Gavin Newsom Wants To Make the Country's Most Expensive Gas Even More Expensive
All to shovel more money at wasteful and ineffective programs.
California Gov. Gavin Newsom released his revised state budget proposal for FY 2025–2026 on Wednesday. After having a roughly balanced budget in January, the state must now "close an estimated $12 billion shortfall to balance the budget" because of President Donald Trump's tariffs, which have "driven a downgrade in both the economic and revenue forecasts" and increased spending for the state's Medicaid program.
Despite this shortfall, Newsom's budget calls for maintaining or extending expensive government programs, including the state's cap-and-trade program, which was set to expire in 2030.
Launched in 2013 to reduce greenhouse gas emissions (GHG) in the state, the program sets a GHG emissions cap for "covered entities," which includes electricity generators, oil refineries, and manufacturing facilities. Entities must comply with this annual cap either by voluntarily reducing their GHG emissions or by purchasing allowances (essentially permits to emit 1 ton of carbon dioxide equivalent) at quarterly auctions.
Most of the money generated from these auctions goes to the California Climate Investments program, which has funded $12.8 billion worth of environmental and energy projects since 2014. The California Air Resources Board estimates that these projects have prevented over 1,000 premature air pollution-related deaths.
At the same time, cap-and-trade has been prohibitively expensive for consumers. While some auction funds go toward utility bill rebates, the program has increased energy costs for Californians. The state's Legislative Analyst's Office estimates that it adds 23 cents per gallon to gas prices, which could increase to 74 cents per gallon if the state decides to pursue more aggressive GHG reductions. The state currently has the highest gas prices in the country.
Wayne Winegarden, senior fellow at the Pacific Research Institute, tells Reason that the program is a "bad tradeoff." Compared to when California launched the cap-and-trade program, "total energy related CO2 emissions in California is down 6.2%. This is around the national average (5.4% decline). It is way behind states like West Virginia that saw a 14% decline."
While some Climate Investment money has funded environmentally beneficial projects like wetland restorations, the program has mostly prioritized funding for politically preferential projects and social programs. State law mandates that 25 percent of auction revenues ($7.4 billion since 2014) go toward California's high-speed rail project, which, after nearly two decades has yet to transport a single passenger. In his budget proposal, Newsom calls for "at least $1 billion annually" to be provided for the project.
Another 20 percent of program revenues ($2.2 billion since 2014) are mandated to fund the state's Affordable Housing and Sustainable Communities Program. The program has over 13,000 affordable housing units under contract and has reduced GHG emissions in the state at a price of $4,100 per metric ton of carbon dioxide (CO2). The state's urban tree plantings, meanwhile, have reduced GHG emissions in California for a cost of $54 per metric ton of CO2.
The program's ineffectiveness is further compounded by the underlying policy issues that stymie environmental progress in the Golden State.
Despite throwing $1.5 billion toward wildfire prevention through the cap-and-trade and additional money in annual budgets, the state continues to experience damaging and expensive wildfire seasons because of stringent environmental regulations under the California Environmental Quality Act (CEQA). Getting a restoration project approved "often involves years of analysis, public comment, and litigation before projects can even begin," writes Shawn Regan, vice president of research at the Property and Environment Research Center, in City Journal.
These delays increase fire risk and put more people in harm's way. "In 2020, for example, the Berry Creek area in California was devastated by the North Complex Fire while critical thinning projects were mired in CEQA reviews. The fire killed 16 people," explains Regan.
State and private land managers in California have set a goal to conduct prescribed burns on 400,000 acres annually by this year, reports The New York Times. In 2023, the most recent year in which data are available, federal and state agencies and private property owners completed prescribed burns on close to 260,000 acres.
As California has looked to reduce its energy sector emissions through renewable energy projects and mandates—which have forced Californians to pay some of the highest electricity rates in the country—the state has made it illegal to build clean and reliable nuclear power plants. The state's remaining nuclear power plant—Diablo Canyon—generates about 9 percent of California's electricity and is scheduled to shut down in 2030 unless state lawmakers step in.
In a little over a decade, California's cap-and-trade program has increased energy costs for the state's residents while doing little to significantly reduce GHG emissions. With a $12 billion budget shortfall, it could be time for California lawmakers to reevaluate the program.
"There are simply better ways to reduce emissions without imposing such a large cost on the state," says Winegarden.
