Most visible to households will be the reassignment of the California Climate Credit, funded through the consignment sale in auctions of allowances originally received for free by utilities. The proceeds from the sale are directed as credits to utility customers and range in value depending on the service territory of those customers.
On average, electric utility customers currently receive $120 or more per year, and natural gas customers receive over $65 per year. By 2030, credits currently received by natural gas utility customers will be reassigned to electricity customers. Credits will be larger in disadvantaged communities. Moreover, these credits will concentrate in the four-month summer season when electricity bills are the highest. By my calculations, this reform of the California Climate Credit could reduce electricity expenditure for a representative household by 10 to 30 percent.
Thirteen years ago, at the outset of the emissions market, using auction proceeds to fund consumer credits twice a year that did not vary with electricity consumption was thought to be a smart policy design because maintaining high electricity prices would help reduce electricity use and promote energy efficiency. Today, however, expanding the use of electricity in transportation, buildings, and industry is a central strategy for decarbonizing the economy, and high electricity prices are an obstacle to achieving that goal. Moreover, economists have shown that electricity prices are inefficiently high in California, even accounting for environmental impacts, and especially relative to the price of gasoline and natural gas. These prices currently discourage electrification. However, California’s climate policy strategy calls for greater use of electricity, so directing the allowance value to reduce electricity rates makes sense.
Complementing these climate policy measures is AB 825—legislation that creates a new, independent organization to oversee the existing Western Energy Imbalance Market and an Extended Day-Ahead Market. The law authorizes California utilities and the state’s Independent System Operator to participate in voluntary regional energy markets, which has been forecast to save consumers over $1 billion per year and to reduce electricity-sector emissions by over 50 percent through greater investments in renewable energy resources throughout the region.
Finally, reflecting an all-of-state approach is AB 39, which requires local governments to develop an electrification plan that includes goals for electric vehicle charging and electrification of buildings, and which prioritizes low-income households, renters, small businesses, and disadvantaged communities. This new requirement is important as local governments are the gatekeepers for land use permitting that shapes future infrastructure. Local governments are required to create general plans as blueprints, or constitutions for future development, that are enforceable in all land use decisions.
In large and small ways, with short- and long-term horizons in mind, the package of legislative changes in California succeeds in giving shape to a remarkably coherent vision for a comprehensive energy transition. We will see if other states follow course.