California’s progress in reducing greenhouse gas emissions has temporarily reversed, with pollution upticks signaling an increasingly difficult path ahead in achieving the state’s 2030 and 2050 climate targets, according to the 12^th annual California Green Innovation Index—released by the nonpartisan nonprofit Next 10 and prepared by Beacon Economics.

This year’s Index finds that 2018 greenhouse gas emissions—the latest year for which data are available—rose overall for the first time since 2012, driven in part by increases in the power and commercial sectors. Data from the report illustrate that California now must reduce emissions by an average of 4.9% each year from 2020 to 2030 to cut emissions to 40% below 1990 levels by 2030, as mandated by SB 32.

The largest one-year emissions drop California has ever achieved was at the height of the Great Recession in 2009, when climate pollution fell 6.1%. While 2020 may see a similar emissions drop, the state has never cut emissions more than 2.6% in a year while not experiencing an economic downturn since California passed AB 32 in 2006. Now the state must double that each year.

This year’s Index highlights just how much things need to change. Programs instituted in the past decade may not achieve the gains we need in the coming decade. The fact is, we’ve never come anywhere near cutting emissions five percent in a single year in a period of economic stability—and yet, in order to meet our climate goal by 2030, we have to. But, if any state can achieve this level of reductions while supporting a healthy economy, it’s California.

—F. Noel Perry, businessman and founder of Next 10

The report emphasizes how a steady rise in commercial emissions, a surprise uptick in power sector emissions, and—for the first time in three years—a dip in transportation pollution, illustrate some of the challenges and opportunities facing policymakers. It also comes as the California Air Resources Board welcomes a new chair and several new board members who are now tasked with steadily cutting emissions in a manner that has never been achieved.

Key findings of this year’s California Green Innovation Index include:

• Total emissions rose 0.83 million metric tons of carbon dioxide-equivalent (MMTCO₂e) to 425.3 MMTCO₂e (+0.2%) in 2018 compared to 2017. This level is still below the state’s first climate milestone (2020’s AB 32 goal, met four years early in 2016) of reducing to 431 MMTCO₂e below 1990 levels.

• While the transportation sector saw a reduction in emissions from 2017 to 2018 (-0.9%), emissions rose in all other economic sectors in 2018: Agriculture & Forestry (+0.8%), Commercial (+2.1%), Electricity Power (+1.5%), Industrial (+0.7%), and Residential (+0.3%).

• Despite the slight increase in emissions of 0.2%, the state has managed to continue to reduce its carbon intensity—emissions relative to GDP—by 3.2% from 2017 to 2018 due to a strong growth in real GDP.

• At the current trajectory, the state will take significantly more time to reach the 2030 and 2050 emissions goals than it did to reach the 2020 goal. Assuming the same three-year average rate of reduction from 2015 to 2018 (-1.18%), California needs to quadruple the rate of reduction to achieve the 2030 goal and ramp up that rate of reduction even more to achieve the 2050 goal.

• California’s energy-related emissions were 9.1 MTCO₂e per person in 2017—the third-lowest among the 50 states, behind New York and Maryland.

The transportation sector remains by far the largest emitting sector in California, but its share of emissions dropped from an all-time high of 41.3% in 2017 to 40.9% in 2018, driven by a large drop in heavy-duty vehicle emissions.

All three subsectors of on-road heavy-duty vehicles had reductions in emissions: Heavy-duty Trucks (-4.0%), Buses (-4.6%), and Motorhomes (-3.6%). This sector represents an increased area of opportunity due to the Advanced Clean Trucks standard that was adopted by the Air Resources Board in July 2020, which will increase the sale of zero-emission trucks in coming years. On the horizon is the Advanced Clean Fleet standard that is set to be voted on by CARB in late 2021, which will set standards for fleet electrification to align with the manufacturing targets.

Although gains have been made in heavy-duty, emissions from off-road vehicles and light-duty vehicles remain a significant challenge.

Transportation Key Findings:

• Within the transportation sector, emissions dropped 1.3% from the on-road vehicles subsector, but increased 3.6% from off-road vehicles, which includes airport ground equipment, construction and mining equipment, industrial equipment and oil drilling equipment.

• While the amount of transportation fuel consumed in 2018 was similar to levels from ten and fifteen years prior, emissions from transportation fuel in 2018 were 3.3% lower and 8.3% lower than 2008 and 2003, respectively. This is the result of policies promoting cleaner vehicle fuels and advanced clean vehicle standards.

• Notably, emissions of buses decreased from 2017 to 2018 despite a slight uptick in the vehicle revenue miles of buses (+0.5%). This is plausibly due to bus fleets becoming cleaner or electrified. Likewise, there exists vast opportunities to electrify heavy-duty trucks.

• California is on-track to meet its 2025 ZEV target, but at the current pace of adoption, will not meet the goal of five million zero-emission vehicle on-road by 2030.

• Light-duty vehicles emissions went down slightly from 2017 to 2018 (-0.5%), but the overall trend for the last five years is still up (+6.6%).

The report finds that the state would greatly benefit from long-term funding for programs that produce local emissions reductions while spurring jobs and economic growth, rather than relying solely on cap-and-trade revenue for these projects, given budget shortfalls of 2020.

Private sector investment can also drive green stimulus. Despite decreased investment in transportation and wind power, California still captured 51% of the US’ total $6 billion in clean tech venture capital investment in 2019, as large gains were made at companies that focus on geothermal, smart grid, and hydroelectric technologies.

• Compared to 2018, the dollar amount investment in California clean tech firms decreased significantly in 2019 (-39%), totaling $3.1 billion—with $1.25 billion of that total investment attributed to a single deal from Faraday Future, an EV company.

• The average investment amount has gone down. In 2019, the average deal in California was $18.5 million (down from $27 million in 2018) compared to $11 million in the US overall (down from $15 million in 2018).

• Despite the economic impacts induced by the COVID-19 pandemic, total clean tech investment through mid-August 2020 ($2.8 billion) was close to the total amount of clean tech VC investment through all of 2019 ($3.1 billion).

The largest increase in dollars between 2018 and 2019 invested was in Geothermal, which saw an increase from nothing in 2018 to more than $11 million in 2019. This was followed by Smart Grid, which saw a 360% increase, and Hydropower, which saw an 81% increase.

Though two transportation companies—Faraday Future and Joey Aviation—each represent the largest clean tech deals of 2019 and 2020 respectively, there has been an overall decline in investment in companies that specialize in transportation.

The three largest clean tech deals in 2019 were all transportation-related: Faraday Future ($1.25 billion), RomeoPower ($92 million), and Proterra ($75 million).

The report calls special attention to the potential for California’s Salton Sea to be a new source for lithium development, noting that it could provide up to a third of the world’s current lithium demand, according to some estimates, and up to $860 million annually in revenues. The report also highlights notable investments in lithium recovery in California this year.

In summary, the 12^th annual California Green Innovation Index finds that since the passage of California’s landmark climate bill, AB 32, the state has achieved a great deal of emissions reductions primarily through the power sector, but significant hurdles must be overcome to reduce emissions in harder-to-reach sectors such as transportation and buildings.