California legislators are on the verge of voting whether or not to extend the state’s cap-and-trade program — one of the policies critical to meeting the state’s long-term climate change goals. As they debate the measures, they should be aware of the economic and job impacts of cap and trade in the state’s most environmentally and economically challenged regions.
In particular, residents of the Inland Empire and San Joaquin Valley face economic and environmental hardships that could be alleviated or exacerbated by the Legislature’s decisions. Our forthcoming report on the Inland Empire and recent report on the San Joaquin indicate cap and trade’s net positive economic effects for these regions.
Cap and trade limits total greenhouse gas emissions from major polluters such as utilities, refineries and other large industrial facilities. It creates a market in emissions allowances, and companies can choose to either buy allowances to cover their emissions, or cut their emissions and sell extra allowances to others.
Many questions have been raised about whether or not this form of cap and trade would saddle residents of some regions with additional costs, while spreading the benefits to other parts of the state. Of the multiple goals that policy makers are trying to balance, one is the economic impact of the policy on our most vulnerable regions. Will cap and trade saddle residents of these regions with additional costs, while other regions reap greater benefits? The issue is particularly salient for Californians who face some of the most harmful air pollution in the country from industrial facilities and automobile traffic.
To answer these questions, we conducted a quantitative assessment of the economic impacts of the cap-and-trade program in the Inland Empire and San Joaquin Valley since its inception in 2013.
After accounting for the costs and loss of jobs in industries required to comply with cap and trade, as well as the benefits from investments of cap-and-trade revenue, we found in the Inland Empire, the program had net economic impacts of $25.7 million, $900,000 in tax revenue and net employment growth of 154 jobs.
These net benefits do not account for funds that have been appropriated but have not yet been spent. Since only about one third of appropriated funds have so far been spent on projects in these regions, the positive impacts will only grow. When we account for the expected benefits after all funds collected are reinvested in projects, the net economic benefit reaches nearly $123 million, with 945 jobs created and $5.5 million in additional tax revenue.
We found even greater net positive impacts in the San Joaquin Valley, totaling $202 million in economic activity, along with $4.7 million in state and local tax revenue. The program also created 1,612 net jobs in the Valley. When including expected benefits after all funds collected are reinvested in projects, this figure balloons to nearly $1.5 billion in economic benefits. These projects will create 7,400 total jobs, including more than 3,000 direct jobs in the San Joaquin Valley.
As the California Legislature considers extending cap and trade, it is important to consider these results for economically and environmentally disadvantaged regions like the Inland Empire and San Joaquin Valley, as well as potential room for improvement.
A number of policy options are available to the Legislature to help optimize benefits for these regions. For example, continuing to provide and potentially expand cap-and-trade dividends to consumers in these regions could help offset potential higher-than-average gas and electricity use.
Policymakers could also consider ensuring that these areas receive appropriate levels of statewide spending from the cap-and-trade proceeds, based on their economic and environmental needs. Finally, it will be important to develop robust transition programs for workers and communities affected by the decline of local greenhouse-gas-emitting industries.
F. Noel Perry is the founder of Next 10, a nonpartisan nonprofit that educates, engages and empowers Californians on state issues and has commissioned these research projects. Betony Jones is the associate director of the Green Economy program at the UC Berkeley Center for Labor Research and Education. Ethan N. Elkind is the director of climate program for the Center for Law, Energy and the Environment at the UC Berkeley School of Law. They are co-authors of the January 2017 report “The Economic Impacts of California’s Major Climate Programs on the San Joaquin Valley” and the forthcoming report “The Net Economic Impacts of California’s Major Climate Programs in the Inland Empire: Analysis 2010-2016 and Beyond.”