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California Air Resources Board Improved Program Measurement Would Help California Work More Strategically to Meet Its Climate Change Goals Report Number: 2020-114

Introduction

Background

The California Air Resources Board (CARB) is the state agency charged with combating air pollution and regulating sources of greenhouse gas (GHG) emissions in order to mitigate the adverse impacts of climate change. ¹ Global warming is the long‑term heating of Earth’s climate generally attributed to human activities, primarily the burning of fossil fuels. Climate change encompasses global warming, but it also refers to the broader range of changes happening to the planet as a consequence of global warming. We use the term “climate change” in the report instead of “global warming” because it encompasses the broad consequences of human activities on the climate. State law gives CARB responsibility for controlling emissions from motor vehicles and requires CARB to coordinate efforts related to attaining and maintaining air quality standards. As part of its responsibilities, CARB is required to design emissions reduction measures and to monitor and regulate sources of GHG emissions in order to reduce them.

Serious and escalating problems in California have been linked to climate change, including wildfires, water shortages, threats to agriculture, and health threats from air pollution. California’s Fourth Climate Change Assessment report from 2018, the most recent such assessment, explains that temperatures are warming and that available science indicates that many people will endure more illness and be at greater risk of early death in California because of climate change. Accordingly, climate change is a major and time‑sensitive public policy concern, and one for which the State has established specific goals. In 2005 Governor Schwarzenegger issued an executive order that described the need to reduce GHG emissions and established emissions reduction targets. As part of the California Global Warming Solutions Act of 2006, a landmark California law that established the State’s GHG reduction program, the Legislature declared that global warming—an aspect of climate change—poses a serious threat to the economic well‑being, public health, natural resources, and environment of California. The Legislature also identified California as a national and international leader in environmental stewardship efforts and stated that California’s GHG reduction program would place it at the forefront of national and international efforts to reduce GHG emissions.

Over the past 15 years, California has enacted certain laws and executive orders intended to reduce GHG emissions. Two of these enactments specifically require CARB to ensure that California reduces its GHG emissions to certain levels by specified dates. For example, the California Global Warming Solutions Act of 2006 required CARB to adopt a statewide GHG emissions limit equivalent to the State’s 1990 emissions level and to design reduction measures that would enable the State to meet that limit by 2020. In 2007 CARB established the 2020 limit at 427 million metric tons (MMT) of GHG emissions per year, and it later increased that limit to 431 MMT. Similarly, in April 2015, Governor Brown issued an executive order to establish a goal of reducing GHG emissions to 40 percent below 1990 levels by 2030, and the Governor’s Office described the goal as the most aggressive benchmark enacted by any government in North America. The Legislature subsequently passed legislation in 2016 requiring CARB to ensure that California meets that goal, which means achieving GHG levels of 260 MMT by 2030. Other relevant laws and executive orders include those aimed at supporting the development and deployment of low‑emission heavy‑duty trucks and increasing the volume of zero‑emission vehicles (ZEVs) sold in the State. For example, in a September 2020 executive order, Governor Newsom directed CARB to adopt new regulations to increase ZEV sales with the goal that by 2035 all new passenger cars and trucks sold in California will be ZEVs. The Governor subsequently proposed allocating $1.5 billion in special funding as part of the State’s fiscal year 2021–22 budget in order to help implement the State’s ZEV objectives.

However, California may not meet its goal of reducing GHG emissions to 260 MMT per year by 2030. According to CARB’s report California Greenhouse Gas Emissions for 2000 to 2018, published in 2020 (2020 GHG emissions report), in 2018 California’s emissions were 425 MMT, meaning that although it has achieved the 2020 goal of 431 MMT, the State still needs to reduce annual emissions by nearly 40 percent over the next decade to reach the 2030 goal. The text box shows that, although other sources of GHG emissions have declined in recent years, transportation‑related emissions have increased slightly, leading to a problematic trend. In 2013 transportation‑related emissions were responsible for 36 percent of California’s total GHG emissions; as of 2018, they accounted for 40 percent of the total. Figure 1 shows the evolution of California’s GHG emissions goals and the trend in GHG emissions since 1990. As the Figure demonstrates, the State will fall short of meeting the 2030 goal unless emissions reductions occur at a faster pace.

Figure 1
California Has Implemented Goals to Reduce GHG Emissions

According to CARB’s 2020 GHG emissions report, the other 60 percent of California’s GHG emissions come from sources such as industrial operations and electric power generation. The vast majority of California’s GHG emissions reductions since it established the statewide emissions limits in 2006 have come from electric power generation. CARB has acknowledged the need for greater contributions from the transportation sector in order to meet the 2030 GHG emissions reduction goals.

CARB’s 2020 GHG emissions report also shows that within the transportation sector, two categories of vehicles accounted for more than a third of California’s total emissions in 2018. Passenger vehicles, which include cars and small trucks driven on California’s roads, account for 70 percent of transportation emissions and more than 28 percent of the State’s total emissions. The second‑highest level of emissions comes from heavy‑duty vehicles, that is, large trucks and buses, which account for 20 percent of transportation emissions and 8 percent of total state emissions. Other smaller transportation categories include aviation, rail, and ships, which combined generally account for the rest of California’s transportation emissions.

One of the key elements of California’s strategy to reduce GHG emissions is a statewide cap‑and‑trade program that sets a cap on statewide GHG emissions and provides funding for CARB’s programs. The cap‑and‑trade program effectively sets a statewide limit on GHG emissions from major sources, such as electricity generation, and allows the entities responsible for those sources to meet the limit by reducing their emissions or by paying for allowances to emit GHGs. The payments take place during quarterly auctions, which have generated billions of dollars in revenue. The State deposits the revenue in its Greenhouse Gas Reduction Fund (cap‑and‑trade fund). State law allocates cap‑and‑trade revenue to various state agencies, including CARB, for the purpose of supporting programs intended to further reduce GHG emissions.

CARB’s Transportation Programs

CARB has established objectives to reduce transportation‑related GHG emissions to meet the State’s overall emissions goals. To meet those goals, CARB designs, implements, and oversees a variety of programs. State law requires CARB to prepare a scoping plan for achieving the maximum technologically feasible and cost‑effective GHG reductions and to update that plan at least every five years. In its 2017 scoping plan, CARB published a set of objectives for achieving California’s GHG goals. The text box summarizes CARB’s key objectives for reducing transportation emissions in California, as outlined in that plan.

As the text box shows, putting millions of ZEVs on California roads is part of California’s plan to reach its GHG emissions reduction goals. These ZEV objectives were established through executive orders from Governor Brown. Figure 2 shows that as of October 2020, more than 700,000 ZEVs have been sold in California, but the market still needs to grow significantly for the State to meet its objectives.

Figure 2
California’s ZEV Sales Must Continue to Increase to Meet Long‑Term Objectives

To help California achieve the ZEV objective, CARB operates multiple programs aimed at increasing ZEV ownership and supporting the ZEV market. The programs CARB has implemented in this area fall into two general categories: regulatory programs and incentive programs. CARB establishes its regulatory programs through a formal public rulemaking process; some of these programs require vehicle manufacturers to produce and sell certain numbers and types of vehicles or meet GHG emissions standards. For example, CARB operates a regulatory program aimed at increasing ZEV ownership that requires certain auto manufacturers to sell enough ZEVs to make up a required proportion of their overall sales in the State. These ZEVs include full battery‑electric, hydrogen‑fueled electric, and plug‑in hybrid electric vehicles.

Incentive programs are voluntary programs that often provide monetary payments to consumers who purchase low‑ and zero‑emission vehicles. CARB approves these programs—sometimes at the direction of the Legislature—and reviews the programs’ funding each year. For example, CARB operates incentive programs that provide rebates or other financial support to consumers who purchase ZEVs. The intent of these rebates is to encourage customers to purchase ZEVs, which tend to have a higher sales price than gasoline‑powered vehicles. The largest of these programs is the Clean Vehicle Rebate Project (CVRP), which has received more than $940 million from the cap‑and‑trade fund. CVRP is a statewide program that allows consumers to apply for rebates if they purchase battery‑electric vehicles, hydrogen‑fueled electric vehicles, plug‑in hybrid electric light‑duty vehicles, or zero‑emission motorcycles. The maximum rebate amounts range from $750 to $7,000, depending on the type of vehicle purchased and the consumer’s income level.

All of these programs work simultaneously toward achieving increasing ZEV sales. As Figure 3 illustrates, other factors like consumer preference and outside programs also play a role. Therefore, when a consumer buys a new ZEV in California, any combination of these factors may contribute to the consumer’s decision. The regulatory programs cause manufacturers to produce and sell the vehicles, while incentive programs, along with other factors, influence the consumers’ purchasing decisions. Further, some incentive programs overlap with one another, and consumers may use multiple incentives when purchasing a single vehicle. CARB’s programs do not operate in a vacuum; they can directly target the same objectives or even the same vehicles.

Figure 3
Various Factors Simultaneously Contribute to Increased ZEV Sales

CARB also operates regulatory and incentive programs that work toward shared objectives in other transportation areas. For example, CARB operates regulatory programs that require manufacturers to produce lower‑emission heavy‑duty vehicles, such as trucks. In one of these programs, manufacturers can earn compliance credits based on the lowered emissions from their heavy‑duty vehicles. CARB simultaneously operates the Hybrid and Zero‑Emission Truck and Bus Voucher Incentive Project (HVIP), which provides vouchers to commercial vehicle users, such as school districts, small businesses, and transit agencies, to help them purchase low‑ and zero‑emission trucks and buses. Additionally, manufacturers can receive a higher number of compliance credits for producing HVIP‑eligible trucks than they do for producing standard trucks. Both programs work toward the objective of reducing GHG emissions from heavy‑duty vehicles.

CARB also has certain pilot programs, which receive lower amounts of funding and are generally smaller in scope than larger programs like CVRP and HVIP. For example, CARB’s bus pilot program provides funding for local transportation agencies to acquire small numbers of zero‑emission buses in order to reduce GHG emissions and demonstrate the practicality and viability of widespread adoption of that technology. During this audit, as Table A in Appendix A shows, we reviewed eight regulatory programs and 10 incentive programs operated by CARB, as well as one program—the Sustainable Communities program—intended to help the State reach its 2030 goals by reducing vehicle miles traveled and therefore GHG emissions for which CARB provides some oversight. CARB operates all 10 of the incentive programs we reviewed through program administrators who manage the day‑to‑day operations of the programs. In some cases, these program administrators are private nonprofit organizations; in others, they are local air districts. CARB oversees the programs through grant agreements that lay out specific program requirements and it is responsible for ensuring the success of these programs.

Measuring Programs’ GHG Reduction‑Related Benefits

Given the ambitious nature of the State’s goals for GHG emissions reductions and the progress still needed to meet those goals, it may be reasonable to have multiple programs that work together to address a shared transportation objective—such as putting more zero‑emission cars on California’s roads or reducing GHG emissions from heavy‑duty vehicles. However, a 2018 report by the Legislative Analyst’s Office (LAO) concluded that operating multiple programs with shared objectives can make it difficult to evaluate the effects of each program. The report notes that there is a wide range of state and federal emissions programs that can overlap, including regulatory and incentive programs aimed at increasing the sale of ZEVs, as we discuss above. The report concludes that the interaction between the various programs can make it difficult to evaluate the effects of each program. For example, although ZEV sales in California are increasing, the regulatory and incentive programs’ shared objective can make it difficult to know how many cars are sold because of the regulation and how many because of the incentives. The LAO’s report stated that this limitation may, in turn, make it difficult for the State to determine which programs the State should expand to achieve future goals most effectively.

The LAO report also described free‑riders—consumers who receive a vehicle rebate for purchasing a ZEV but would have purchased the vehicle even without the rebate. For example, such a consumer may already believe that the savings from reduced fuel costs outweigh the additional upfront costs to purchase a ZEV. Further, some consumers’ primary motivation for buying a ZEV may be the desire to drive a cleaner vehicle or they may be less likely to depend on a rebate for their purchase decisions because they have higher incomes. According to the LAO’s report, failure to account for these consumers could result in overstated estimates of direct emissions reductions for some programs. In fact, research indicates that it is important to measure behavioral responses to economic incentives such as rebates in order to determine their effectiveness.

Benefits Not Related to GHGs

In addition to reducing GHG emissions, CARB designs and operates programs intended to achieve socioeconomic benefits. State law directs a minimum percentage of cap‑and‑trade funding to two populations—disadvantaged communities and low‑income communities or households. State law tasks the California Environmental Protection Agency (CalEPA) with identifying disadvantaged communities in California. CalEPA has classified these communities based on their sensitivity to environmental pollution using a range of factors, including air pollution and public health data. State law defines low‑income communities as those areas in which median household income falls below certain statewide thresholds. State law requires that a minimum of 25 percent of cap‑and‑trade funding be allocated to projects located in disadvantaged communities and a minimum of 10 percent to low‑income communities or households.

State law also directs CARB to design programs that achieve other benefits beyond GHG emissions reductions and minimum required spending. For example, state law directs CARB to use cap‑and‑trade funds in a way that maximizes economic benefits and that fosters job creation by promoting in‑state GHG emissions reduction projects carried out by California workers and businesses. In addition, the Legislature has directed CARB to establish programs that are accessible to and provide benefits for Californians living in disadvantaged, low‑income, and moderate‑income communities, including increasing their access to affordable ZEVs and near‑zero‑emission vehicles. CARB’s own funding guidelines state that agencies that receive cap‑and‑trade funding must, to the extent feasible, foster job creation and training with an emphasis on disadvantaged and low‑income communities and households.

To achieve socioeconomic benefits, including reduced transportation costs, some of CARB’s programs focus on achieving equitable outcomes instead of maximizing GHG emissions reductions. For example, its Financing Assistance for Lower‑Income Consumers program (Financing Assistance program) provides low‑income consumers with grants and low‑interest loans to purchase ZEVs or hybrid vehicles that the consumers otherwise might not be able to afford. CARB states that it also expects the program to provide economic benefits for its participants, including increased credit scores and the ability to qualify for housing loans, presumably because of their improved credit. Similarly, CARB operates an Agricultural Worker Vanpools program that provides agricultural workers in disadvantaged and low‑income communities with transportation to their worksites in low‑emission vans, in place of those workers using their individual gasoline‑powered vehicles or vanpooling in gasoline‑powered vans.

Because these programs are less cost‑effective in achieving emissions reductions, it is critical for CARB to measure other benefits and make funding decisions accordingly. For example, the Financing Assistance program spends seven times more to reduce GHG emissions by one metric ton than the CVRP program does. Therefore, CARB must clearly define and measure the specific benefits—other than GHG emissions reductions—that it intends programs like Financing Assistance to achieve.

Reporting and Resources

CARB’s board approves an annual funding plan that describes the goals and expected benefits for many of its cap‑and‑trade‑funded incentive programs. The funding plan covers incentive programs, including CVRP, HVIP, and Financing Assistance, and in it CARB annually updates its board on the status of its programs. The updates include summaries of the activities performed to date and overviews of the purposes of the programs. CARB then proposes funding allocations for each program. In fiscal year 2019–20, the Legislature allocated $485 million in cap‑and‑trade funding for CARB’s transportation programs, bringing the total allocation to more than $2 billion in cap‑and‑trade funding since fiscal year 2013–14. The text box lists the total cap‑and‑trade funds CARB allocated to the incentive programs we reviewed for fiscal years 2013–14 through 2019–20. CARB also uses the funding plan to propose new programs, and CARB staff stated that the funding plans contain the justification or design for most of the incentive programs we reviewed. The funding plan also projects the future GHG emissions reductions each program will achieve if given the requested level of funding. CARB bases its projections of GHG emissions reductions on the number and types of vehicles it expects the programs to support.

CARB also reports annually to the Legislature regarding the estimated benefits its cap‑and‑trade‑funded programs have achieved. ²  State law requires the Department of Finance (Finance) to submit an annual report to the Legislature on the status and outcomes of cap‑and‑trade funded programs. The law also requires CARB to develop funding guidelines for the agencies administering programs, and those guidelines state that CARB compiles data from the administering agencies and coordinates with Finance to prepare the report. Therefore, although Finance submits the report to the Legislature, because of CARB’s lead role in preparing it, we refer to it as “CARB’s annual report” at times in this report. The annual report covers programs administered by CARB as well as programs administered by other state agencies. State law requires CARB to develop funding guidelines for all agencies that receive cap‑and‑trade funding. The annual report contains data on the estimated GHG reductions the majority of CARB’s (and other agencies’) programs achieved as well as the programs’ cost. It is also the primary mechanism for CARB to inform the Legislature of the benefits of its programs for disadvantaged and low‑income communities.

Limited and potentially unpredictable funding underscores the State’s tight time frame for meeting the 2030 goal. CARB operates a range of programs aimed at reducing transportation GHG emissions, and many of these programs receive their funding from the State’s cap‑and‑trade fund. As we note above, in fiscal year 2019–20, the Legislature appropriated $485 million from the cap‑and‑trade fund to CARB’s transportation programs. However, in part because of the ongoing COVID‑19 pandemic, the quarterly cap‑and‑trade auction in May 2020 generated quarterly proceeds of only $25 million, compared to the average of more than $700 million that it had received for each of the previous 11 quarters. The May 2020 decrease caused a reduction in funding to CARB’s programs for the year of $81 million, from $557 million to $476 million. Although the auction revenue has rebounded somewhat since, with the last two auctions raising $474 million and $587 million, it remains below the historical average—compounding the State’s short time frame as another challenge to meeting its GHG goals. This uncertainty also highlights the importance of CARB’s ability to assess and maximize the effectiveness of its transportation programs as well as to help the Legislature guide the State’s resources to programs that will best help California achieve its GHG reduction goals.

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