is a project at a power plant in Northern California that would capture the carbon from a natural gas plant and sequester that in an underground facility.

And those have requirements for permanency and retaining that carbon in a formation pursuant to the federal rules for underground injection. So there are a variety of different technologies in that area.

Is it being implemented right now?

So there are projects that have are in various stages of permitting in other states. There are projects that are currently injecting carbon into underground storage.

I'm interested in saving our refineries, not closing down and leaving. And they will go some other states and they may set up refineries where with lesser regulations and we have to import the refined gas and then eventually we are the highest gas price state and that will keep on going.

And somebody projected by next year, what $8 we project over $8 was projected. And I think those are very possible figures that for the purpose of achieving the noble goal of clean air in 2045, literally these regulations are killing our economy and consumers. People are leaving our states.

Is it okay to sacrifice our economy and human lives, human, you know, livelihood of your noble goal? That's the reason I asked 2045, how that year was achieved. I mean set up As a goal for neutrality year, so can we. The technologies don't evolve by setting artificial dates and forcing them. I mean, we cannot do that.

And we'll pack up and leave. That's what's happening right now. Can we do more reasonable as technologies evolve? I'm sure that's our goal. And they will be interested in achieving that. Clean air as well. And even carbon capture is possible and the storage is possible.

Then through the cap and trade, they can pay some amount and keep on operating in California rather than closing. And you mentioned several times our refineries may close operation in California. Aren't you concerned?

As I noted, we are working on that issue. It is a concern. We want to make sure that we have the fuel we need as we make this transition. And we are actively working on that.

Well, thank you. And I want to thank you for your testimony. I want to follow up a little bit on Senator Stern's comments. The cap and trade program is absolutely essential to meet our goals. You've made incredible progress and you're going to need to make that progress moving into the future.

And California has been a world leader in terms of showing how this can be done. But there's important to thread the needle carefully in terms of continuing progress without causing the kind of political pain that would result in blowback and setting us back on our goals. So I think that's important now.

So what I'd like to do is get a picture of how much direction CARB needs from the Legislature. And is that something that we need to understand today or are you kind of going pretty well on your own out there?

I guess I think the most important direction we need is to understand that, you know, this is still a critical program. It is still something that that needs to continue. And it would be helpful to know how you all are thinking about how the expenditures can support the implementation.

Because as has been discussed, affordability is a key issue. So you all have to kind of think about, do we want to try to tackle affordability generally? Do you want to try to tackle it in terms of specific assistance for adopting new technologies or new strategies?

Do you want to attack it as a way to reduce electricity rates, as Senator Allen suggested that to support the concept of fuel switching and using electricity more and keeping rates down? I think that's going to be a critical conversation for you all to have.

And I think that would be helpful for us to see how you are thinking about that.

I think that is a helpful reply. And everyone's going to be affected by the climate. It's not going to be just the United States or China, the whole world. So we need to get this right and show how it could be done. Thank you.

We've got a thank you, Madam Chair. Thank you. We've got another whole panel, so let's have them come on up and proceed with them. But thank you very much, Madam Chair. Appreciate it and appreciate all the work you're doing. So our next panel includes Helen Kerstein.

I think from the LAO we've got Danny Collingwood from IMAC, Connie Cho from apen, and then Sam Newton from Net Zero California.

I think we're starting with you, Helen.

Good morning, Chairs and Members. Helen Kerstein with the Legislative Analyst Office. Thanks so much for inviting me to participate. Today I'm going to be speaking from a handout. The sergeants are passing out that handout. It's also available on your Committee's website as well as on our office's website.

I also just wanted to note shameless plug that our office released a report yesterday on cap and trade reauthorization. I believe we have some extra copies out front of the Committee room and they're also available on our office's website. So if you turn to page one, we provide some brief background.

I know this has been covered pretty extensively in your first panel, but just wanted to highlight the importance of the cap and trade program, really a cornerstone program for the state's climate goals and that it really helps the state achieve its greenhouse gas reduction goals relatively cost effectively and serves that backstop role, as was discussed, which is also very valuable.

But the way the program does this is through pricing emissions and those that pricing of emissions has costs. It has costs on consumers, it has costs on businesses. So that's an important kind of attribute of the program.

While that's a sort of a downside, it's also in some ways an upside for this particular program because this program has a really helpful attribute which is instead of those monies just being sort of lost or not being able to be captured by the state, the state is able to capture the value of those allowances and direct them to achieve your priorities, should that be your desire.

So that's a real strength of this program relative to the other programs that the state has, whether it be direct regulation for, you know, that's very prescriptive or even, you know, sort of our other market based mechanism, LCFS. If you turn to page 2, we highlight the importance of this decision on reauthorization.

We think it's critical it could shape this program for many years to come. And the dollar amounts at stake are really quite significant, both in terms of the potential impacts on those consumers and businesses, as well as on the amount of money that you potentially could allocate.

And we think that you have a whole host of potential different priorities that you're facing. Obviously, there are many different priorities. Certainly affordability is one. We've heard quite a bit about GHG reduction, but there may be others as well. Wanted to highlight that we think that you have a lot of different options here.

We think they fit into two main categories just for your sort of thinking. One of them is program design, and we talked a little bit about that. That's things like you could change the price ceiling. That's things like you could change, you know, the allocation of allowances, you could change the cap, those types of things.

And then there's also really how you use those allowances. And that's, for example, shift. You could shift some of the free allowances to GGRF or vice versa. You could change some of the appropriations within the greenhouse gas reduction Fund.

So those are really the sort of two main groups of types of actions, but there are a lot of specifics within that and a lot of different things that you could consider.

Just to give you a sense, on page three of that handout, we have a table that highlights some of the types of choices you could make depending on what your priorities are. So we kind of break them into those two categories.

I talked about program design and use of allowance value, and it really depends on what your key, most important priorities are. So, for example, I'll take the example of affordability, which I know has been top of mind for many Members and also for many constituents, if you wanted to address that priority through program design.

And you could impose potentially legislatively a lower price ceiling. And that would have the effect of reducing the impact on consumers and businesses, because that impact in many ways is based on the value of those allowances, the cost of those allowances.

Or you could change the use of the allowance value, either you could use some of the DGRF to provide rebates or to offset some costs that consumers or businesses might otherwise feel. That's one example.

Or you could increase the use of free allowances for offsetting costs, for example, by having more allowances be free and then consigned and used for the California Climate Credit. So that's just one, you know, that's just one sort of type of example.

There are many other choices that are before you, and I know you'll probably have plenty of time to discuss those in detail. If you turn to page four, though, we wanted to highlight that all of those choices have real trade offs. There's, you know, no free lunch.

If you allocate more allowances to one area, they're less available for another area. If you have a price ceiling, that could affect your ability of this program to achieve GHG reduction goals. So there are real trade offs here that will have to be weighed carefully.

And that brings me to my last point, which is we think that it's really important for your priorities to be reflected in reauthorization, whatever those priorities are. And to the extent that you have key areas that, that you think are important, we think there's value in memorializing those through statutory direction. So it may not be on everything.

It's probably not having a bill that's 1,500 pages long. But there may be certain things that you think are critical. And to the extent those are critical, making sure that those are put in statute will really make sure that they are carried through. So that's our last kind of comment to you.

Happy to take questions at the appropriate time.

Thank you. Chair Allen, Chair Blakespear, Members of the Committee. My name is Danny Cullenword. I'm a researcher with the University of Pennsylvania and I'm the Vice Chair of the Independent Emissions Market Advisory Committee, the Advisory Committee for this program. I'll be speaking today just in my individual capacity, not on behalf of the IMAC.

I want to echo Helen's, my colleague Helen's comments, and recommend the report that Leo just released. I've been working on this program for 10 or 15 years, and I think this is probably the most informative docum document that's ever been produced on the program in its history.

So I commend you to read it if you have an opportunity. I'll keep my remarks brief. Today I included a short handout that I provided to staff that presents some information about the potential scale of the financial flows in the program in the context of reauthorization.

And I want to make a couple of observations and then connect those observations to some of the discussion I heard from, for example, Senator Stern and McNerney about issues that need to be clarified and made certain for the progress of this program.

The bottom line I want to identify for folks is we're looking at potentially several hundred, maybe more than $300 billion worth of allowances being allocated over the next 20 years, potentially less and depending on the price levels that emerge in the program and the allowance budgets that emerge in the regulatory process, you could see either an increase or a reduction in the amount of money coming into the greenhouse gas reduction Fund due to the substantial uncertainty on how all of those factors interrelate.

I want to highlight the two main factors that drive the size and distribution of the value of allowances in the program. First is where the market prices settle. Right now, because the program has been relatively lax in its history, market prices are relatively low.

They could up to approximately triple under the current market design, which could bring in a lot more revenue both to the state and to the substantial fraction of allowances that go to utilities for the benefit of utility customers.

Addressing some of the kinds of issues we've heard about from this Committee's questions right now, about 45% of the allowances Fund, the greenhouse gas reduction Fund, about 41% go to the utilities, and about 14% go to large emitters, principally in the oil and gas sector, to subsidize their compliance with the program, in part to address the competitiveness issues that Senator McNerney referenced.

That distribution is set by regulation. It has not been very directly informed by statutory instruction in the past.

And the primary contribution I hope to make with my testimony is to provide some sense of the scale of the numbers that are involved, because I think the two elements on which we need to achieve certainty through some sort of partnership between the Legislature and the Administration is on where the price direction is going to go and how the revenues and program values will be allocated in a way that creates stability and predictability for everyone in the program.

And I want to highlight that those two key questions have traditionally been delegated to CARB and may require some certainty.

I'm not suggesting, again, to Helen's point and to the comments from Senator Stern that you need 1600 pages to do that, but I think it would be good to select a price ceiling that reflects an outcome that people are comfortable with and can plan around revenue uses that meet the various goals that the state has in the utility sector, in the climate spending programs, and the industrial competitiveness concerns that have been raised.

So with that, I look forward to taking your questions at the appropriate time. Thank you for the opportunity to testify.

Hello and thank you to Chair Blakespear and Chair Allen for this invitation. I'm Connie Cho, senior policy advisor at APEN, the Asian Pacific Environmental Network, a grassroots environmental justice organization for frontline communities living next to California's oil refineries.

All across the state, we've been working in coalition of coalitions, actually the California Environmental Justice Alliance, working with the Central Valley Air Quality Coalition and all of their Member organizations as environmental justice organizations with deep roots in communities living on the fence line of polluters regulated by cap and trade.

We have never before submitted this kind of testimony or the letter that we submitted back in April on affordability and equity to you before. But our people cannot afford us for us to not be here right now. That's the truth as the scenario modeling results that Danny spoke about.

There are hundreds of billions of dollars at stake here. So we are humbly asking the Legislature to reform cap and trade program for affordability and equity and affordability and reject proposals for a straight reauthorization.

Our communities who bear the disproportionate burden of some of the worst air quality in the state and the nation are also predominantly communities of color and disproportionately lowest and lower income. We believe it is not only possible, but absolutely necessary to achieve and balance all three climate, health, equity and affordability through the cap and trade program.

As the cost of living rises to a fever pitch. Now, it's been a challenge to engage and explain cap and trade to community Members as chair bricks.

Barry, you started the day off by saying this is an incredibly complicated program, but not just because it's complex, but because some of it doesn't actually make sense if you want to reduce greenhouse gases. And that's because the oil industry wrote a good part of it back in 2016 and 2017.

The state was actually poised to tighten up the program to reach the state's climate targets. But the oil industry swooped in, essentially threatening California's leadership that if it didn't give big oil giants everything it wanted, gas prices would go up, workers would lose their jobs.

And so the state threw all of its calculations out of the window and the oil industry got everything it wanted in its 10.0 plan here. The state assumed the oil industry would work to protect consumers in some ways, but it hasn't. So the rest is history.

Gas prices have consistently gone up, and for what it's worth, they're going to go up regardless of what you do here. Exactly.

But oil companies and their CEOs have been making record profits While our communities who have actually been left behind in the energy transition and can't afford EVs and there's not enough mass transit, they're getting price gouged at the pump. But it's not just our communities.

All Californians are actually paying for the cost of climate change and foregone emissions from a lax cap and trade program. And every day now, of course the Legislature has been responding to the very sudden and staggering costs of the wildfires.

But climate change was predicted to and is now most certainly adding to the cost of basic necessities like food supply and trade and disruption costs passed on to consumers. It's climateflation.

So and because it's not just environmental justice communities, about 40 organizations, including the ones who helped design cap and trade at its inception, are now asking the Legislature to dramatically reduce or eliminate excessive fleet oil and gas allowances and to maximize and to prioritize the investment and financial support available to Californians through the GGRF and utility rebates.

Environmental justice communities would also propose that we eliminate the mechanism that the of the offsets program and as a replacement Fund the programs that do have integrity, that are tribal led through the ggrf.

Now, because any pass through costs of cap and trade are inherently regressive, a coalition of 40 over 40 organizations have also come together to identify priority GGRF programs to help with equity and affordability.

And we made very specific targeted recommendations, especially these environmental justice and equity recommendations accounting for every dollar in the ask for programs that are underfunded but oversubscribed and can be tangibly felt and celebrated in our communities. As Chair Allen referred to earlier, these will serve to generate support for California's vital climate policies as well.

So happy to answer any questions.

Thank you. Also have some slides. Okay, we'll have some slides if they come up, but just as a. My name is Sammy Den. I'm the co founder and Managing Director of Net Zero California. Here we go. And I'm going to talk today about analysing cap and trade program expenditures.

So including summarising the current performance of current investments from a climate and cost effectiveness perspective before looking at potential changes to the allocations that could be more targeted to the state's goals. Just by way of brief background, this slide shows the two largest cap and trade program expenditures to date are the GGRF and California Climate credit.

So since 2013 these programs have moved $50 billion, about 20 billion to the climate credit and 30 billion to GGRF. And then in recent years we're seeing the California climate credit around 2 to 3 $1.0 billion per year, and the GGRF at 4 to 5 $1.0 billion per year. And then just honing in on GGRF here.

So there are 90 programs at 24 state agencies. The majority of funding, as you sure you know, goes to, they call the continuous program. So in blue there high speed rail, affordable housing and sustainable communities and transit.

And then the remainder goes to in the green there, the kind of discretionary programs which can change each year, but in General you can see kind of where the funding has gone to date.

And just a final point is that, you know, so the total amount of funding that's been allocated, and that's the basis of this pie chart, is $28.7 billion. About 15 billion has been implemented in terms of projects, and then 13 billion is allocated at agencies, but not yet implemented. Okay, so assessing performance.

So big caveat here is that these are, as you know, very complex programs and there's important details and some and certain nuance. But that said, these are kind of headline takeaway points from a climate and cost effectiveness perspective.

So in terms of the California climate credit, that $3 billion in recent years has translated into about a $10 per month electric Bill savings for PG and E and SCE customers.

And then in terms of the greenhouse gas reduction Fund, while there are some cost effective programs, more than 50% either have a cost above $1,000 per tonne or they generate zero greenhouse gas reductions. They have no dollar per ton.

And then a second point on the GGRF is that, you know, the current continuous allocations are not identified as priorities in the state's net zero plan, the 2022 scoping plan. So just turning to recommendations.

So you know, assuming the state is interested in kind of optimizing cap and trade investments more around climate and affordability, here's a kind of a framework that we, a broad framework we're kind of recommending here, which is kind of three key areas, Infrastructure, technology and resilience. So I'll just go through each of them.

So for infrastructure, this is really supporting the delivery of clean energy assets, particularly those that are slightly higher risk, and where public investment could be pretty catalytic and also public investment could substantially reduce the cost of them through public financing.

I'm going to talk a bit more in a moment about a key part here which is financing so doing low cost loans as opposed to traditional grants for these types of projects which could yield significant benefit. So the second area, technology.

So, you know, the scoping plan identifies a number of currently High cost technologies that are needed at scale for net zero. And you know, there's not a lot of attention been focused on them. So grants for an innovation agenda around kind of clean, firm power, industrial decarbonisation, carbon removal is kind of an area of need.

And then lastly resilience, which really doubles as an affordability opportunity. So especially around wildfire prevention, where as you would know that's a key cause of recent rate increases. So some support for wildfire prevention and even efforts to expand markets that can enable forest treatments. And there may be other resilience opportunities also.

And this slide, just the broad benefits categories, this is my last slide. So just wanted to hone in just briefly on the infrastructure and this idea of an infrastructure Fund. So for the portion of funding that could go towards infrastructure, it's kind of quite simple. It's that as revenue generating assets they could be.

The funding could be deployed as loans as opposed to grants. So when the state is repaid you can use the money again. So one initial allocation could be used multiple times.

We have an example here where if, and it could take some time to get here, but the state were to capitalise a $5 billion clean energy infrastructure Fund that was revolved every three years out to 2045, that would have turned 5 billion into 25 billion in public investment.

And if we assume a moderate 5x the ability to crowd in private capital, you could turn a $5 billion initial public investment, mobilizing 150 billion in total capital for clean energy. I mentioned this is kind of complex stuff and this is a short presentation.

So we have these other resources that form the basis of this presentation, but get into the details more. Just wanted to highlight them here. Thank you very much and look forward to any questions.

Fantastic. Thank you everybody. All right, I want to start with Helen. You know, you talk about uncapped capped sectors and just the idea that we ought to be focusing on reductions in uncapped sectors. Can you give us some examples that you really like us to zero in. On.

In terms of uncapped sectors you think we ought to focus on?

Yeah, so we haven't done a full analysis of which specific programs on the uncapped sectors would be the most valuable. But I can give you some examples of some of the uncapped sectors, some of the types of projects that I think might be things you could consider. A lot of them relate to natural and working lands.

Those are not the capped sectors. So it could be things like we heard about Wildfire. It could be things like investing in some of those types of projects that make our landscapes more resilient and also help sequester carbon.

So I think those are some, that's the sort of the type of project and there are probably a variety of different types of projects that could fall into that.

But I think it would be really important, as you're looking at making those kinds of commitments of dollars, to think about again, how those dollars would interact with other programs the state has, whether they are cost effective in their own right, what the co benefits of those are. I mean, Forest Health is a really good example.

Certainly there's ability for those programs and those projects to sequester carbon, but that may not be even the primary benefit of many of those projects. Those benefits have, those projects have benefits far apart from climate benefits in terms of having again, resilience to wildfires or just a healthier watershed.

So I think really thinking about the climate benefits, but also thinking about these other factors as you're making those decisions could be important as well. So I know that's. I wish I had. This is a list of the five programs that you should invest in, but I think that's sort of a framework for thinking about it.

Have you thought much about one of the many challenges. Thank you. Thank you. I'm going to go, you know, I'm hearing how great this report is, so I got to, I got to go do a little deep dive. So thanks for all that work.

How should have you got any thoughts about how we ought to be thinking about just a massive volatility in the fund? You know, it's so difficult to budget given, you know, especially for ongoing commitments, you know, ways to.

Has your work given you any insight and data, you know, how to design the program or change the approach to. So that we can operate with greater predictability?

So, and I invite my fellow panelists also to weigh in. But I think one of the sort of most obvious to me at least, or sort of clearest examples of a way that there could be more certainty potentially is to have a narrower price collar.

So that is, have a relatively narrow difference between the price floor and the price ceiling that would help to kind of likely reduce the volatility in prices of allowances.

It would probably make the program look a little bit more like a carbon tax and a little bit more like the sort of stylistic view of, of a cap and trade carbon market. But there are, you know, and of course there are trade offs.

But that I think would probably be one way to reduce the volatility in the revenues. Of course, volatility in revenues isn't the only thing you're looking, you know, that you'd want to weigh, but certainly to the extent that we're a priority, I think that would be one mechanism.

I don't know if there are other thoughts you have as well.

Sure. Yeah. So I would endorse that. I think that's exactly right. I think so. Just to give some numbers, market prices have been a little below $30 per allowance recently. They could fall as low as the price floor is close to 25, it's in the low 20s, and the price ceiling is about $95.

So there's a large span between where we are and where we could be. Makes it hard to predict. I don't want to argue about where we're likely to be. The point is it's hard to predict.

So if that range were narrower, exactly as Helen said, you would have more predictability on the revenue side of the program, which could help create both political stability and potentially legal stability, if that helps support reauthorization. Second point I want to make, I think refers back to some of the comments from Senator Stern.

A lot of the historical revenue volatility has had to do with concerns about the program's legal future. So producing certainty as reasonably quickly as possible is the other element to producing certainty in revenue outlooks. Thank you. Right, right.

Two points. One, just as a follow up to that, I think I noticed, you know, in the LAO report, something that was important is, you know, this price ceiling actually, you know, once you have legal certainty, say there is, you know, there's a lot of press about reauthorization. You know, there's a consensus around it.

The prices could go. Could really shoot up. Right. With that legal certainty. I'll ask Danny to expand more on that. But I just to the question, I wanted to take you to page three of this affordability and equity letter in our table.

We, you know, request or, you know, funding justified at, you know, either just a baseline dollar value and of course, we would want it to be continuous because these are, you know, construction projects, brick and mortar things that do take multiple years of financing and building, and we need reliable funding for that.

Also taking from the planning stage two, construction phase, but, you know, there's also percentage options. So I think that, I know that doesn't take care of the overall volatility, but in terms of stabilizing what's dedicated to communities and also giving you more room to play if the percentages don't work out.

Okay. And then just on this whole Kind of, you know, question about affordability and electricity rates. I mean, any thoughts on what we should be thinking about in terms of lowering electricity rates within the context of the GGRF?

So I think one of the things to think about in the electricity rate space is one, how much do you want to allocate there? You can do it right now we haven't done it through GGRF. We've done it through the free allowances, but you could also do it through GGRF.

On the free allowances side, I think one question is right now we have some free allowances that are going to industry. You heard about that. We also have allowances that are going to the electricity sector and the natural gas sector.

So one idea that has been discussed as a possibility is you could allocate some of those allowances, some more allowances to the electricity sector.

And you could think about, you know, for example, you could take some of the ones, I think it was discussed perhaps in the background paper, but you could take some of the ones that coated natural gas. You know, pretty much every natural gas customer is also electricity customer.

You could put them on the electricity side and that would be one choice. For example, you can also think, I think about with that within that electricity sector. Right. How do you want to use those? Do you. Right now most of them are consigned to auction and used for the benefit of ratepayers.

In terms of that credit, at least on the IOU side, the investor owned utilities side do you want, but not all of them. So you could change the share that go towards that purpose. And then another thing you could do, so there is a whole list. Another thing you could do is think about how they go out.

Right now they go out on the electricity side is twice annual fixed credits. Right. So you get your, whatever it is, 50 bucks. Well, it doesn't reduce the volumetric rates on your electricity Bill.

And to the extent that's really the thing that's driving people's decisions, and I know there's some dispute about that, but likely there's some impact of the, of the sort of marginal electricity rate on people's decisions on whether to electrify. So one option could be to use those funds for a volumetric discount rather than that fixed discount.

So I think that that was a whole host of different things. We're happy to go in more detail if, if you have more questions, but I think there are a lot of different ways that you could kind of get at that.

Yeah, that's smart. Yeah.

Could I did you want to say something? Sorry, I'd like to just add to that as well. So I would. I mean, from our perspective, we'd emphasize the opportunity associated with investing in infrastructure, you know, in it as a, as a, as an affordability opportunity. So one of the differences that this clean energy infrastructure.

Yeah, yeah. So.

Well, I mean, I'll just, I can spell out one of the differences is, you know, you can. It's, it's opportunity for leverage is the key thing here. So, you know, it's $3 billion a year at the moment is the climate credit to get a certain benefit to ratepayers.

But if you can change the financing from a portfolio of clean energy infrastructure investments for a fraction of the cost, you can bake in those savings for the lifetime of the assets. So we see that as like a really key opportunity.

Right. So it would be a net benefit on the cost side to consumers, but it would also help build out more infrastructure.

Yeah. And I think it really addresses the kind of the cause of the problem. I mean, the rebate is.

Can you tell me a little bit more about how exactly that would work?

Yeah. So the kind of revolving Fund kind of concept, the infrastructure.

Yeah, yeah, yeah. And how you get to the estimates about bacon and the cost decreases.

Yeah. So the idea is that if you were to capitalize a fund for clean energy that could support those projects. The idea is that if the state could put up some initial risk capital to say, a transmission line to kind of get it through the more risky phases of project development, that can be hard to finance around.

So initial planning, permitting, right of way issues to a point where the project reaches a milestone that from private markets looks like an attractive prospect because it's going to go and then they're going to be able to get a return. Then you can finance out.

And so for an upfront capital to kind of get the project to a good milestone, then you finance out to capital markets and that funding, the initial public money is returned to the Fund to then do another project. So.

Yeah, a revolving Fund. It's a revolving Fund.

Yeah.

Yeah. You had to follow up on this particular issue.

Yeah. Just a quick point on the energy affordability. So we do see the current California climate credit rebate program as one of the most efficient and effective ways of getting dollars back to Californians. Even if you look across like all different kinds of subsidy programs in California that the state is administering, actually.

So it's quite important to us to actually preserve that. And then Professor Michael Wahr at Stanford has, you know, proposed a more equitable rate design looking at specifically climate impacted regions and lower income regions for the, for folks who are on energy assistance programs, of course, we want to improve those too as well.

But one thing to say is in thinking about the, you know, allocation of energy affordability programs between the existing climate credit, you know, via the free allowances mechanism versus the GGRF, I think it's also important for us to recognize that on the GGRF or that when there are pass through costs and also these energy costs, right.

As electricity bills rise, these are regressive impacts, you know, for our communities that have a smaller paycheck take up a greater and greater portion. So we'd ask that, you know, actually dedicating the growth of the program on either side really, but really on the utility rebate side, dedicating the growth, growth of that to lower income communities.

So it's more equitable.

Yeah. Thank you. Senator Stern.

Yeah, I wanted to appreciate this discussion. I was on a level set on this prediction or this piece of the LAO report for Ms. Kerstein, because you're already getting quoted in the press saying that the extension of the cap and trade program could cost over $700 a year more for families, for gas prices.

It's on page seven of the report. I noticed that that's the only number that LAO puts out. Is it correct that that that projection presumes that allowances would hit the price ceiling?

So yeah, I think you're referencing page seven here. And we do we have a little text and we also have a figure here, figure 6 we which lists three different possible scenarios. The one that we discuss in sort of greater depth is the one that you're mentioning that is if it were to reach the ceiling.

There is a lot of uncertainty which I think we try to acknowledge.

So the answer, just to be clear though, the answer is yes, absolutely. Yes. The $700 number presumes that you're hitting the price ceiling of $94.92, which is currently required by CARB under their regulations, Correct?

Absolutely. And so there's a lot of uncertainty that that is not a prediction. That's just to give sort of a sense of the scale of the potential kind of upside of the scale. But certainly there's there's some downside as well and there's certainly a significant range and that's in the future could look different too. Right.

Because we're going to have different number of allowances and you know, the price ceiling is going to adjust as well in the future.

Right. I mean, that's the danger of articulating one number, one particular number and not specifying all the other ranges and sort of total household impact. So that's, that'd be my concern about how that piece of the report is written, is it sort of implies that that's the prediction of the report.

But let's assume that, you know, that that's an accurate sort of portrayal of the most expensive scenario. Say, would, would restrictions on allowances or say the ending of free allowances in oil and gas make that higher likelihood that we would hit that price ceiling?

So I think if you were to do the free, if you were, say, to reduce the number of free allowances for oil and gas, that would, as I understand it, I think the bigger effect there would be on the industry and whether you'd have potential leakage. Now, there's a very complex industry there.

And so certainly I think one could argue that to the extent that you had more of that industry leave and you had more market consolidation, that could have some effect on gas prices now, not necessarily on cap and trade's impact, but there could be some effects sort of that are more broad.

That's really beyond the scope of what we looked at here.

But, but if there are less allowances allocated in the system, there's more demand for allowances. So prices go up.

Yes, if you're looking at the overall. Sorry, I was thinking about the industry ones. Yeah. If there are, as you ratchet down the number of allowances and the cap becomes more restrictive, there likely will be.

Upward pressure and not just the cap, the allowance allocation design, if you're, if you're giving fewer free allowances, as the recommendations came from the Environmental justice and Equity letter, to say you assume no more free allowances. So that's, I don't know, south of $1.0 billion a year.

But that's, will that result in higher carbon price, carbon allowance demand if there are fewer free allowances allocated?

So I guess the way I think about it, and again, other panelists may have different perspectives, but the way I think about it is what's fundamentally affecting the, you know, sort of the price impacts of this program on consumers and businesses is that overall cap and number of allowances.

I'm not trying to ask about the impact on businesses downstream. I'm just saying for demand for carbon prices, basis of your analysis, we can maybe go to the others too. But if there are fewer free allowances, then the demand for those allowances go up within the carbon market.

Well, I think, I guess maybe I'm misunderstanding. So I think in terms of. I think it matters less that allocation of the free versus not free and more the overall number is. Is. I think, not that the free allowances aren't important again, for. For affecting the industry in other ways. But I don't know if you have.

A comment on it. Yeah, maybe you have other.

Yes, Senator. So I would give the opinion that whether you give free allowances, whether you double them or whether you take them away doesn't change demand for those allowances. It will have competitiveness issues and we want to respect that. But I would not expect that to affect the carbon price.

So do you think that if refineries close in the State of California, that will affect the carbon demand?

Yes. So that's the way I would respond to that is to say the competitiveness issues and the trade exposure issues are legitimate. Those need to be considered.

But I still want to separate that from the very specific question you asked, which is if you change the number of allowances that go specifically to, say, the refining community rather than to one of the other allocations.

I'm just saying, not the refining community. Media. I'm saying I thought it was a pretty basic question, which is just basic supply and demand of a market. If you have more supply, then there's less demand. If you restrict that supply by restricting the allowance allocations, then you get increased demand.

Are you saying the carbon market doesn't behave like any other market?

No, what I'm saying is, and this is consistent with what I heard my colleague Helen say, is if you change the total number of allowances in the system, you reduce that prices will go up.

If you change to whom they are allocated, switching from giving it to you or giving it to one of your colleagues, that won't change overall demand for allowances and therefore wouldn't have an effect on carbon prices.

Yeah. So that's actually what the study did you. Does your handout include a picture, Dan, to them? Yes, so we. Yeah, we have that one. Yes, there's actually two. Sorry, does the scenario modeling graph also in there? Yes. So if you go to the back of Danny's handout, actually.

So we actually commissioned the study to ask this question. Right. I think the. For, you know, you may have seen the Environmental Justice Advisory Committee De Carbs, you know, sort of. It was very large sort of list of reforms. And, you know, we started to realize that there are trade offs in this program, actually.

And so how do we actually weigh these trade offs? And so we commissioned what's essentially a follow up analysis that Danny has agreed to make public and is publicly available. It's a spreadsheet model that any legislative staffer could use if you wanted to. LAO office. But essentially there are two different questions, right?

It's the total number of allowances or total number of allowances and offsets issued that overall that big pie of the program, like how much is that and how much is being generated by that.

And then this distributional question, and so what we tested and you can see in this picture is that in all three scenarios at these different price points, it's the total amount of like the cap being declined, the total value of the program that matters in terms of how much is generated for the program.

How you decide to like where you decide to tighten from or how you decide to take away from that overall shrinking, how you decide to do that only matters in terms of who benefits. Right, so when you were asking, well if you take away these free allowances, will it impact the total price? It's like, well, if you're.

It's actually, if that is the main strategy, what's not actually making, what's not driving that is the choice is it's actually. And what you do with the revenues.

No, no, I get that. And what you do with the revenues to offset it all. It's just that there's a very, I think, misleading statistic that I mean if people are assuming this is the assumption in the LAO report is that it's all going into the gasoline sector, right?

So that 74 cents is all coming onto the gasoline side and that's $700 per year is on that it will increase prices in gasoline by $700 a year. And what you all are saying is if we restricted allowances to the oil and gas sector, it would not necessarily result in those increasing gasoline prices.

Is that what I'm hearing?

That's not the mechanism that creates this. Yes, it's not. It's just exactly what you said. It's not. However, that's why we actually pared down and focus some of the market based reforms to be a little more targeted. And that's why we're specifically adding this consumer protection mechanism really to ask you to actually engage in the price ceiling.

Right, so CARB, it's like, thank God that the prices didn't spike under the current regulation.

Doesn't CARB have a regulation on that right now?

Right, but they set it at $90. Right. Like in what world is an okay price?

Has it ever hit the price ceiling before?

No, but that's why we Want an actual consumer protection mechanism in place to actually have that guardrail so that you don't result in a number like this.

Yeah. So I would just say when we're analyzing numbers, then if this seems like such an unlikely scenario to hit that, then that's probably not the right one to cite in a report as the. What will now be reported as the likely scenario. So I don't think it.

Well, it's not necessarily unlikely because I believe that CARB Seria did actually model out these different types of levels of cuts to the program if you restricted.

Free allowances and moved tons.

The overall program.

I get that it's the overall program. And their analysis also showed that if you removed over a certain number of, you know, 215 million metric tons versus 185. Exactly. That you're going to get higher carbon prices in that scenario.

So we're just trying to sort of baseline level set on that, like, yes, it will result and that that would reduce the ability to give free. Free allowances because you've already pulled those out of the system. So there will be fewer free allowances and then the prices will be higher than they otherwise would have been.

Just trying to, like, get some basic 101.

It's very important to pull back the distributional question as a separate question from the total category.

And Senator, I would add just that, you know, the modeling work that CARB commissioned from some experts in the informal workshop process anticipated the possibility that with extension of the program, just extension, you would get to the price ceiling. And so I want to return this to the.

I think the core question, which is I think it would be a good idea for there to be a price ceiling in the program where the outcome of that price ceiling represented a win that everyone could stand behind rather than something that was considered a public relations problem.

But is there pricing in the program? Currently there is.

It's about $95. Yes.

So you don't need the Legislature to set a pricing, is that correct?

The point I'm trying to make, I'm.

Just trying to clarify that you don't need a Legislature to set a specific price ceiling in law. Correct.

I would say that they have the authority. CARB has the authority to set it however they like after 2030, and they have to do it pursuant to previous legislative directions.

And so do you like those 398 style constraints that we sort of. We did the last time, like those sort of parameters that were put in, or do you have something different in mind?

I think there's look this is ultimately a question for Members. I think there's a mix, and I think you've expressed some healthy skepticism around not over meddling in the technical details.

The industrial allocations, which benefit two thirds the oil and gas industry, were the most directly commanded from the Legislature, and almost all of the direction was pretty broad to CARB other than that. And CARB elected not to make a strict program and they elected to set a very high price ceiling, which we've never reached.

But they've also indicated, and I think several studies have corroborated, if we reauthorize this program, we're going to take it from a condition of relative laxity to significantly greater stringency. And I think in that environment, it would be wise to select a price ceiling. I don't.

I'm not telling you how to do it or who should do it, but it would be wise to end up with a price ceiling where that outcome represented a revenue outcome that made sense and a consumer price impact that made sense, that balanced all of these considerations.

Because it is absolutely true that the market price could reach the price ceiling under current regulations. And, and it is true, according to CARB's own Commission work, that it could happen with reauthorization. And therefore I suggest it's important to figure out where that price ceiling should be. However, one does that, thanks.

Well, I appreciate the significant expertise. Wait. I just want to make sure. Senator McNerney, I know you have to leave. Did you want to ask a question first? Because I'm happy to yield my time to you because... Go ahead. Yes, go ahead. Go ahead.

I don't want to say quick minute because a minute is a minute. But basically, Dennis, you mentioned price caps, and that's important. But if we're going to be prescribing that, then as the, as the cap allowances go down, then we're going to have to adjust that price cap. And you mentioned a collar, so that would have to be changing over time. That would have to be the price cap and the collar would have to go up as time goes on. Is that something you could acknowledge?

So currently there's both a price floor and a price ceiling, collectively refer to that as a collar. Both of them are set, and they escalate at 5% plus inflation every year. And because they're set quite wide in terms of the floor is quite low and the ceiling is quite high, there's a large spread, and the spread continues to grow over time. That's shown in Figure 2 of my handout. You could choose a narrower band. You could update it however you like. I'm not suggesting a particular number other than, to return to Senator Stern's point, I think it would be good to have a maximum outcome that represented a balance that was politically acceptable to a wide constituency.

And I would be worried about over prescribing in statute. Yeah. All right, that's all.

Okay, good. I'm glad you got to ask that because it was germane and I'm going to go in a little bit of a different direction. So I appreciate the substantial expertise we have on the panel and also on up here on the dais. I wanted to shift over into the bigger questions, and I'd like to pose this to all of you, but I'll start by proposing it to Connie.

When we think about climate change, stopping climate change and adapting to climate change, it's clear that we will need to see a lot of behavior changes around how we build our environment and how we move around our environment. And right now, GGRF, almost 40% of it does go to capital costs for rail and transit. And I noticed that in your, Ms. Cho, in your documentation, you laid out specific programs and projects that the EJ community would be looking to see funded, but you didn't include high speed rail. And that's such a major part right now at 25%.

And I'm interested in us working in California to have a more robust rail system that that creates a culture of riding transit and riding rail. And we need to not just invest in the capital side, but also in the operations side and in having measurable goals to increase ridership and service. And so I wanted to just hear from you why that's not part of it, but also just in general, because you did say that there's not enough mass transit in your opening remarks. So how do you see that fitting in or how would you respond to that?

I think there's been a, there's been a healthy debate around the current high speed rail programs. But you're absolutely right that in the Central Valley especially this is a, you know, high speed rail is a very important program. And I think all of us, this is a consensus document.

And so there are different levels of priority to which our organizations across the state, very different environmental justice communities, you know, really came together on. But I would say we are explicitly not anti-rail. It's simply that, you know, we were trying to pare it down to really focus on programs that we could all sort of equally champion. And so I would leave it there.

Okay. Okay, thank you.

I will say that some of these programs like Transformative Climate Communities, you may not know exactly what they are, but they do, they are sort of multi-sectoral and multi-strategy. So they do involve things like micromobility, EVs, and it could be related to rail. It is exactly what a program or neighborhood, sorry community or neighborhood designs. There's even affordable housing in some of these programs. Solar, urban farms and urban greening. So there's multimodal ways also of getting at transit we believe.

Okay, thank you. Anybody else? Yes.

I'll just say so look quite a lot of the data, high speed rail and some of the transit investments there. So a of lot at least was it relates to, to be honest, like from a climate and cost effectiveness perspective, you know, high speed rail is not the top of the list in terms of like kind of checking those boxes. But as it relates to transit, there are some.

So there's, you know, in the Transit Intercity Rail Capital Program, there's 245 projects that make up the kind of the full allocation. And where you do see kind of at least on this purely focused on the kind of climate cost effectiveness is where there is existing density. So you know, LA Metro and BART kind of investments.

So you know, so there's 245 projects, those three projects make up about 50% of the emissions reductions for that whole transit category. So where there is that built environment around it seems to be at least just from a climate and kind of that GHG like dollar per ton perspective is where that is effective on that metric.

Yeah. Yes, thank you. Yes, go ahead.

Hi. Just a little addendum I guess I think it's also important to... Our understanding actually what was revealed maybe last week by the LAO was that not all of the dollars that should be going out the door are going out the door. And some of that is related to high speed rail.

And so I think that we're looking for a balance of accountability, really making sure that our communities can feel and materially benefit, hopefully sooner than later. You know, some of these things are shorter term even if they're multi-year and can really impact our communities more quickly. And so we like to see, you know, just not everything always automatically going to high speed rail in huge chunks. This diversification strategy is like very important and the accountability piece as well.

Okay, thank you. Does LAO, do either of you want to say anything?

Yeah. So I think, as I understand it, and there was some discussion of this I think on the Assembly side last week, but the CARB does put out publication and it has some cost effectiveness measures for various programs that receive GGRF. There have been some concerns raised about the credibility of some of those numbers.

Our office has raised some concerns about some of those numbers. But I would point out, my understanding is I think that high speed rail is treated a little bit differently from the other programs in that, in a variety of ways, including it's not captured in that document I think the same way or I think it's not. They sort of do their own thing. And part of that is that the project won't be operational for some years, likely not till at least 2030, and then it would be only in sort of a more modest way. It's intended to be kind of a phased approach.

And so I think one of the trade offs is, you know, how much do you want to focus these dollars on GHG reductions versus other kinds of priorities that you have. If it were just GHG reductions, you know, I think the data that's out there suggests this is probably not your top thing. But you may have other priorities as well. And it is a project that, you know, that I think there's a larger conversation about the pros and cons and we could certainly go into that if you're interested.

Well, yeah. I mean, one of the things that I observe is that the money is allocated into these different opportunities, grant opportunities for local transit agencies to apply for, and the projects a lot of times are things like double tracking in incremental sections that is actually not leading to mode shift really at all.

It's actually not leading to increased service. It might be leading to potentially resiliency where if there are sections where if it went down maybe there's another line or it's just replacing old bridges and things that need to be replaced, which is valuable if we value the transit system working. But it's not, it's very tangential to actually creating mode shift, which to me is where we would be tabulating the emissions reductions.

And if you were looking at it maybe in a scope 1, 2, and 3 way and saying if we're not building the car in the first place, that that person's not driving, you know, you would be able... Because they're taking transit, because they have transit in their communities. You know, you'd be able to quantify that in a way that would be meaningful. But right now, the way all of these programs are set up, it's just, it's just not in any way linear. And that to me that does seem like a bit of a problem. Yeah.

Just on that point, maybe to try phrasing it a little differently. Does anyone on the panel, if greenhouse gas reductions are our primary objective in green, in the GGRF expenditure plan, do any of you think that high speed rail is a cost effective use of those funds? You can raise your hand if you do.

I mean as a concept. Right.

I guess I mean less concept, more as currently...

I'm not authorized to comment on that about what's happening in California.

Senator, if I may just very briefly. I think you make a valid point and I would observe, I would join Sam's analysis. I think a lot of what's in the Greenhouse Gas Reduction Fund is not primarily about climate mitigation. That doesn't mean it's bad, but I do think there's a category error. If we ask as to every project, is this the most cost effective mitigation strategy? It may be an impacts and adaptation strategy. It may be local benefits or jobs. I'm not expressing a view on this one. I agree with you.

I appreciate that there's a multi-factor. So like in your mind, is the use of cap and trade, cap and trade for high speed rail a good use of funds writ large?

That one's beyond my pay grade.

Oh no, your pay grade. Maybe I can ask others, anyone else, if it's a good use of funds.

Can I just add a couple points on that? So I think there, with high speed rail, there are a couple questions. I think fundamentally the Legislature faces questions about do you want, what do you want to do with this project. Do you want this project to happen and at what is the scope of the project that you want?

Because if you want the project to happen as envisioned, if you want all phase one, that's going to be a very large capital investment. Even if you want Merced to Bakersfield, there's a significant funding gap. We're probably talking about even assuming cap and trade revenues through 2030, the most recent documents had about a $7 billion funding gap.

So there's... The first question is do you want to do high speed rail? The second question I think before you is, if you want to do high speed rail, do you want to spend cap and trade or other funds on that? That is a complicated question, one of which, partly because there's a question about is this appropriate, is it getting your GHG reductions. But partly because cap and trade is not well suited to securitization. The high speed rail project needs funding in the near term. They don't need, the funding is not as helpful for them in 2045.

They have a near term multibillion dollar funding gap that has been identified. So they need to borrow against some revenue stream to get that or they need a big infusion of one time funds. And cap and trade as we talked about, varies a lot. So there's a fundamental mismatch on the timing of cap and trade and the need for this project. And the authority I think is struggling with that because, and they're discussing needing a backstop of another funding source.

So the Legislature may well need be asked to provide cap and trade and also provide a backstop of another very secure funding source. So I think that's, that's sort of a second question for you. Both what do you want to do with a project and then if you know, depending on what that is, also how do you want to fund it and how does cap and trade fit in?

And might just briefly add. So just if your objective is to spend GGRF, you know, in a fairly targeted way around achieving greenhouse gas reductions, including cost effective greenhouse gas reductions, and also to support affordability objectives around energy affordability, high speed rail is very low on the priority list to achieving those objectives.

Let me add very briefly one more thing. What I want is to help you all land this plane, and I want you to look at the numbers because there is not enough money to do high speed rail, to do transmission infrastructure upgrades, to pay for wildfire costs, to pay for insurance reform, to do all of the big ideas that I hear out there.

It is not my place to tell you which of those you should want, but I encourage you as you think about this, there's only so much fiscal space across all of the things that are out there. And landing this plane to produce the legal and political certainty for the program's future requires the Legislature to make decisions about the spending side of the program in cooperation with CARB and the administration on the overall ambition of the program. I would just want to help connect the those dots.

And I want to also echo Helen's very important remark. People talk about securitizing this money. Very skeptical of that. Very skeptical of that because of how uncertain and volatile it is. Even when we fix that and we make that better. I would be shocked if you got good borrowing rates compared to other opportunities for raising money.

That's not to cast aspersions on any particular project or application, but I hear people sometimes say, can I securitize the next 20 years of this? And if you walk away from this conversation saying, I don't know what's going on here, there's a lot of numbers and they could go in any different direction. A bank is going to charge you an enormous amount of money to take care of that problem and you are not going to win.

Can I just follow up on that? So even if it's a set amount, if it was $1 billion a year or something, it would still be hard to securitize that?

My colleague, Ms. Kerstein can say more, but I just want to highlight we have had, due to experiences we hope will never happen again and with the reauthorization of the program, hopefully will not see. We have had auction crises where the dollars drop to close to zero. Right. So a bank looking at this says that's a risk.

There's also provisions for the Governor to suspend the program, which are probably you might consider politically necessary. There's a lot of features of this program that make it much less reliable compared to other sources of state or local government funding, and therefore puts it at a competitive disadvantage to the borrowing power of the government. And Ms. Kerstein knows far more about this than I ever will.

Yeah, that is exactly right. Right. So the history of this project or this program is that it has had a volatile revenue stream. And yes, you could change it, but I think it's unlikely you could change it enough to make it something that would be easily securitizable.

So you can give it first call on funds, but then what if it doesn't get, you know, that kind of revenue. You can give it a catch up provision so you can say okay well in the next quarter we'll give it money. But again you could have multiple quarters where you don't have enough.

And also that just introduces some uncertainty. Another thing that's been talked about is you could, you may have to say that the, the Legislature may have to say we are not, and the state may have to say we are not going to make changes to the program that could impair this funding stream. Right.

And so do you, is the Legislature and is the state, does it want to be in a position of potentially constraining your, the choices about the design of this program because we've made commitments to investors not to modify the program in a way that could impair the repayments? So there those are just a few of the issues.

I think it would be very difficult to borrow against and certainly with the existing the traditional bond market also with federal programs. So it would likely be some kind of second, some kind of other more expensive private financing that is non-traditional if you were to use this.

I think that's why the authority is talking now about having a backstop of another secondary funding stream. But they have not yet identified what that funding stream would be. And so I think there are some real questions about what would be an appropriate funding stream to serve as that backstop, how that would work.

I have not heard anything in terms of details on that. But those are really important questions for the Legislature to understand and all the implications are important before continuing, before making any decisions on allocating revenues. I think is really understanding what those trade offs are for you.

Can we do not bummer for one sec. But still in this category I wanted to drill down a little bit more on the some apenn or the broader EJ affordability equity priorities. There was a 617 piece. So I'm wondering, I mean we're looking at some of these scenarios where you're investing capital.

You don't know if it's going to get a return on that investment either from a greenhouse gas reduction perspective or from an environmental justice perspective because it just takes a while to get that going.

So are there near term clean air and sort of non GHG related, you know, sort of whatever we want to call co benefits that we could achieve by having more certain revenues around say community air protection funding, better control technologies projects that are in the shadows of the larger fossil fuel industries.

Just want to see if you could maybe comment on that piece and whether we think we can achieve some of the what I feel are unmet, unrealized goals from AB617 and the environmental justice compromise we reached in the last reauthorization to if we're not going to count on cap and trade to deliver air quality benefits in the communities and we're just saying that's the Clean Air Act's job, then we certainly have to have the revenue to help boost those efforts.

So can you maybe comment on that? I'd say comment on the community air piece as well as how you see the clean transportation piece feeding that sort of our Clean Air Act problems and yeah, absolutely.

Thank you for that question.

So first as to community error protections, you know there are a number of pitfalls to AB617 and so we believe that maybe in a package around cap and trade or related to it, we would want to see, you know, legislation that addresses those pitfalls and ensure enforceability and funding for those community driven solutions.

And so that's why I think this is actually like quite complementary. Right. Because the mechanism of cap and trade focused on greenhouse gases, maybe not.

But like you said through the greenhouse gas reduction fund, a number of these programs that we've named are really looking at not just decarbonization but also bringing along those pollution reduction co benefits and for clean transportation, you know California has made a lot of progress so far and we there there are a lot of co benefits that come with that when they are zero emission, actually zero emission vehicles.

So there is a lot less pollution. So some of the biggest air quality successes that have been written about the cabin trade program have actually come from the mobile source side. And so we'd like to see though an equitable sort of investment in looking at building out that kind of infrastructure and of course mass transit.

Don't want to open up that boondoggle again.

No. Yeah. I just was sort of trying to tease out why are you recommending a continuous appropriation for say community air protections but not for clean transportation incentives. Has your thinking changed since the new Administration federally came into power?

Since the ARB had to make some heavy compromise and we faced some setbacks in terms of our fleets heavy duty, the uncertainty around even the ZEV light duty side. Has thinking changed a little bit there or not?

I won't answer on behalf of the entire coalition but as part of. I would say within our environmental justice organization and along with a number of others, it definitely has. I think investment on the demand side is so, so, so critical, especially as we're going to see. Right. A lack of dollars flowing down from the Federal Government.

And also I will say that I noted it on the slides but maybe, you know, we had already submitted the letter but I do think that there was more conversation that was going to happen around our clean transportation incentive recommendations because of its the parallel around the low carbon fuel standard because that while by far, you know, 80% of the program funds combustion fuels.

We, you know there's a significant amount of money being funded into electrification and transportation to the chairs.

I had a follow up question on that but if you want to keep going a different direction you can on the LCFS piece. Can I ask that? Yeah, keep pursuing that. Then stay on that and we can pivot over just because.

Yeah, well I guess I want to just get a better sense of what your. You mentioned some changes you want to see to 617. I notice it's alluded to but in the letter.

But do you want to just expand a little bit more on your sort of sense of where House 617 implementation is going in general and then what you'd like to see changed?

617 implementation, it could be its own hearing but very quickly I will say it's pretty patchwork across the state. It's been, I think a culture shift with the air districts and incorporating community voices.

It's been empowering for a lot of community members, helped, you know, people really understand and it's just taken a lot of time to build that relationship and being able to communicate about it. There are serious enforceability problems.

So one is that even if communities come up with their own emissions reduction plan and it seems technically very sound, you know, an air district can just refuse to implement it. And so one of the asks I know is out there is related to giving CARB some authority to weigh in and to actually make it possible.

There are also slower timelines than we would like to see on some of the backed and embarked projects, of course, some related to litigation.

But also I think generally overall though, you know, what's really needed is that we need to end the just ongoing practice of citing new and expanding polluting projects in the same old disadvantaged communities that are, you know, and these new polluting projects are, you know, adding to the high cumulative pollution burden that already exists.

So I think additional legislation looking at that is something that we're interested in.

Just on that note, have you guys, are you tracking SB 318, the Becker Bill on barked and that piece, is that something you all are supporting currently?

A number of Central Valley groups are supporting it and I have just been in communication with them about emailing Erica Rivera about it. So I think it's a really promising. I'll just go ahead and say right here that it's a very promising bill and that we just want a little bit of clarification so that there's no backsliding.

My understanding is that in the Clean Air Act case law there's like a sort of anti backsliding provisions. I won't go into the details here, but I think it could be a great bill.