California Governor Jerry Brown was an eloquent early spokesperson for the urgent necessity of responding to climate change during his first two terms in office from 1975 to 1983, for which he was widely ridiculed. But it was during his third and fourth terms in office from 2011 to 2019 that he secured his legacy as one of the most important U.S. politicians to date fighting to prevent climate change when he signed a series of laws and executive orders and helped to implement regulations which are still the “gold standard” for state climate policies. These policies included the California Cap-and-Trade Program (launched in 2012), the Low Carbon Fuel Standard (which went into effect in 2011), and the Zero-Emission Vehicle program (which began in 1990). The California Air Resources Board, popularly known as CARB, oversees each of these initiatives. A better understanding of how each of these programs work could help strengthen efforts to fight climate change in other states. 

California’s Low Carbon Fuel Standard 

California’s Low Carbon Fuel Standard  is designed to decrease the carbon intensity of California’s transportation fuel mix by encouraging production and use of cleaner, low-carbon fuels such as ethanol, biodiesel, compressed natural gas, biogas, liquefied natural gas, hydrogen, and electricity for EVs. CARB sets a “benchmark” for a “target” carbon intensity fuel mix for suppliers for the year. At the end of the year, suppliers must report how much of each kind of fuel they sold during the year. Suppliers who are above the benchmark, i.e., who sold a more carbon-intense mix, generate “deficits” while suppliers who sold a less carbon-intense mix generate “credits.” Any supplier with a deficit must buy enough credits from suppliers with credits to meet the benchmark CARB has set for the year.

The overall carbon intensity of the transportation system in California is decreased as CARB lowers its “benchmark” from year to year. The Pacific Coast Collaborative between California, Oregon, Washington, and British Columbia will soon integrate Low Carbon Fuel Standard Programs in all these jurisdictions, creating a larger and more robust West Coast market for low-carbon fuels that will further increase investors’ confidence in alternative fuels in the Pacific Northwest.

California’s Zero-Emissions Vehicle Program

While the Low Carbon Fuel Standard program targets fuel suppliers, inducing them to supply less carbon-intense fuel mixes over time, the Zero-Emissions Vehicle Program targets car manufacturers, inducing them to supply more plug-in hybrids and electric vehicles (EVs) over time. And just as CARB tightens its benchmark carbon intensity fuel mix every year with the Low Carbon Fuel Standard, CARB tightens its benchmark for supplying more hybrids and EVs over time in its Zero-Emissions Vehicle program. In both programs, sellers who overachieve and surpass the benchmark are allowed to sell credits to sellers who underachieve and fall short of the benchmark, which makes both programs less costly both for car manufacturers and consumers than would be the case if  trading were not permitted.

California’s Renewable Portfolio Standard Program

Whether you are a homeowner or a renter you pay an electric bill. And because your electric utility is a local monopoly—you don’t have a choice of who to buy your electricity from—the state of California regulates electric utilities to ensure that consumers receive reliable service at a reasonable cost. The California Renewable Portfolio Standard (RPS) program was established in 2002 to increase the amount of electricity utilities produce using carbon-free sources over time. 

Initially, the RPS program required that 20% of electricity retail sales must be produced by renewable resources by 2017. The program was accelerated in 2015 by Senate Bill 250, boosting the percentage produced by renewable sources to 50% by 2030, and accelerated again in 2018 by Senate Bill 100 which now requires all the state’s electricity to come from carbon-free resources by 2045. Just as the Low Carbon Fuel Standard and Zero Emissions Vehicle programs allow trading among suppliers to make compliance less costly, the RPS program allows trading among utilities to reduce their costs and those of their customers.

California’s Cap-and-Trade Program

The state’s Cap-and-Trade Program sets the overall emissions ceiling, while most actual emissions reductions are achieved through the three other policies detailed above.

The Cap: The program establishes a limit, or “cap,” on annual greenhouse gas emissions from major sources covering approximately 80% of emissions in the state. CARB then creates what are called “allowances,” which are equal to the total amount of permissible emissions. Emitters are required to acquire an allowance for every metric ton of greenhouse gas they emit during the year. Each year fewer allowances are created, and therefore the cap on aggregate carbon emissions declines year after year. CARB has adjusted the size of the decrease in the annual cap several times over the years, and in 2021 the cap was significantly lowered to help achieve the 2030 reduction target of 40% below 1990 emission levels.

The Trade: CARB sells allowances at quarterly auctions during the year. Major sources emitting greenhouse gases need as many allowances as the number of metric tons of carbon they emit during the year. In the big picture, that is all one needs to know. But of course, in the real-world things are always annoyingly more complicated! Businesses often misestimate how much they will emit, and therefore they buy too few or too many allowances at CARB auctions. This problem is addressed by allowing businesses to trade allowances among themselves whenever they wish, which is where the word “trade” comes from in the name “cap-and-trade program.” Another way to think about this is that first there is an auction for allowances, but then there is also a “resale” market for allowances.

Results

External factors affect the results of any economic policy. The Covid pandemic greatly reduced economic activity everywhere, including in California, and therefore also temporarily reduced carbon emissions in California. And then huge wildfires in California a few years later temporarily accelerated carbon emissions. Nonetheless, there is no doubt that California has reduced its carbon emissions sooner and deeper than any other state. From 2001 to 2019 per capita greenhouse gas emissions in California dropped by 25%, leaving a typical Californian emitting only half as much as other Americans. The carbon intensity of California’s GDP decreased by 45% even while state GDP increased by 63%. (For an extensive description of results see “California Greenhouse Gas Emissions from 2000 to 2021: Trends of Emissions and Other Indicators.”) 

Not that California provides a perfect model. While it works in the aggregate, it may still have uneven effects. Firms have the option of buying “offsets” that allow them to fund out-of-state or indirect projects instead of reducing their own emissions. Regulated facilities tend to be located in disadvantaged communities, raising the possibility that firms can continue to pollute there even as their statewide emissions fall; the option to buy allowances instead of cutting emissions may also cause harm on the local level. However, California policymakers are beginning to address these shortcomings. 

A Green Place in History

Governor Brown has secured his place in history, both as the U.S. politician who warned us first and loudest of the impending dangers of climate change and as the governor who launched the most aggressive and successful combination of programs to combat climate change we have yet seen in the United States. (For more information about the history of climate policy in California see my book, Climate Change Policy: The Eleventh Hour). 

As I will explain in future articles, Governors Kate Brown in Oregon, Jay Inslee in Washington, and Tim Walz in Minnesota later followed his example. But there should be no doubt:  in the battle to prevent climate change, Governor Brown led the pack.   

Robin Hahnel is a professor emeritus at American University in Washington, D.C. He has also taught at the University of Maryland at College Park, Lewis and Clark College, Willamette University, and Portland State University.