The Legislature and Governor Newsom recently delivered a game-changing $39 billion climate budget and an important set of new policies to propel California towards its climate goals.

In this blog post – the first of a three-part series – we review the central piece to the state’s recent actions: the $39 billion climate budget. We highlight key gaps and opportunities, including notably the need to drastically ramp-up adaptation funding (wildfire, drought, sea-level rise) in the coming years. We then hone-in on the $8 billion clean energy package, describing the main investments and new programs. Finally, we summarize opportunities for matching funds via new federal Department of Energy programs delivered under the Infrastructure Investment and Jobs Act as well as related tax incentives under the Inflation Reduction Act.

In the second blog post (next week), we analyze the clean energy permit streamlining provisions contained in AB 205, which may provide a model for other states. In the third blog post (following week), we review the carbon capture and storage provisions contained in SB 905.

Overall, we hope this blog series will be a useful resource for policymakers and advocates alike, as we work together to achieve a climate resilient, net-negative California as soon as possible.

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California closed out the 2022 legislative session with the finalization of a historic state climate budget of $39 billion over four years and $54 billion over five years (i.e., an additional $15 billion was delivered in the 2021 legislative session).

The funding will support an array of key climate objectives, including wildfire prevention, drought resilience, extreme heat, nature-based solutions, clean energy deployment, zero-emissions vehicles, sustainable communities, short-lived climate pollutants, and more (Table 1).

The budget supported both emissions reduction or ‘mitigation’ measures, such as transitioning to carbon-free energy sources, as well as climate resilience or ‘adaptation’ measures, such as drought resilience. Overall, 61% of the budget was directed towards mitigation measures, while 39% was directed towards adaptation (Table 2). Zero-emission vehicle and transportation decarbonization initiatives comprised the vast bulk of the mitigation amount.

While the adaptation investments are meaningful, it should be noted that the scale of what it will take to deliver a climate-resilient California is extraordinary. Wildfire prevention is a good case in point, where tens of billions of dollars are needed to achieve the state’s ambitious forest treatment goals over the coming decades – an amount far greater than that provided in even this unprecedented budget. In fact, there was a reduction in funding for natural resources in the 2022 budget (2.7% of total budget) relative to 2021 (4.0%) (Table 3). This is despite the growing threat of climate impacts. Overall, more significant funding in adaption is needed, where it is estimated that every $1 spent equates to $6 in avoided loss (i.e., life, property damage, etc.).

It is also clear that more investments in mitigation are needed. The 2022 Draft Scoping Plan showed the enormity of a statewide net-zero by 2045 ambition: delivering 2-3x more solar each year than the state has ever delivered in its history; heroic build rates of batteries; unmatched advancements in efficiency; and feasibly upwards of 100 million tonnes per year of carbon capture and storage (CCS) including both direct air and point-source capture. As we will see below, the budget made a key down payment on some, but not all, of these technologies.

Overall, more substantive investments in core infrastructure (transmission, CO2 pipes and storage) is a critical pre-2030 need, as are added incentives for long-duration storage, clean liquid and gaseous fuels (e.g., hydrogen produced via biomass gasification; electrolysis), geothermal electrical generation, industrial decarbonization, and carbon dioxide removal. 

Clean energy provisions

The budget included about $8 billion in investments to firm up California’s energy supply in the face of climate stressors, provide relief to ratepayers, and support the transition to carbon-free energy (Table 4). A detailed excel summary of the energy package can be found here.

We highlight five key elements of the clean energy package below:

• Strategic Reliability Programs: Appropriates $2.3 billion to the Department of Water Resources to secure power (including possible new fossil generation) during extreme events. Establishes the Demand Side Grid Support Program ($295 million) at the California Energy Commission (CEC) for demand-response actions during net peak periods. Establishes the Distributed Electricity Backup Assets Program ($700 million) at CEC for more efficient distributed energy assets.

• Equitable Building Decarbonization and Residential Solutions: Appropriates over $1 billion for building decarbonization (energy efficiency, load flexible solutions, heat pumps) with key support for low- and moderate-income households. Appropriates $900 million for residential customers to install both rooftop solar and at-home/‘behind-the-meter’ energy storage systems.

• Transmission Financing: Appropriates $250 million and expands the remit of the Climate Catalyst Fund at the California Infrastructure and Economic Development Bank (IBank) to support transmission projects, including construction and pre-construction costs (e.g., feasibility and engineering studies, environmental permitting, etc.). Initial projects will support the development of new transmission to deliver zero-carbon, firm electricity from the Salton Sea region.

• Energy Affordability: Appropriates $1.2 billion to establish the California Arrearage Payment Program at the Department of Community Services and Development to provide assistance to utility customers with past due electricity bills incurred during COVID-19. Repeals the fixed charge of public utilities in favor of an income-based formula that is required to reduce the monthly bill of low-income ratepayers. 

• Incentives for Long Duration Storage: Appropriates $380 million to establish the Long-Duration Energy Storage RD&D Program at CEC to accelerate new storage technologies such as compressed air or liquid, flow batteries, thermal storage, or hydrogen demonstrations. Note that lithium-ion and pumped storage technologies are ineligible for funds under this program.

Federal funding opportunities

These clean energy investments present matching fund opportunities with over $60 billion in federal programs housed at the Department of Energy and established via President Biden’s Infrastructure Investment and Jobs Act. Notable opportunities include: grid infrastructure and resiliency; critical minerals and battery supply chains; zero-emission vehicles and associated infrastructure; carbon capture and storage/carbon removal technologies; and clean hydrogen.

Additionally, the more recent Inflation Reduction Act provides hundreds of billions in the form of tax credit incentives for many of the same clean energy projects.

A bullet-point summary of federal funding opportunities that overlap with California’s clean energy priorities can be found here. A detailed excel summary of clean energy funding contained in the Infrastructure Investment and Jobs Act can be found here.

Conclusion

The 2022 Budget made a sizeable down payment in support of California’s ambitious climate goals. These include improving the state’s ability to manage climate driven impacts, both now and in the future, as well as achieving aggressive emissions reductions by 2030 and net-zero emissions by 2045 at the latest. Available federal funds provide additional opportunities to supplement state investments.

However, we note that the size of California’s climate challenges cannot be understated; and that while the 2022 state budget is groundbreaking, it is just a start. More funding will be needed, especially for adaptation investments in wildfire prevention, sea-level rise and drought resilience. For mitigation, a strategic focus on opportunities that simultaneously create new, good-paying jobs and drive emissions reductions is key. These investments can sustain the coalitions needed to make the ambitious push all of the way to net-zero and below. Supportive policies can reduce bottlenecks and other barriers to project deployment.

For more information, please contact Sam Uden sam@csgcalifornia.com or Amanda DeMarco amanda@csgcalifornia.com.