How California produced the state's first ever climate dividend

Lauren Navarro-Treichler

This post was co-authored by Emily Reyna.

Every continent is being impacted by climate change – reducing water supplies, causing heat waves, drought, and floods, and raising the natural level of our oceans, but it can feel far away from our everyday lives, and so can actions taken to address it.  

But that is changing for many Californians, this month, as they receive the state’s first ever dividend or “climate credit” from a cap and trade program.       

What is a climate credit?

California’s cap and trade program, which started in January 2013, holds the state’s largest emitters, including electric utilities, accountable for their carbon pollution. Under cap and trade, regulated companies must buy permits, called allowances, for the carbon pollution they emit. Proceeds from the purchase of these allowances in the first 16 months of the program have approached $1.7 billion. 

Following encouragement and input from stakeholders, including the California Public Utilities Commission, some of this money is being returned to the millions of Californians who are residential Investor Owned Utility (IOU) customers. This money, returned as a “climate credit” line item on utility bills twice a year, can help to cover the slightly higher rates incurred from California’s transformation to a lower carbon economy.

This climate credit, which currently averages $35 every April and October following through 2020, is projected to increase over time.

No sky high prices

This climate credit is just one more example proving that emission reductions are possible at a reasonable price and in a way that supports our economic wellbeing. California Carbon Allowance prices are already significantly lower than initially projected, and the state’s economy has experienced a significant economic recovery over the past 16 months while it transitioned to a cap and trade regime.

What would you do with a $70 climate credit?

Although customers can pocket this money and use it to pay bills, we suggest reinvesting this climate credit in energy efficiency so they increase their long term savings.

Many products that increase energy efficiency such as LED bulbs and programmable thermostats (see here for more ideas) cost less than the “credit” and save serious money in the long term. By combining these investments and joining Time of Use rates and Demand Response programs, households can dramatically reduce energy costs.

Once again the Golden State has shown itself to be a leader - this time by showing that the benefits of climate action are close to home, and might in fact be on a bill in your mailbox right now.