California: A climate launch pad

Market-based approaches are paving the way to clean energy, new jobs

Winery and solar panels in California

Solar panels at Vino Farms, Inc., vineyards in San Joaquin County, Calif.

Mathew Grimm

With the world’s eighth largest economyCalifornia is a model for national action on climate change. 

The state has initiated the nation’s first economy-wide cap on greenhouse gases, kicking off a clean energy race in America.

This was spurred by California’s landmark bipartisan 2006 climate bill, the Global Warming Solutions Act (AB 32), which EDF co-sponsored and defended in court and at the polls.

The law aims to cut the state’s greenhouse gas emissions to 1990 levels by 2020, with one-third of electricity to come from renewable sources like solar and wind.

A new cap-and-trade market

The comprehensive law, which includes an innovative cap-and-trade system, will inspire improvements in the way utilities generate electricity, automakers design cars and refineries make fuel.

“California’s law is proof that cost-effective climate action is still possible on a large scale in the United States even though Congress remains gridlocked,” says Derek Walker, Associate Vice President of EDF's U.S.-based Climate and Energy Programs.

The cap-and-trade market alone will slash global warming pollution by an amount equivalent to taking 3.5 million cars off the road.

Simple idea, big results

The idea behind the market is simple: AB 32 caps greenhouse gases emitted by the state’s largest polluters (some 590 facilities), and then lowers that cap every year, creating a market for innovations that will help companies reduce emissions at lowest cost.

Armando Infanzon

In 2011, EDF worked with utility efficiency manager Armando Infanzon to develop SDG&E's Smart Grid Deployment Plan. The goal is to provide San Diego a smart grid that is far more efficient than standard electrical grids. California's AB 32 law is helping to drive this type of transformation.

Companies receive permits–called allowancesto emit a decreasing amount of greenhouse gases. Those that emit less than their limit may sell or trade the excess to companies that emit too much. This gives both parties a powerful financial incentive to innovate and cut pollution. 

The declining cap is helping to drive California’s three biggest utilities–with more than 15 million customersto invest in smart grid projects, designed to enable greater use of renewable energy, energy efficiency and electric vehicles. 

To facilitate the transition, EDF is helping develop an on-bill repayment program, which will let property owners repay loans for energy upgrades through their utility bills. 

Drastic drops in greenhouse gases

The benefits of AB 32 extend far beyond the cap-and-trade system and the state’s commitment on renewable energy.

Other benefits include:

  • Drastic reductions in greenhouse gas emissions from motor vehicles (30% by 2016), and adoption of a low-carbon fuel standard.
  • More efficient appliances that cut energy use and emissions.
  • Decreased pollution and more efficient water use in farming.
  • Preservation and better management of state forests.

AB 32 also allows companies to offset some of their emissions by buying credits from projects that reduce greenhouse gas emissions in sectors like agriculture.

“We estimate our work with rice growers in California could, by 2020, generate a direct investment of $35 million for offsets from more sustainable rice farming,” says Robert Parkhurst, EDF's Agriculture Greenhouse Gas Markets Director.

Clean tech investment = jobs

California’s bold action sends a clear signal to the market that the state has the policy infrastructure to support clean energy solutions. Since AB 32 was enacted, clean tech enterprises have received more venture capital in California than in all other 49 U.S. states combined ($9 billion).

That translates into jobs.

Indeed, job growth in California’s clean-tech sector is ten times that of the state’s overall economy. There are now more than 10,000 clean energy businesses and some 340,000 related jobs distributed throughout the state.

An international effort

On the international front, we helped California coordinate with the Brazilian state of Acre and the Mexican state of Chiapas to put them on track to generate credits usable in the California program by 2015.

The partnership could help Brazil and Mexico preserve rainforests and California reach its emission reduction targets.

Challenges remain

Despite the progress made thus far, continued work remains to track AB 32 implementation and respond to challenges in the courts, and in state and federal governments.

As these new challenges emerge, EDF will vigorously defend both the state’s and EPA’s ability to protect public health and the environment. 

Auction on!

California’s cap-and-trade program for carbon officially kicked off on Jan. 1. 2013. The proceeds from the sale of allowances will be used to advance the goals of AB 32, reimburse utility customers and benefit disadvantaged communities.

Key indicators of early success

  • 100% sale of allowances
  • Significant investment in futures of carbon market
  • Diverse array of qualified bidders
  • Over $1 billion generated in proceeds since the program’s implementation

To see the latest on the California climate auctions, follow our blog, California Dream 2.0.

Help us keep California climate solutions alive

About EDF

We are passionate environmental advocates who believe in prosperity and stewardship. Grounded in science, we forge partnerships and harness the power of market incentives.