California Just Pulled the Rug Out From Under Transit
The California Air Resources Board (CARB) voted Friday to approve sweeping changes to the state’s cap-and-trade (or cap-and-invest) program, moving forward despite warnings from transit agencies, affordable housing advocates, environmental organizations, and local elected officials that the proposal could divert billions of dollars away from climate investments.
The centerpiece of the overhaul is the creation of a “Manufacturing Decarbonization Incentive Fund” that will provide billions of dollars worth of emissions allowances to major industrial polluters, including refineries, in exchange for “commitments” to reduce emissions. Supporters argue the changes will help industries remain competitive while advancing California’s climate goals.
Critics contend the changes amount to a massive giveaway.
For more than a decade, California’s cap-and-trade system has operated on a straightforward principle: polluters pay for emissions allowances and the proceeds fund programs that reduce greenhouse gases. Revenue from allowance auctions has helped pay for transit improvements, rail projects, affordable housing near transit, and other investments intended to reduce automobile dependence.
Multiple analyses presented during the rulemaking process concluded that CARB’s changes could significantly reduce auction revenues flowing into the Greenhouse Gas Reduction Fund. As Streetsblog explained last week, under legislation approved last year, high-speed rail is guaranteed $1 billion annually from the carbon market through 2045, with another $1 billion per year set aside for “legislative priorities” i.e. the state’s general fund. What’s left is divided up for housing and transit funding at the local level. A giveaway of billions in permits would likely decimate those funds for local projects.
The vote marks one of the most consequential shifts in climate funding policy since cap-and-trade was created. Instead of directing as much money as possible from polluters into climate investments, California is now prioritizing reducing compliance costs for industry, theoretically to reduce the cost of gasoline for commuters.
Transit Agencies Face Yet Another Funding Threat
The decision comes at a particularly precarious moment for public transportation.
Transit agencies across California continue to struggle with the lingering effects of the pandemic, while Bay Area operators face a well-documented fiscal cliff that could trigger severe service cuts without new revenue sources.
Just days before CARB’s vote, advocates announced they had gathered enough signatures to place regional transportation funding measures before Bay Area voters this fall. Supporters hope those measures can stabilize transit operations and avoid the service reductions that agencies have warned could devastate mobility throughout the region.
CARB’s decision threatens to undermine those efforts. While local ballot measures are intended to keep buses and trains operating, state climate funds have often provided the capital necessary to modernize systems, expand service, and improve reliability.
In between rallies for funding measures, Bay Area advocates held a third rally, to warn CARB off from the changes they made last Friday. The concern voiced by transit advocates is simple: even if voters approve new taxes, California may simultaneously be shrinking one of the state’s most important transit funding streams.
That fear united an unusual coalition of transit operators, local governments, housing organizations, and big-city mayors in opposition to CARB’s proposal.
After CARB announced its decision, San Francisco Mayor Daniel Lurie, who is strongly backing the ballot measures, registered his disappointment.
“This decision puts our efforts to save transit, build affordable housing, and drive our economic recovery at risk,” Lurie said. “Since that work helps achieve our emissions goals, those goals will be jeopardized too.”
The timing could hardly be worse. Ridership on Bay Area systems such as Muni and BART is recovering, but it’s not yet at pre-pandemic levels. In Southern California the commuter rail service Metrolink is considering both service cuts and fare hikes. These stories from the state’s largest transit service providers are not outliers, but the norm.
Yet California has chosen this moment to reduce funding for one of the state’s most effective tools for achieving greenhouse gas reduction goals.
This Was Governor Newsom’s Choice
Much of the attention following CARB’s vote has focused on the board itself. But transit advocates argue the responsibility ultimately rests with Governor Gavin Newsom.
The proposal originated within the Newsom administration. Twelve of the fourteen voting members are appointed by the Governor’s office, including the chair.
That makes Friday’s decision more than a regulatory action. It is a policy choice by a governor who has built a national reputation on climate leadership.
For years, Newsom has presented California as a model for aggressive climate action. But California’s climate strategy depends not only on regulating emissions, but also on investing in alternatives to driving. Transit agencies, local governments, housing advocates, and environmental groups warned that CARB’s proposal would reduce funding for exactly those investments.
That is why many transit advocates view Friday’s vote as a betrayal. If transit agencies are forced to delay projects, reduce service, or scale back expansion plans in the years ahead, the blame will lie with a governor who will be out of office next January.
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