Executive Summary:
Alternative allocation of Cap-and-Trade allowance auction proceeds should be considered to protect disadvantaged communities that disproportionately bear the pollution burden of high greenhouse gas (GHG) emitting facilities. Poor air quality caused by GHG emissions can have deleterious effects on the environment and human health. Since the implementation of Cap-and-Trade under Assembly Bill (AB) 32, statewide GHG levels have been reduced, but not at the local level for disadvantaged neighborhoods. Senate Bill (SB) 535, and AB 1550 attempts to address the disproportionate burden of pollution and its health affects within these neighborhoods by assigning Cap-and-Trade allowance proceeds to projects funded by the Greenhouse Gas Reduction Fund (GGRF) that specifically target these communities. However, the benefits of these projects are either long-term, experienced by only a portion of the population, or are marginal for individuals. A simpler and more transparent approach would be to return the auction proceeds to lower-income households in the form of unconditional cash transfers (UCT), a program that has been shown to be associated with improved health and financial outcomes. Therefore, the Governor’s budget should be amended to allocate a portion of the allowance auction proceeds towards giving money directly to disadvantaged households as UCT.
Disadvantaged communities are disproportionately impacted by worse air pollution and, as a result, poorer health outcomes
A preliminary assessment report of environmental equity under California’s Cap-and-Trade program shows a 21% higher proportion of people living in poverty and a 22% higher proportion of people of color residing within 2.5 miles of high GHG-emitting facilities regulated under Cap-and-Trade. The same report also presents evidence that although statewide GHG emissions have been on a downward trajectory under AB 32, some facilities covered by Cap-and-Trade have actually increased their localized emissions in these disadvantaged neighborhoods. This strongly implies that the co-benefits of pollution reduction under AB 32 are not being achieved in these communities and little attention is being paid towards ensuring these local results are met.
While GHG itself does not generally pose a health risk, epidemiological studies show its co-pollutants, PM10 and carbon dioxide, are associated with numerous adverse health effects, including lung and heart disease. Further, the link between health outcomes and socioeconomic status has been well established, with a large body of evidence pointing to concurrent illnesses, lower quality of care, and less healthy diets as some possible factors that contribute to this relationship. This indicates that in addition to being disproportionately exposed to potentially harmful GHG co-pollutants, lower-income populations are also more susceptible to the resultant health effects. Therefore, Cap-and-Trade auction proceeds must be reevaluated and re-allocated to ensure better protection of the environment and/or health of these disadvantaged communities.
Current GGRF projects do not offer direct environmental and health benefits to disadvantaged communities and do not alleviate their pollution burden fast enough
SB 535 and AB 1550 mandates that 25% of the GGRF is used to fund environmental projects that benefit disadvantaged communities, 5% to projects that benefit low-income households in low-income communities, and an additional 5% to low-income communities that are outside but within 1/2 mile of a disadvantaged community. However, individual-level effects are likely to be marginal and the benefits of these projects are either long-term or only experienced by a portion of the communities. Examples of funded projects include: the hybrid and zero-emission truck and bus voucher incentive project and zero-emission vehicle rebates. These two projects are aimed at lowering local pollution levels, yet only 3,000 zero-emission trucks have been deployed statewide, out of the 5.6 million registered commercial trucks in California, and only 7% of the 20,000 issued vehicle rebates were received by individuals from disadvantaged communities. These statistics demonstrate a serious lack of shorter-term solutions, inclusivity, and autonomy over how the funds from allowance auctions are used to benefit this specific population.
Allowance auction proceeds should be given directly as UCT
To ensure inclusivity, autonomy, and shorter-term individual-level benefits, a portion of the auction proceeds should be given to the lowest-income households in the form of UCT. Case studies of UCT and similar programs such as universal basic income or earned income tax credit have shown improved diets and health, increased employment, and reduced poverty in the recipients. UCT would also be effective if allowance prices increase in the future, leading to increased energy costs at a household-level. In the context of health outcomes, UCT can achieve this, either directly by funding increased use of health services, or indirectly through improvements of material circumstances, psychosocial factors, and employment, which would then lead to improved health outcomes. In either scenario, UCT gives individuals more autonomy to reduce their pollution burden and avoid resulting health effects.
The households that receive UCT should be selected using CalEnviroScreen 3.0 by using an inclusion criteria of households that fall above the 98th percentile for poverty and above the 95th percentile for pollution burden. The selected households should receive a monthly payment of $300, modeled off of other successful UCT and similar programs4. These criteria select a total of 15,199 households within California and require an annual budget of $57.3 million, which will be taken out of the funds already assigned to serve disadvantaged communities under SB 535 and AB 1550.
Opponents may argue that UCT could invite unfavorable spending habits by the recipients and take money away from other GGRF projects that aim to reduce GHG emissions long term. Although there would be no control over how the recipients would spend the money, this is based on the belief that individuals will be able to make impactful decisions that best serve them and their families, rather than abiding by decisions made by outside entities. Moreover, many case studies indicate that most UCT recipients use the money for longer-term investments and do not exhibit reduced work productivity. There could also be concern surrounding allowance auction proceeds being diverted away from GGRF projects and towards the UCT. However, there is currently $2.6 billion total generated from Cap-and-Trade revenues deposited into the GGRF, out of which $910 million are allocated to benefit disadvantaged communities under SB 535 and AB 1550. Only 6% of the $910 million will go towards the UCT program and the remaining funds will continue to support projects focused on longer-term mitigation strategies. While no allocation formula will satisfy everyone, this approach offers a better balance of Cap-and-Trade benefits at an immediate and direct level, while also encouraging continued mitigation planning on a larger and longer-term scale for disadvantaged communities.
Sources:
1) Ambient Air Pollution. The World Health Organization Global Health Observatory Data. 2018.
2) Case Studies. California Hybrid and Zero-Emission Truck and Bus Voucher Project. 2018.
3) Cushing LJ, Wander M, Morello-Frosch R, Pastor M, Zhu A, Sadd J. A preliminary environmental equity assessment of California’s cap-and-trade program. Research brief. 2016.
4) Deguen S, Zmirou-Navier D. The World Health Organization report on environment and health risks: A review of the influence and effects of social inequalities. Chapter 1. Social inequalities in health risk related to ambient air quality. 2010; 15-25.
5) Handa, S. Daidone, S. Peterman, A. Davis, B. Pereira, A. Palermo, Yablonski, J. Confronting Six Common Perceptions about Unconditional Cash Transfers as a Poverty Reduction Strategy in Africa. UNICEF Office of Research Innocenti Working Paper. 2017.
6) Pega, F., Liu, S. Y., Walter, S., Pabayo, R., Saith, R., Lhachimi, S. K. Unconditional cash transfers for reducing poverty and vulnerabilities: Effect on use of health services and health outcomes in low- and middle-income countries. Cochrane Database of Systematic Reviews. 2017; 11:CD011135.
7) Standing, G. How Cash Transfers Promote the Case for Basic Income. Basic Income Studies. 2008; 3:1.
8) Taylor, Mac. California Spending Plan. Legislative Analyst’s Office: The 2017-18 Budget. 2017.