Time to Reset California's Climate Leadership

Faced with the election of Donald Trump to a second term, soaring inequality, and a decline in support from the state’s non-white majority, California’s Democratic leaders have begun asking hard questions about the state's vaunted climate policies. California’s Democratic Assembly leader Richard Rivas opened the new Legislative session signalling a strong focus on meeting voter concerns about housing and the state’s extraordinarily high cost of living, specifically calling out the state’s climate policies: “California has always led the way on climate. And we will continue to lead on climate,” he told his Assembly colleagues. “But not on the backs of poor and working people, not with taxes or fees for programs that don’t work, and not by blocking housing and critical infrastructure projects. It’s why we must be outcome driven. We can’t blindly defend the institutions contributing to these issues.”

Almost twenty years after California determined to lead the world in efforts to mitigate climate change with the passage of its landmark climate law, AB32, the results of the state’s climate policies are troubling. California boasts the 5th largest economy in the world with among the lowest carbon intensities of any US state. But it also leads the nation in poverty and homelessness and has seen relentless declines in homeownership, especially among the young and Black and Latino families.

California’s environmental accomplishments, wealth, and world leading tech economy have masked the reality that GDP growth in the vast majority of California counties, excepting the handful where the tech industry dominates, is worse than the national average while the state has far higher costs of living—from housing to electricity to food and taxes—than other states. The state’s climate and energy policies are by no means wholly responsible for these problems. But they have seen diminishing returns, as the low-hanging fruit of the coal to gas transition in the electricity sector has long since been picked, rising energy and transportation costs have exacerbated the state’s cost of living crisis, and the exodus of energy intensive industries have limited opportunities for high wage employment for the state’s working class, non-college educated, and largely non-white majority.

For all of these reasons, a reassessment by the state’s Democratic leadership is long overdue. California has made important climate progress over the last two decades. But a reset, to assure that the state’s environmental commitments lift all boats, is clearly in order.

Is California really a climate leader?

California’s claims to eco-superiority long predate the passage of AB32, the 2006 law that committed the state to ambitious climate targets and established a cap-and-trade system by which to achieve them. Even before this landmark bill, the state’s per capita carbon emissions were far lower than the national average:

This disparity was initially attributed to California’s efforts, dating to Jerry Brown’s first stint as governor in the 1970’s, to improve energy efficiency. In 2002, California’s per capita electricity consumption was 40 percent less than the national average, having plateaued in the mid 1970s while per capita emissions in the rest of the country continued to climb. The phenomena was famously described by the “Rosenfeld Curve,” named after the legendary Berkeley physicist Arthur Rosenfeld, a former chair of the state’s energy commission, who is widely regarded as the father of California’s energy efficiency policies:

As it turned out, California energy efficiency policies were only responsible for a fraction of this remarkable difference. In a 2008 study deconstructing the Rosenfeld curve, Stanford researchers found that the difference between California and U.S. per capita electricity consumption was at most 23% attributable to state energy conservation and other policy choices, with most of the rest of the difference explained by factors that were exogenous to the state’s energy policies: the state’s mild climate (meaning a lower heating and cooling load), its smaller average household size, and, notably, the fact that the state’s industrial sector was less energy intensive.

By 2002, only 20% of electricity sales in California were to the industrial sector, whereas the U.S. national share was 28%. The authors of the Rosenfeld study attributed lower per capita industrial electricity consumption to the nature of California industry, which, due in significant part to air pollution regulation and high energy costs, was increasingly skewed toward light rather than heavy industry.

Regardless of California’s favorable initial baseline, it is indisputable California met the AB32 target of reducing carbon emissions to 1990 levels by 2020. (California is not on track to meet later, more ambitious targets set for 2030 and beyond.) But this accomplishment is not as singular as official rhetoric makes it out to be: over the same period, California’s closest red state competitors, Texas and Florida, along with other industrialized states, reduced their total carbon emissions by as much or more.

The reason why states like Texas and Florida were able to reduce greenhouse gas emissions with practically no climate policy to speak of is quite simple: natural gas. Emissions reductions in Texas and Florida were driven by the electricity sector, which had transitioned from coal to natural gas for largely economic reasons. Indeed, by 2017, 41 out of 50 U.S. states had decoupled economic growth from emissions, a phenomenon widely attributed to this transition.

California, however, had not used coal since the 1970s (although it continued to import about 10% of its electricity from coal-fired plants outside California through the 2000s), and primarily generated its electricity from natural gas, hydro, and nuclear. Along with its climate commitments, California’s political leaders also decreed that further carbon emission reductions in the electricity sector would need to be achieved with a limited suite of renewable energy technologies: solar, wind and battery storage. (Both legacy technologies like hydropower and nuclear, and technologies considered renewable in other states and countries such as biomass, did not meet the state’s narrow definition of “renewable” energy.)

This decision had consequences. Costly renewable energy power purchase agreements, combined with the expense of integrating intermittent resources into the grid, helped to make California’s retail electricity prices the highest in the country (second only to Hawaii). Meanwhile, the state’s remarkable rate of rooftop solar adoption—due to the combination of costly retail electricity, generous state subsidies to often-wealthy homeowners, and rooftop solar mandates—ended up raising electricity prices still further, pushing costs disproportionately onto renters and low-income households who do not have their own rooftop solar.

The rooftop solar and other signature California climate policy choices, despite their rising cost, increasingly brought diminishing returns, as much of the easy emissions reductions had already been realized, thanks to lower baseline electricity consumption and early adoption of natural gas. Carbon emission reductions from expensive new renewable energy additions were never going to be large. The state therefore increasingly prioritized aggressively reducing emissions from the transportation sector—the state’s largest source of emissions.

Compared to places like Texas and Florida, California’s emissions reductions since 2006 have come disproportionately from the transportation sector, not the electricity sector. Low carbon fuel requirements, new regulations on refineries, and electric vehicle mandates, have collectively increased the cost of driving substantially. California routinely now has the second highest gas costs in the country second only to Hawaii, which must import all of its gasoline by ship. The state has mandated the phase-out of internal combustion engines in vehicles by 2035 and its gasoline prices now seems poised to surpass even Hawaii: a few days after the election, the California Air Resources Board (CARB) voted to further tighten the Low Carbon Fuel Standard, a measure that is expected to further increase gas prices by up to 85 cents per gallon.

Even more ambitiously, California’s climate regulators have demanded that even after California converts to electric vehicles, local governments and regional planning agencies should reduce automobile use by 30%—a reduction in “vehicle miles travelled” that would be 2.5 times greater than the decline in miles driven during the depths of the Covid pandemic lockdown. To achieve this objective, CARB recommends and provides funding for local governments to eliminate traffic lanes through so-called “road diets,” intended to increase drive times and traffic congestion and incentivize use of public transit, even as massive investments in public transit have failed to reverse ridership declines that began pre-COVID and have caused massive transit system operating deficits.

Decarbonization at the expense of growth and civil rights?

At first glance, California’s impressive economy—the world’s fifth largest, as state officials are fond of reminding the press and populace—would seem to vindicate its climate policy, demonstrating by virtue of its enormity that economic prosperity and deep decarbonization can coexist.

But the state’s wealth masks some troubling trends. While growth in California has significantly outstripped the rest of the country, it has been highly concentrated in just a few high income places. Since 2001, California’s real GDP has grown by 82%--23 percentage points higher than the U.S. average of 55%. This difference disappears, however, when you take out the three Bay area counties that house Silicon Valley. Bolstered by four of the world’s seven companies with trillion dollar valuations, real GDP in these counties rose at four times the rate of the U.S. average. This remarkable and hyperlocal rise accounted almost entirely for California’s above-average growth:

But even with massively outsized contributions from Silicon Valley, California’s growth in recent years is not very impressive. Between 2017 and 2023, real GDP in California grew by only 18.5%, slightly above the national average (15.6%), and well behind real GDP in red state competitors Texas (25.7%) and Florida (27.3%). Growth in California during this period was also remarkably lopsided: between 2017-2023, the overwhelming majority—71%—of California counties, comprising 61% of the state’s population, grew at a rate below the national average. In Texas, meanwhile, just 30% of the population lived in counties that grew at less than the national average, and in Florida, the same was true for only 3% of the population.

Unsurprisingly, growth in California has been unevenly distributed along racial lines as well. Over the 2017-2023 period, aggregate real GDP across California’s thirteen majority Black and Latino counties grew by 12.1%, slower than the national average (15.6%), and about half the rate (22.9%) of the state’s 43 counties with a majority White and Asian population. In Texas and Florida, this racial disparity was not nearly as stark. Between 2017 and 2023, both states saw aggregate real GDP of majority Black and Latino counties grow faster than the national average (24% in Florida; 18% in Texas).

The high cost of living and scarcity of well-paying jobs for the non-college educated have made California an increasingly unlivable place for ordinary people. For several years running, California has held the dubious title of having the highest cost-adjusted poverty rate in the nation. People are now voting with their feet: between 2020 and 2023, population fell in 47 of 58 counties, an unprecedented trend that may significantly cut state tax revenues. And according to the Public Policy Institute of California, low income people are now twice as likely to leave as high income people.

This population trend reflects widespread skepticism in the rest of the country about the California model. In a national 2024 survey conducted for the Los Angeles Times, only 15% of respondents felt that California is a model other states should copy; 39% said the state was not a model and should not be emulated; 87% said the state was too expensive; and 77% would not consider moving to California.

Which way, California?

Considering California’s environmental and economic record since 2006, one can reasonably conclude one of two things: either it is not possible to achieve deep emissions reductions without slowing growth and making economic inequality worse, or California is doing something wrong. The state’s Democratic leaders have long rejected the former possibility. Now, it appears some elected leaders, if not the state’s unelected regulators, are beginning to recognize just how inequitable the state’s climate policies have been.

Extraordinary growth rates in a handful of tech-centric counties have obscured the costs of the state’s climate regime. California’s climate policies have contributed to slow economic growth for most of the state, and have disproportionately punished the poor and non-college educated workers. Until the state demonstrates that it can cut its emissions equitably, such that working people once more see the Golden State as a land of opportunity rather than fleeing it, California should not be held up as a model of climate governance. Expensive policies, supported by high end keyboard economy tax revenue, are simply not exportable to the rest of the country, much less the rest of the world.

So while some state leaders may still be tempted to double down on current climate policies, the state, its political leaders, its economy, and the climate will be far better served by going back to the drawing board—as Speaker Rivas has urged. Other states and countries are far more likely to follow our lead if the state adopts more effective, less costly, and more equitable climate solutions. To do that, California leaders need to unleash the state’s world-leading research and development capabilities to benefit people and the planet while streamlining permitting and other regulatory obstacles so that the state can get back to building again. California’s claims to climate leadership now depend not upon proving that the state is willing to cut its emissions at any cost but rather demonstrating that it can cut its emissions while assuring that home ownership, an affordable cost of living, and good jobs are available to all.