CARB then issues a number of tickets to pollute, known as allowances, equal to the cap. A little less than half of the allowances, around 46%, are sold to companies at auctions held four times a year. Roughly 37% are given to utilities such as PG&E, which are required to sell the allowances at auction and return most of the proceeds to ratepayers.
Finally, about 15% are given to companies for free to help them comply with the law and prevent them from going out of business or leaving the state.
Businesses can reduce emissions, use allowances to legally pollute or, in limited cases, pay for an emission-reduction project known as an “offset,” such as paying forest owners not to cut down trees.
Where does the money raised through cap-and-trade go?
Revenue from the quarterly auctions goes to the state’s Greenhouse Gas Reduction Fund, or GGRF. Since its inception, cap-and-trade has brought $31.4 billion to the GGRF.
As the cap on emissions declines over time, allowance prices are expected to rise, adding more money to the fund. The Legislative Analyst’s Office estimates that the total value of allowances from 2030 to 2045 could reach $260 billion.
The single largest recipient is California’s high-speed rail program, which receives 25% of the revenue.
Another 20% is spent on building affordable housing near transit and 15% funds local transit. The remaining 40% pays for a variety of programs, including providing safe drinking water and forest management.
Then, there are the free allowances that utilities are required to auction off. Most of the proceeds pay for the California Climate Credit, a twice-annual credit on ratepayers’ bills — $58.23 for PG&E customers this April and October.
Does cap-and-trade regulate local air pollution?
Not directly. The program allows businesses to decide how and, crucially, where to reduce carbon emissions.
Assembly Bill 617, which passed as part of the last cap-and-trade authorization in 2017, gave air regulators and residents new tools to reduce the release of particulate matter and air toxins in impacted communities such as West Oakland and Richmond.
