Same Emissions Budget, Different Program Revenues: Revenue Implications from California Cap-and-Trade Amendments

The California Air Resources Board is considering three different emissions budget pathways for upcoming rulemaking that would achieve the same cumulative emissions reductions by 2045. We analyzed each budget’s impact on revenues and how an emissions containment reserve (ECR) could be used to bolster revenues. We find the following:Over the next five years, CARB’s identified Smoothed Option 1 which would have a slower reduction in the emissions budget before 2030 would yield about $100 million dollars more revenue to the Greenhouse Gas Reduction Fund (GGRF) in 2026, rising to nearly $1 billion more revenue in 2030 than the other options. In the long term through 2045, cumulative revenues from Smoothed Option 2 and the original Standardized Regulatory Impact Assessment (SRIA) budget are larger than Smoothed Option 1. However, near-term revenues may be more important to fund investments to accelerate the energy transformation, especially given California’s current budget deficit. Smoothed Option 1 would also sustain a decline each year in the annual emissions budget, although initially at a slower rate than the alternatives.The addition of an Emissions Containment Reserve (ECR) would support allowance prices when they are low and increase and stabilize revenues for the GGRF. In the low allowance demand scenario, we find the ECR could boost cumulative GGRF revenues by $3.5 billion over the rest of this decade. Through 2045, GGRF revenues could increase by over $21 billion.