Data analysis of California’s Greenhouse Gas Reduction Fund
California’s Greenhouse Gas Reduction Fund (GGRF) generates roughly $4 billion per year in cap-and-trade auction proceeds for appropriation by the Legislature to support the state’s climate goals. As legislators contemplate cap-and-trade reauthorization, including the potential to revise current GGRF allocations, we analyze the latest available GGRF data (May 2024). We answer the following questions:
How big is the GGRF? Where does the money go today?
How cost-effective are individual GGRF programs?
How cost-effective is the overall GGRF portfolio?
How does GGRF cost-effectiveness compare against best available technology cost estimates?
We gathered this information in a core excel spreadsheet, which is available here. We provide guidance on when and how to read the spreadsheet throughout this article. For feedback or questions, please email: amanda@netzerocalifornia.org.
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How big is the GGRF? Where does the money go?
Figure 1 summarizes the total funding – $27.5 billion – that has been appropriated from GGRF to 90 programs administered by 24 state agencies since the passage of SB 862 in 2014.
Source: CCI 2024 Annual Report and HSR 2024 Business Plan.
The blue represents programs that receive annual (or ‘continuous’) appropriations. Established in 2014, continuous appropriations represent 60% of total appropriations – or $16.4 billion. The main programs that receive continuous appropriations include High-Speed Rail, Affordable Housing and Sustainable Communities, and Transit. Of the total appropriation, $8.8 billion has been implemented to date.
The green represents programs that receive discretionary appropriations, which may change in any given year. Discretionary appropriations represent the remaining 40% of total appropriations – or $11.2 billion. The main programs that receive discretionary appropriations include Low Carbon Transportation, Forest Health and Community Air Quality. Of the total appropriation, $5.9 billion has been implemented to date.
For more information, see the ‘Appropriations – 2024 Summary’ tab of the core excel spreadsheet.
How cost-effective are individual GGRF programs?
With data on emissions we can estimate GGRF cost-effectiveness ($/ton of carbon reduced). CARB tracks GGRF emissions data as part of its California Climate Investments (CCI) program. The exception is High-Speed Rail, the emissions data for which is estimated by the High-Speed Rail Authority.
Overall, GGRF has reduced 109 million tons of carbon since inception – or about 11 million tons per year. The cost-effectiveness of GGRF programs ranges from roughly $8 to $2,000/ton, with multiple observations above this range. The three most cost-effective programs that have also generated at least 1 million tons of carbon dioxide reductions to date include: Sustainable Agricultural Lands Conservation Program (Strategic Growth Council), Dairy Digester Research and Development Program (California Department of Food and Agriculture), and Forest Health Program (California Department of Forestry and Fire Protection). These three programs are responsible for only 6% of implemented funding to date and yet have delivered 53% of the total emissions reductions of the GGRF portfolio (Table 1).
A note on GGRF contribution vs. total project costs
Table 1 calculates cost-effectiveness (column 6) by dividing total GGRF implemented costs (column 2) by total project GHG reductions (column 4). However, it is important to note that GGRF grants typically cover only a portion of total project costs. For example, the SALC program has implemented $122 million in GGRF funds, but total project costs are $212 million (i.e., GGRF has provided 58% of total funding).
It is therefore possible to calculate an alternate measure of cost-effectiveness based not upon the GGRF contribution but total project costs (Table 2) [1]. We summarize a broader cross-section of programs, but highlight the previous three programs for reference (orange). As expected, a total project cost benchmark shows a reduction in cost-effectiveness. For example, the previous three programs (SALC, Dairies, Forest Health) see a $/ton increase from $8, $9 and $27/ton to $14, $29 and $41/ton, respectively.
*High-Speed Rail Project emission reductions are estimated to 2045. For more information, see ‘High-Speed Rail’ in the excel spreadsheet.
We highlight both of these options for perspective, noting that both could be valid. It seems reasonable to adopt the current CCI approach (i.e., $/ton based upon the GGRF contribution only), particularly in cases where GGRF makes a meaningful contribution to total cost (e.g., greater than, say, 10% or 20%), with the implication being that the project would likely not have proceeded without the GGRF investment. GGRF typically contributes greater than these portions for most, but not all, programs.
For more information, see tabs ‘Table 1’, ‘Table 2’ and ‘CCI Data 2024’ in the core excel spreadsheet. For access to the list of total project costs, click on the “Download the Detailed Dataset” (75 MB): https://www.caclimateinvestments.ca.gov/annual-report.
How cost-effective is the GGRF portfolio as a whole?
There is more than one approach that could be adopted to evaluate the cost-effectiveness of the GGRF portfolio. We view a weighted average (or expected value) approach as the most appropriate. This approach is detailed further below (Tables 4 and 5). For the sake of completeness, we describe alternative options also.
One approach, which could be thought of as a top-down approach, involves dividing total dollars spent to date ($14.7B) by total emissions reductions (109 MMTCO2e). This results in an estimated cost-effectiveness of $135/ton (Table 3). This is the approach currently adopted as part of the CCI program.
A drawback with the top-down approach, though, is that it is unable to reflect important program-level information. For example, as shown in Table 1, 3 of the 90 programs alone are responsible for the vast majority of emissions reductions (53%) despite implementing only a small portion (6%) of total funding. It is arguable that $135/ton is not a true reflection of the cost-effectiveness of the GGRF portfolio. (Note that a similar observation was made by the Legislative Analyst Office in a 2016 report, available here).
A bottom-up approach can provide a better estimate of cost-effectiveness by incorporating program-level information. A bottom-up approach involves taking an average of the cost-effectiveness across the 90 programs. Without modifying the data in any way, this results in an estimated cost-effectiveness of $2,566/ton. An obvious drawback with this method, though, is that all programs, no matter how minor, are equally weighted. In other words this approach does not account for outliers – including a number of $0/ton estimates (i.e. where no emissions reductions have yet been achieved), which drags down the average, as well as an extreme $164,000/ton estimate, which greatly inflates the average.
We can address this issue in two ways. The first ‘quick and dirty’ method is to manually remove the outliers. The result, now across 52 programs, is an estimated cost-effectiveness of $1,288/ton. (Note that the sizable reduction in programs is because there are 37 programs that are $0/ton).
The second more formal approach is to calculate a weighted average across all of the programs. This involves weighting the $/ton estimates for each program by the amount of funding implemented by the program. For the purpose of the overall $/ton estimate, this puts greater emphasis on programs that are key to GGRF and responsible for a larger share of funding, and a lower emphasis on those that are not.
We can show this with a basic example. Two programs funded by GGRF include CARB’s Sustainable Transportation Equity Project (STEP) and CALSTA’s Transit program. CARB’s STEP program has a cost-effectiveness of $9,043/ton. CALSTA’s Transit program has a cost-effectiveness of $72/ton. An average of these two results is an estimated cost-effectiveness of ($9,043 + $72) / 2 = $4,558. But is this an accurate reflection of the cost-effectiveness of these two programs, given CARB’s higher-cost program has implemented only $45M worth of projects (0.3% of total GGRF funds), while CALSTA’s lower-cost program has implemented $1,694M worth of projects (11% of total funds)? Put another way, we should expect a result that is far closer to the CALSTA program $/ton estimate. A weighted average results in an estimated cost-effectiveness of [($1,694 * $72) + ($45 * $9,043)] / ($1,694 + $45) = $304. (Note another approach to calculate would be [($1,694 / $1,739) * $72] + [($45 / $1,739) * $9,043] = $304.)
We calculate the weighted average cost-effectiveness of the entire GGRF portfolio (90 programs). The result is a cost-effectiveness of $1,114/ton. However, it is clear that the $164,000/ton observation, even though this program receives only 0.1% of GGRF funding, continues to affect this result. By removing this observation alone, for the 89 programs the weighted average cost-effectiveness is $1,003/ton.
We summarize the results of the different methods in Table 4. We view the weighted average result, overall, as providing the most accurate representation of GGRF cost-effectiveness to date (Table 5).
For more information, see tables ‘Table 3’, ‘Table 4’ and ‘Table 5’ in the excel spreadsheet. Also see the ‘High-Speed Rail’ tab for background information on the calculation for HSR cost-effectiveness.
Comparing GGRF against best available cost estimates
We can compare GGRF $/ton data against the best available third party estimates of how much it should cost to reduce emissions (Figure 2).
The above diagram, showing a ‘cost curve’ of climate investments, highlights that the majority of emissions reductions should be achieved for less than $180/ton, well below the $1,003/ton GGRF estimate. The current Cap-and-Trade clearing price of $30/ton can also help address lower cost opportunities.
Although this approach is not a perfect measure – for example, there are many real-world complexities that can increase the cost of emissions reductions compared to model estimates; the cost curve provides a simple, aggregated view of the main mitigation options only – the gap is so large to suggest that at least a review of the GGRF program and its allocations for achieving carbon neutrality would be useful.
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For more information, please contact Amanda DeMarco (amanda@netzerocalifornia.org).