California lawmakers just chose a billion-dollar corporate subsidy over affordable housing and transit

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OPINION — When California families start thinking about their budgets for next year, they’ll need to set aside even more for their utility bills. And more for their commute. And yet more for rent. 

Those are some of the immediate consequences of the California Air Resources Board’s (CARB) recent decision to undermine California’s Cap-and-Invest program, the state’s signature climate program. Last year, California households received anywhere from $70 to $519 back on their utility bill via the Climate Credit, which is funded out of Cap-and-Invest proceeds. Thanks to new regulations approved by the legislature in August, funding for the Climate Credit could be cut by $1.7 billion between now and 2030. 

That translates to a 17% decrease for the average household and yet another financial burden for California families already struggling to make ends meet.

But the damage doesn’t stop there.

The idea behind Cap-and-Invest is that it limits emissions from major polluters by charging them, generating billions of dollars annually for community investments through the Greenhouse Gas Reduction Fund (GGRF). Just last year, state lawmakers reached a deal to invest in affordable housing, public transit, clean water, and air quality projects through the GGRF. 

New rules mean there’s not enough money in the GGRF, and those public investments are going away. Transit investments were cut by hundreds of millions of dollars, which has some local officials already talking about service cuts and layoffs. Affordable housing investments were all but zeroed out, which could impact 177 different projects statewide that were counting on GGRF funding. And while legislators reached a last-minute deal to preserve clean air and water investments for this year, they still don’t have a long-term plan to fund programs that replace lead pipes and monitor air quality in disadvantaged communities. 

Instead, the money will go toward a new handout to the same corporations that are already underpaying for the pollution they spew. 

This year, CARB created a new industry subsidy called the Manufacturing Decarbonization Incentive (MDI) and minted 118 million new “allowances” (akin to a credit to emit a certain amount of climate pollution) to fund it. These allowances sit outside the cap structure and have no clear verification standards or guardrails. They’re worth roughly $4 billion and amount to a massive giveaway to fossil fuel refiners and manufacturers.

CARB claims the subsidies will reduce emissions, but the math doesn’t add up. 

Under the new rules, refineries in California would get more allowances than their emissions. In fact, UC Berkeley analysis showed that refiners could end up with so many surplus allowances they could sell them on the open market for profit. 

This arrangement essentially nullifies the deal that lawmakers agreed to last year when the legislature asked CARB to address the Cap-and-Invest program’s foundational problem: a massive bank of unused allowances that depresses carbon prices and starves the GGRF. CARB’s own Scoping Plan calls for 48% emissions reductions by 2030, which the agency estimates would require removing 264 million allowances from the system. Instead, CARB decided to remove only 118 million allowances — far less than required to achieve the state’s legally mandated goals — but will give them back to industry for free. As a result, the market will continue to be slack, doing little to cut emissions or raise revenues.

Unfortunately, the legislature just missed a critical opportunity to reform or eliminate this damaging new corporate subsidy. With the MDI locked in, further cuts to state programs and utility rebates will likely follow in the years ahead. 

The reversal is emblematic of the larger grift that fossil fuel companies have been running in California for years. CARB’s April 2024 analysis determined a 48% emissions reduction target was both ambitious and achievable. By May of this year, the final rule cut that target to 40% and added the MDI. At each step in the process, ambition declined and polluters gained more license to pollute. Now, communities will lose billions in promised funding while households across California get less relief from skyrocketing utility bills.

We’re counting on state lawmakers and our next governor to direct CARB to pause the MDI and require that companies demonstrate real emission reductions before getting free handouts. But if policymakers fail to act, Californians will remember who sided with corporate polluters looking to pad their excessive profits and who put affordability for families first. 

Barry Vesser is the chief program officer for The Climate Center, a climate and energy policy nonprofit working to rapidly reduce climate pollution at scale, starting in California.