From Band-Aid to Solution: Reinventing California’s Climate Credit

Electric bill (Photo – coned.com)

California’s decades-long role as a climate action pioneer is facing serious headwinds. While the T. administration and its allies have launched a full-scale attack on clean technologies, state leaders are also grappling with an electorate that is now more focused on lowering prices than on environmental protection. Energy costs lie at the heart of this tension.

By Ethan Elkind

This dynamic is playing out right now as state leaders debate the future of California’s cap-and-trade program beyond 2030. The program generates billions of dollars in proceeds from businesses that choose to buy pollution allowances instead of reducing their carbon emissions. Affordability concerns are top of mind for leaders as they consider how to allocate these funds, particularly to help ease the burden of high electricity rates, which have doubled over the past five years.

A Climate Credit That Misses the Mark

But state leaders may be missing an important opportunity to achieve both lower utility bills and environmental goals. Specifically, the latest Assembly proposal to extend cap and trade through 2045 revises and extends the California Climate Credit, an annual rebate to electricity ratepayers funded by the sale of emission allowances.

In 2025, the climate credit includes two payments (distributed in April and October) ranging from $56 to $81 for customers of investor-owned utilities. These relatively modest payments mainly serve to mask high utility bills without providing a long-term solution to spiraling rates.

The Assembly’s proposal introduces three reforms to the program, including prioritizing residential customers over small businesses and retail customers, basing the credit on how much electricity a household uses, and providing the credit during high-bill months, typically the summer, when households use more air conditioning.

A New Approach: Redirecting Funds for Greater Impact

Rather than simply increasing cash payments to ratepayers, however, the legislature could use the same funds to create a far greater impact on both rates and the environment. The state is already moving in this direction with the Assembly’s proposal to dedicate some cap-and-trade proceeds to a much-needed Clean Energy Infrastructure Investment Fund. This fund would provide public financing for crucial grid investments, such as new transmission lines to serve renewable energy areas, as outlined by Net-Zero California and recommended in a report by CLEE last year.

Leveraging Funding for Energy Efficiency and Long-Term Savings

Building on this proposal, state leaders could redirect the climate credit to help ratepayers access low- or no-cost financing for energy efficiency upgrades, community solar and energy storage deployments, and home electrification—such as converting natural gas appliances to higher-efficiency electric heat pumps, cooktops, clothes dryers, and water heaters. Ratepayers would then repay the loans via on-bill payments that are lower than their monthly savings. These types of programs have a proven track record across the country (largely pioneered by other states), allowing the state to leverage a relatively modest pool of public funds to generate significant residential investment.

A True Win-Win

These funds could be crucial in helping ratepayers reduce their long-term utility bills, especially since the high upfront costs of many upgrades and appliances often make them inaccessible for lower-income residents. They could also reduce pollution, support the state’s environmental goals, and further the deployment of lower-cost clean energy solutions like community solar and storage. For lower-income renters who cannot make permanent upgrades to their homes, state leaders could design the programs to share some of the benefits with landlords, who ultimately have final say over such upgrades.

Reimagining the Climate Credit: A Path to Sustainable Relief

While the climate credit provides valuable relief for many Californians’ energy bills, legislators should consider using these hard-won polluter proceeds to drive long-term home energy improvements—unlocking even greater value for both ratepayers and the environment. In these challenging times, where both environmental protection and household budgets are under strain, this approach would be a true win-win for California.