CALIFORNIA – Customers of investor-owned electric utility companies will receive a discounted bill in October thanks to a state program intended to fight climate change.
Called the California Climate Credit, this discount is part of the Greenhouse Gas Cap-and-Trade program created by Assembly Bill (AB) 32, the “California Global Warming Solutions Act of 2006.” The credit’s goal is to help offset the increased utility costs passed on to residential customers as a result of the Cap-and-Trade program, according to the California Public Utilities Commission (CPUC).
This year, Pacific Gas & Electric Company (PG&E) customers will receive a credit of $38.39 and Southern California Edison (SCE) customers will receive a $71 credit.
Natural gas companies distribute the climate credits in the spring, and electric companies distribute the credit in spring and fall. The credit amount differs depending on the company but is the same for every customer of that company, regardless of how much energy they use.
How the program fights climate change
The Greenhouse Gas Cap-and-Trade program was designed by the California Air Resources Board (CARB) to meet the emission reduction goals that were outlined in AB 32 and later updated in Senate Bill (SB) 32 in 2016.
AB 32 set the goal to reduce statewide greenhouse gas emissions to 1990 levels by 2020. According to CARB, this goal was reached by 2016, and in that same year, the program was extended through 2030 with a goal to reach 40% of 1990 levels by the end of 2030.
In its most basic form, the program places a limit on the amount of greenhouse gas emissions released in the state every year and decreases the limit each year, thereby reducing emissions over time. This is accomplished through detailed regulatory requirements and a market-based compliance strategy.
Companies that emit greenhouse gasses — like electricity distribution companies, cement producers and refineries — receive authorization to emit a finite amount of pollution each year, measured in “allowances.” One allowance is equal to one metric ton of carbon dioxide equivalent, which is a measurement used to standardize the climate impact of different types of greenhouse gasses.
CARB distributes allowances through direct allocation to regulated entities and through sale at quarterly auctions. When entities use up their allotted allowances, they can purchase more at the auctions, trade with other entities or purchase offset credits that show work a company is doing to compensate for its emissions.
According to the CARB website, the program “creates a powerful economic incentive for significant investment in cleaner, more efficient technologies.”
In addition to reducing the total allowances each year, the program increases the floor price for allowances sold at auctions and places a limit on the number of offset credits an entity can purchase. As emitting greenhouse gasses becomes pricier, companies are further incentivized to turn to clean, renewable energy sources.
Where these credits come from
As part of their regulatory requirements, investor-owned electric and natural gas utility providers must distribute climate credits to their customers to reduce the burden of increased costs associated with the program.
The climate credit funds come from proceeds a utility earns when it sells some of its allowances at auction. According to CPUC, the credit amount is determined by forecasts of the total amount of proceeds a utility anticipates receiving in the upcoming year. Those proceeds are split across a residential credit and small business credit, and around 20% is used for other programs and expenses.