Calif. cap-and-trade revenues fund corporate upgrades

By Anne C. Mulkern | 04/28/2022 06:48 AM EDT

Large corporations like PepsiCo and Foster Farms have received millions of dollars to install microgrids, test out electric raisin drying and upgrade refrigeration.

Brewmaster Brian Sullivan walks through the Anheuser-Busch brewery in Los Angeles in this 2011 file photo.

Brewmaster Brian Sullivan walks through the Anheuser-Busch brewery in Los Angeles in 2011. The company plans to use $5.8 million from the state to design and install a microgrid system at the brewery. AP Photo/Reed Saxon, File

This is the first story in an occasional series examining the state’s use of cap-and-trade revenue.

California’s carbon cap-and-trade program generates billions of dollars each year for state projects that advance zero-emission vehicles, fund housing near transit and invest in other climate-focused actions.

The revenues also help well-known corporations.


PepsiCo Inc., Anheuser-Busch Cos., Saputo Cheese USA Inc., E&J Gallo Winery, Sun-Maid, Foster Farms, Frito-Lay Inc. and the Campbell Soup Co. are among the companies that have received funds to upgrade their facilities and factories. The dollars flow through the Food Production Investment Program, which offers California food producers revenues from cap-and-trade auctions to upgrade their equipment or add energy-efficient technologies.

The aim is to cut greenhouse gas emissions from food production. And while such corporations are perhaps not the ideal “poster child” for a cap-and-trade revenue recipient, they likely do deliver emission reductions, said Ethan Elkind, a climate research fellow at the University of California, Berkeley’s School of Law.

“If these are really high energy-intensive pieces of equipment with a pretty big carbon footprint and a little bit of money from the state can give an incentive to these companies to swap them out … arguably that’s a good investment,” he said. Other methods — such as requiring companies to cut their emissions — could also work, he said, but come with their own political obstacles and price tags.

California’s cap-and-trade market just hit its ninth year. The program auctions “allowances” that large businesses must buy to offset each metric ton of carbon they produce. Revenues from the auctions have provided $10.5 billion to California climate-related projects since the market started in 2013, according to the most recent annual report to the state Legislature.

California is the largest food-producing state in the United States, generating a fifth of the country’s dairy products, about one-third of its vegetables, and two-thirds of its fruits and nuts, according to the California Department of Food and Agriculture.

Food and beverage production generates less than 5 percent of the industrial sector’s emissions, which in turn comprise about a quarter of California’s total carbon pollution. Despite not being the largest emitter in the sector, it’s still important, according to the California Air Resources Board, which runs the cap-and-trade program.

“Reducing GHG emissions to address climate change requires everyone to take action, including community members, organizations, local and regional governments, private businesses, and many others,” Melanie Turner, CARB spokesperson, said in an email. “Programs funded by cap-and-trade auction proceeds, including programs that partner with the private sector, deliver economic, environmental, and public health benefits for Californians, including meaningful benefits to the most disadvantaged communities and low‑income communities and households.”

Political deal created program

The Food Production Investment Program, one of several portals for distributing cap-and-trade funds, came out of a political handshake. In 2017, then-Gov. Jerry Brown (D) wanted the Legislature to extend the cap-and-trade market from 2020 to 2030 — a feat that required a two-thirds vote. That meant blunting business opposition.

Launching the program helped gain industry support, according to a blog posting from the Agricultural Council of California.

“Ag Council and others successfully advocated for the creation of this grant program during negotiations to extend the cap-and-trade program in 2017,” the trade group wrote in a 2018 blog post. It’s “a first of its kind grant program for food processors to utilize funds” to install technologies to reduce GHGs.

The program provides grants, loans or financial incentives for projects that reduce GHG emissions. It prioritizes facilities that emit more than 25,000 metric tons of carbon dioxide equivalent emissions yearly, equal to about 4,600 passenger vehicles.

Sean Lee, general manager at the Jessie Lord Bakery, a pie-maker in suburban Los Angeles County, said his company wasn’t thinking about its GHG emissions when it looked at buying a new refrigeration system. Then a vendor mentioned the company might be eligible for a cap-and-trade revenue grant.

The company won a $5.5 million grant, helping fund a $15 million system.

“Would we have gone with this natural refrigerant [system] … if we hadn’t gotten these funds?” Lee said in an interview. “There were cheaper options out there that were not a switch to ammonia. It was a switch to a different Freon, which wouldn’t be as good for the environment, wouldn’t be as good from a utility standpoint, energy savings standpoint and efficiency. But it would have been cheaper in terms of upfront capital cost.”

The Food Production Investment Program launched in 2018 with $117.8 million in grant funding. Because companies are reimbursed after submitting receipts, money has been flowing out over the past four years.

There’s a push to extend it. Gov. Gavin Newsom (D) proposed injecting another $85 million into the fund in his draft for the fiscal 2022 budget.

Companies buy microgrids and raisin dryers

Numerous companies have taken advantage of the Food Production Investment Program to upgrade their California facilities:

  • Neil Jones Food Co., whose brands include EarthPure and Blue Dell, received an $8 million grant with payments that started in 2020. The company plans to fund a microgrid system powered by solar panels for its Fresno facility.
  • Anheuser-Busch received nearly $5.8 million payable through 2024 to design and install a microgrid system at its Los Angeles area brewery. It will include roof-mounted solar and battery storage.
  • Saputo Cheese gained more than $5.5 million to install a concentrated solar power plant at its Tulare cheese production facility. The project gets reimbursed through next year.
  • Winemaker E&J Gallo has received more than $5.4 million for a series of projects. Those include money for efficiency improvements to its refrigeration equipment at its Livingston and Modesto wineries, air compressor improvements at the Modesto wineries, and other upgrades.
  • Sun-Maid won $5.3 million payable through next year to fund a fully electric raisin dryer at the company’s Fresno facility. The company plans to integrate the system into its food production as a demonstration of the potential to eliminate natural gas use in the food drying processes.
  • Foster Farms received nearly $6.5 million in two grants, one to install energy efficient equipment upgrades at five California facilities and another to fund electrical infrastructure improvements at one location.
  • California Custom Processing LLC received $3.9 million to design, install and operate a solar boiler at its almond processing facility in Madera. That system will “substantially replace” natural gas use for steam generation, according to the state’s description. It gets paid through 2024.
  • Amy’s Kitchen Inc., maker of canned soups and frozen dinners, received a $4.4 million grant payable through 2024 for work at its Santa Rose, Calif., production facility. The company plans to replace its existing refrigeration system, which it said will cut the emissions of pollutants.
  • Frito-Lay received $3.5 million to install a microgrid with solar and battery storage at its food processing facility in San Bernardino. The grant gets paid through next year.
  • Campbell’s Soup received nearly $900,000 payable through 2024 to retrofit equipment used to make tomato paste.
  • PepsiCo won a grant of more than $366,000 for a condensing heat recovery system to reduce GHG emissions at its beverage production facility in Ventura.