State Auditor says California may not meet 2030 GHG reduction goal; says aspects of CARB efforts lacking

25 February 2021

A report from the State Auditor of California finds that California may not successfully meet its upcoming greenhouse gas (GHG) reduction goal of 40% by 2030, which will require the State to reduce GHG emissions by nearly 40% over the next decade.

Source: State Auditor Report Number: 2020-114

Although other state sources of GHG emissions have been declining, emissions from transportation have increased since 2013, and GHG emissions from transportation accounted for 40% of all statewide emissions in 2018.

To help the California Air Resources Board (ARB)—the state’s key organization in this area—to fight climate change by reducing GHG emissions, the Legislature has allocated more than $2 billion from the State’s Greenhouse Gas Reduction Fund (cap‑and‑trade fund) to CARB’s transportation programs since fiscal year 2013–14. The Joint Legislative Audit Committee directed the office of the State Auditor to conduct an audit of the California Air Resources Board (CARB). The assessment focused on transportation programs intended to reduce greenhouse gas (GHG) emissions. In general, as detailed in the report, the Auditor determined that CARB must do more to help the State work strategically toward its climate change goals. In a public letter accompanying the report, State Auditor Elaine Howle summarized: CARB has not done enough to measure the GHG emissions reductions its individual transportation programs achieve. Specifically, CARB has not collected or evaluated sufficient data to allow it to determine whether or how its incentive programs, which pay consumers in exchange for purchasing low- and zero-emission vehicles, reduce GHG emissions beyond what CARB’s regulations already require. For example, CARB has done little to measure the extent to which its incentive programs lead to emissions reductions by causing individuals and businesses to acquire clean vehicles that they otherwise would not. As a result, CARB has overstated the GHG emissions reductions its incentive programs have achieved, although it is unclear by how much. Given the ambitious nature of the State’s climate change goals and the short time frame to meet them, California is in need of more reliable tools with which to make funding decisions. Additionally, CARB has not consistently collected or analyzed data to determine whether some of its programs provide the socioeconomic benefits that CARB has identified for those programs, such as maximizing participants’ economic opportunities. Because these programs may cost significantly more than other incentive programs from the perspective of reducing GHG emissions, CARB must do more to measure and demonstrate specific benefits to disadvantaged communities and low-income communities and households that the programs intend to serve. Finally, despite requirements in state law and its own guidelines, CARB has been slow to measure the jobs its programs create and support—or the benefits of the specialized job training that certain programs are supposed to provide. As with the need to assess accurately programs’ GHG reductions, knowing whether its programs are achieving the expected important but more expensive socioeconomic benefits is crucial to providing the State with the information it needs to allocate its limited resources effectively in pursuit of its various goals. Cap-and-trade revenue unpredictable. California’s cap‑and‑trade program raises revenue by setting statewide limits on GHG emissions from major sources. Entities responsible for those sources can either reduce their emissions or pay the State for allowances. The payments take place during quarterly auctions of GHG allowances, which have generated billions of dollars in annual revenue that the State then deposits in the cap‑and‑trade fund. The Auditor’s report notes that although substantial, cap‑and‑trade revenue is finite and can be unpredictable. Partly as a result of the ongoing COVID‑19 pandemic, the cap‑and‑trade auction in May 2020 generated quarterly proceeds of only$25 million, compared to an average of more than $700 million for each of the previous 11 quarters. This drop in revenue caused a funding reduction of$81 million to CARB’s programs for the year. Although the auction has rebounded somewhat since then, proceeds remain below the historical average. This uncertainty, together with the short time frame remaining before the 2030 date for achieving the State’s GHG goals, increases the challenge of meeting those GHG goals, the report observed.

Regulatory vs. incentive. Many of CARB’s programs for reducing GHG emissions fall into two general program categories: regulatory and incentive. Regulatory programs are established through a formal public rulemaking process. Incentive programs are voluntary programs that often provide monetary payments to consumers who purchase low‑ and zero‑emission vehicles.

CARB implements these programs—sometimes at the direction of the Legislature—and reviews the programs’ funding each year. (E.g., earlier post.)

Regulatory and incentive programs may work toward the same objective—ZEV adoption, for example. The ZEV regulation requires that auto manufacturers sell enough ZEVs each year to make up a required proportion of their overall sales. CARB also 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 be more expensive than gasoline‑powered vehicles.

All of these programs work simultaneously toward achieving CARB’s objective of putting five million ZEVs on California roads by 2030. Given the ambitious nature of the State’s GHG goals, it may be reasonable for CARB to operate multiple programs that work toward a shared transportation objective. However, to ensure that it is operating the most effective mix of programs to achieve the State’s goals, it is important for CARB to identify the GHG reductions that each individual program achieves.

Our review determined that although CARB generally approaches the projected GHG reductions from its individual programs in a reasonable way, it has not accounted for overlap between some of its programs. For the eight regulatory programs we reviewed, we found that when proposing the new regulation, CARB generally identified the relationship between the regulation and other existing regulatory programs in order to isolate the expected additional GHG reductions.However, the proposed regulations did not assess how the regulatory programs might overlap with its incentive programs that work toward the same objective. Because CARB does not know whether funds for incentives will be available in the future to help manufacturers and consumers offset vehicle costs, CARB designs certain regulatory programs to achieve their GHG reductions without assistance from the incentive programs. Although reasonable, this approach means that the GHG reductions it claims from its incentive programs should be over and above what the regulatory programs achieve, and CARB must be able to measure those additional GHG reductions.

—State Auditor Report Number: 2020-114

Specific issues within the regulatory/incentive overlap include:

• CARB has not done enough to measure the emissions reductions its incentive programs achieve in their own right.

• CARB generally does not formally acknowledge the potential overlap with regulatory programs or discuss how it accounts for that overlap in its incentive programs’ designs.

• CARB does not collect and measure data for passenger and heavy‑duty vehicles in a way that allows it to assess the extent to which clean vehicle manufacturing and sales—and therefore GHG reductions—exceed the reductions that its regulatory programs require. CARB does not know precisely how many additional ZEVs are being sold or how that number compares to the number of vehicles its incentive programs help pay for.

• CARB has generally not determined the effects its incentive programs have on consumers’ behavior. Specifically, it generally does not know how often many of its incentive payments influence consumers to purchase a cleaner (lower-emission) vehicle than they otherwise would have purchased. Having this information is crucial to making accurate calculations of the GHG reductions of those programs because it would indicate whether the incentive caused the vehicle purchase and therefore produced the reductions.

• CARB may be missing opportunities to use other sources of data, such as federal tax credits for clean vehicles, to learn more about how effective its programs are in changing behavior.

CARB’s inability to measure the GHG reductions from its cap‑and‑trade‑funded incentive programs diminishes the usefulness of its annual reports to the Legislature on the GHG reductions from these programs. CARB’s current reporting assumes that the emissions reductions from all of the vehicles funded by an incentive program would not otherwise occur. By not taking into account the effects that regulations and other factors have on emissions, CARB overstates the incentive programs’ GHG reductions, although it is unclear by how much.

One effect of this overstatement is to obscure the programs’ cost‑effectiveness in reducing GHG emissions. … Specifically, if the annual reports contained accurate information, these reports could better help the Legislature make decisions about whether to continue funding a given program at its current level, decrease the funding and use those resources elsewhere, or significantly increase funding. Further, improved and clear metrics will help CARB to know when its incentive programs have successfully achieved their goals of helping low‑ and zero‑emission vehicle technology become sustainable. As part of strengthening its program measurement overall, CARB must also do more to ensure that the data it collects on those programs are accurate and that the calculations CARB makes from the data are free of errors that can further distort the emissions reductions it reports.

—State Auditor Report Number: 2020-114

Disadvantaged communities. State law requires CARB to establish programs that increase access and provide benefits to Californians living in environmentally disadvantaged communities as well as low‑ and moderate‑income communities. Minimum proportions of cap‑and‑trade spending must go to geographically defined disadvantaged and low‑income communities.

Although CARB has exceeded these minimum spending requirements in recent years, it has done relatively little to measure the specific socioeconomic benefits of its programs, the report found.

CARB has also been slow to measure the jobs its programs create or support, and has done little to measure the benefits of the job‑training activities that its own guidelines require, the report found.

Key recommendations. The report makes five key recommendations:

1. To improve its ability to isolate each of its incentive programs’ GHG reductions, by February 2022 CARB should establish a process to formally identify its incentive programs’ overlap with other programs that share the same objectives.

2. To improve its ability to identify the effectiveness of each of its incentive programs in reducing GHG emissions, by August 2021 CARB should develop a process to define, collect, and evaluate data on the behavioral changes that result from each of its incentive programs.

3. To better assist the State in achieving its GHG goals, CARB should use the information detailed in the report to refine its GHG emissions estimates for its incentive programs in its annual reports to the Legislature, the funding plans approved by its board, and any longer‑term planning documents or reports.

4. To better demonstrate that its incentive programs are as effective as possible in achieving specific socioeconomic benefits, by February 2022 CARB should develop a process to define, collect, and evaluate data that will translate to metrics showing the socioeconomic benefits that result from each of the incentive programs.

5. To provide transparency to the Legislature and other stakeholders, beginning in 2022 and using the metrics and data described above, CARB should make funding and design recommendations in its funding plans and annual reports based on which programs are effective in producing socioeconomic benefits and at what cost.

According to the Auditor, CARB agreed with the recommendations and indicated that it is taking steps to implement them.