Wildfires eat up $1.9B of Calif. cap-and-trade revenue

By Anne C. Mulkern | 05/13/2022 06:35 AM EDT

A firefighter from Huntington Beach looks up a mountainside after cutting a large tree on Aug. 9, 2021, near Westwood, Calif.

A firefighter from Huntington Beach, Calif., looks up a mountainside after cutting a large tree on Aug. 9, 2021, near Westwood, Calif. Maranie R. Staab/Getty Images

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

California’s battle against catastrophic wildfires is pulling money from one of its key programs to fight climate change, with the total expected to soon hit $1.9 billion.

The Golden State has spent nearly $1.46 billion in cap-and-trade revenues to fill holes in fire agency budgets. Dollars funded controlled burns to thin forests, the removal of dead vegetation, education efforts, improved evacuation routes, fire crew costs and more. Another $482 million is proposed for the coming years.

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Experts largely agree that the prevention work is needed. But there’s disagreement over whether the funding should come from cap-and-trade revenues.

The revenues “should be prioritized for emissions reductions that are direct and that are guaranteed, such as replacing an internal combustion engine with a zero-emissions vehicle,” Brandon Dawson, director at Sierra Club California, said in an interview.

Putting the money toward fire prevention is less of a sure thing, as “it’s impossible to tell … where the next wildfire is going to occur,” he said. “The state is essentially making a guess about where to remove the trees.”

But Daniel Berlant, deputy director at the California Department of Forestry and Fire Protection, or Cal Fire, said cap-and-trade revenues offer a dependable pot of money.

The state is able to allocate enough funds toward fire programs “when times are good,” he said, but that funding is not guaranteed.

“Fire prevention has to occur year after year,” Berlant said. “And so those cap-and-trade dollars provide for a stable funding source for these projects.”

California’s cap-and-trade program, which started in 2013, requires large businesses to account for their greenhouse gas emissions. The program auctions “allowances” that large businesses buy to offset each metric ton of carbon they produce. Those auctions have generated $19.2 billion for the state, according to a recent report released on the program. Of that money, $10.5 billion has been spent on projects that have been implemented.

In the initial years of cap and trade, the revenues largely funded major climate-related projects, such as the state’s planned bullet train between Los Angeles and San Francisco, the expansion of light rail, and the advancement of zero-emissions vehicles.

Indeed, the Greenhouse Gas Reduction Fund — which is the state’s pot of proceeds from cap and trade — “is supposed to go to programs that reduce greenhouse gas emissions,” said Ethan Elkind, climate research fellow at the University of California, Berkeley’s School of Law.

Using it to prevent wildfires is “not really what was hoped for,” he said. Instead, the aim was to “use the money to provide funding for clean technology or long-term investments that are going to continue to net ongoing greenhouse gas reduction.”

In the last five years, more than $1.46 billion in cap-and-trade revenues have funded fire prevention and other general Cal Fire work. An additional $482 million in spending from the fund is proposed for fiscal 2022-23 and 2023-24. In several past years, amounts spent from the fund exceeded what was projected.

Gov. Gavin Newsom (D) is expected to release his updated budget proposal for fiscal 2022-23 today. He’s working with a budget surplus of potentially $68 billion.

“Climate change is increasing the severity and frequency of wildfires — which release carbon dioxide emissions and other greenhouse gasses that contribute to climate change,” a spokesperson for Newsom said in an email in response to questions about the funding. “In California, building comprehensive wildfire and forest resilience is a critical part of our climate agenda, including achieving carbon neutrality.”

Political deal, legislation led to revenue usage

Using cap-and-trade revenues for fire prevention comes out of a 2017 political deal to extend the cap-and-trade program.

Then-Gov. Jerry Brown (D) wanted the Legislature to extend the program from 2021 to 2030 — a feat that required a two-thirds vote.

Eight Republicans joined the Democratic majority to vote for it. But as part of the agreement for their votes, the Legislature suspended a fee for homes in high-risk areas where the state is responsible for fighting fires. That fee, which is now suspended until 2031, had helped pay for some firefighting expenses.

Lawmakers also agreed in the deal to use cap-and-trade revenues to help fund firefighting costs. Those dollars go toward general Cal Fire expenses, Cal Fire’s Berlant said.

Legislation in 2018 allocated more funds to fire prevention, including at least $200 million per year for five years from cap-and-trade revenues. That move was supported by Assemblyman Jim Wood (D), whose coastal district in Northern California has been hit by wildfires.

“The use of cap-and-trade revenues for fire prevention makes total sense because when wildfires happen, it sets California back tremendously from reaching our climate goals,” Wood said in a statement last week. “Cap-and-trade revenues vary from year to year, so I have also been a strong supporter of additional ongoing state funding to support fire prevention efforts including vegetation management, home hardening and prescribed burns.”

Legislation championed by Wood that took effect this year, A.B. 9, created a division within Cal Fire to assist local communities in creating fire prevention plans. Cal Fire, using the cap-and-trade revenues, has funded grants to local authorities for programs such as clearing fire breaks or evacuation routes, Berlant said.

“The pace and scale of these fire prevention projects has significantly increased with the additional funding,” he said.

Preventing fires also affects greenhouse gas emissions, Berlant said, because “if we can avoid wildfires, we can offset the emissions from those fires.”

The previous deal on using cap-and-trade revenues for fire prevention ends in 2024. A spokesperson for Newsom said that “future funding in this space will be developed in partnership with the Legislature.”

Firefighting costs soared over past decade

Cap-and-trade revenues spent on fire prevention are a fraction of the total dollars the state spends on the effort, especially in recent years. The proposed total prevention budget for fiscal 2022-23 is $2.3 billion; of that, cap and trade will contribute a couple of hundred million dollars. Cal Fire’s total draft budget is $3.7 billion.

That compares with $563 million spent on prevention in fiscal 2010-11, out of a total budget of $1 billion for Cal Fire that year. The budget’s increase over the past decade illustrates how much worse wildfires have become in recent years, Berlant said.

“Across California, we have seen just a significant increase in record-setting fires, both in the size and in the damage,” he said. “So our spending and our response to wildfires today really correlates with the fact that the fires in the past five years have been like nothing we’ve seen in recent modern history.”

The state also has an emergency fund that it uses for fire costs when it runs out of money in its fire budget. Utilities are also spending billions of dollars to decrease the risk that their equipment will ignite fires. Those costs are paid for by utility ratepayers, which has been driving up electricity bills dramatically (Climatewire, April 5).

Ratepayers have contributed about $8.5 billion to utility wildfire prevention work this year, said Michael Wara, director of Stanford University’s climate and energy program and an expert in the state’s battle against wildfires.

“Roughly speaking, we’re gonna spend probably $4 billion on firefighting” this year, Wara said, plus $600 million on wildfire prevention. When the $8.5 billion from ratepayers is added, he said, California citizens will be paying $13 billion on fire-related spending this year.

Where does the money go?

Cap-and-trade revenues have gone to a variety of fire projects.

  • In 2020, $30 million went to Cal Fire efforts statewide, including prescribed burning treatments to remove flammable growth. Money was also appropriated for planning and fire prevention education.
  • In 2019, $23 million funded five California National Guard crews and Cal Fire support staff, who cut back flammable vegetation. The money also funded training crews “to Cal Fire standards by Cal Fire personnel,” according to the state’s description of the activities.
  • Last year, $17 million went to Cal Fire for prescribed fires, educational events, the update of fire hazard risk maps and home inspections to ensure residents had cleared a “defensible space” (with officials issuing citations where needed), among other work.
  • In 2018, $10.7 million went to work around the Lake Tahoe-Central Sierra area, involving a collaboration of national forest personnel, state agencies, local fire-safe councils and others to reduce risks for catastrophic wildfires on a 2.4-million-acre landscape.
  • In 2019, $9 million funded the removal of dead and dying trees and flammable brush near state Highway 17 in Santa Clara County. It included work around private residences adjacent to the roadway and vegetation around public infrastructure.
  • In 2018, $9 million went to an outreach effort to more than 10,000 non-industrial, private landowners to get them to help with forest restoration for carbon benefits. It included more than 720 projects across more than 42,000 acres.
  • In 2019, $4.2 million went to the construction of a fuel break and the expansion of existing fire trails to protect the Contra Costa County area’s 62,000 residents.