California leads the way on climate

By Laura Tyson and Lenny Mendonca

BERKELEY — While this year’s United Nations Climate Change Conference (COP28) in Dubai was mainly focused on the heated debate between countries about the future of fossil fuels, a delegation from the US state of California, headed by Governor Gavin Newsom, was hard at work advancing climate action.

In addition to launching a coalition of subnational governments committed to reducing methane, California was one of 14 governments representing regions with a Mediterranean climate to establish a partnership aimed at strengthening resilience against extreme heat, droughts and fires. The state also joined an alliance whose members are committed to building 380 gigawatts of combined offshore wind capacity by 2030.

California’s commitments made at COP28 come on top of climate-change and clean-energy memorandums of understanding that California recently signed with China (with which the United States must cooperate more closely on global action to combat climate change), Canada, Mexico, Australia and other countries. Moreover, this flurry of activity is only the most recent example of the state’s efforts to develop climate solutions. California’s long-term commitment to the green transition has highlighted the power of subnational governments to accelerate progress toward net-zero emissions.

This year marked the tenth anniversary of California’s groundbreaking cap-and-trade system, which covers about 85 per cent of greenhouse-gas (GHG) emissions in the state. By setting a strict cap on allowable carbon pollution, lowering it annually, and distributing tradable credits accordingly, the programme has created certainty for the business community.

Setting a limit and a price on emissions has had significant environmental and economic benefits. In the decade since the program’s implementation, GHG emissions have fallen by 14 per cent (although other complementary state policies have also contributed to this decline). The Canadian province of Québec linked its own cap-and-trade programme to California’s system in 2014, and Washington State plans to join them, creating an even larger transnational carbon market.

Cap-and-trade systems, as well as environmental, social, and governance (ESG) standards and net-zero commitments, depend on the monitoring, reporting, and verification of carbon dioxide emissions. California is also forging ahead on this front. In September, Newsom signed two bills that require companies to disclose their GHG emissions and their climate-related financial risks, the first legislation of its kind in the US. The US Securities and Exchange Commission has proposed but not enacted similar rules.

Combating climate change requires setting ambitious renewable-energy targets and devising major emissions-reduction initiatives, both of which California has done. The state aims to achieve 100 per cent clean electricity by 2045 and, under its Renewable Portfolio Standard, will require utilities to obtain 60 per cent of their energy from renewable sources by 2030. California has also invested heavily in large-scale solar plants, such as Topaz Solar Farm, one of the largest single solar projects in the world.

Moreover, California’s Zero-Emission Vehicle programme, which reached its goal of 1.5 million in-state sales of ZEVs two years ahead of schedule, has led automakers to move away from the internal combustion engine and spurred the adoption of electric vehicles nationwide. More recently, Newsom announced new ambitious targets for the programme, including that all new passenger vehicles sold in the state are ZEVs by 2035.

Being at the forefront of tackling climate change is nothing new for California, which has a long history of setting energy-usage standards, from appliances to building codes, for the country. It was the first state to implement minimum energy-efficiency standards in 1974, years before federal regulations were adopted and to establish an energy regulation commission. This is partly why California has one of the lowest per capita energy consumption rates in the US. In fact, if the rest of the country had kept pace with California in reducing fossil-fuel use, GHG emissions would be almost 25 per cent lower.

As a centre of innovation, California has played a vital role in shaping national research-and-development policies. Reflecting its formidable R&D capabilities in its world class public and private universities and national labs, the state was recently selected as a hydrogen hub. As a result, it will receive $1.2 billion from the federal government to accelerate the development and deployment of green hydrogen, a potentially transformative clean fuel that could help decarbonise heavy industry and transport and improve domestic energy production.

Silicon Valley has been instrumental to California’s innovation and forward-thinking approach, while also influencing its regulatory climate. The state has enacted legislation and rules to address emerging tech issues, from data privacy to autonomous vehicles. For example, the California Consumer Privacy Act is one of the most comprehensive laws of its kind in the US, granting individuals greater control over their personal data. The state has also worked to ensure that the tech sector serves the public interest, including by suing Meta for harming children’s mental health.

Consider, for example, generative artificial intelligence. Newsom recently issued an executive order recognising that the state, home to 35 of the world’s top 50 AI companies, has a unique responsibility to promote innovation and develop responsible policies and regulations. Given the potential for AI to be a key tool in the fight against climate change, California is wise to identify and promote its beneficial uses.

Far too many Americans have grown accustomed to government dysfunction and Congress’s inability to pass legislation. Nevertheless, when national, or even international, efforts to limit global warming fall short, subnational governments, especially the state of California, are making meaningful progress both within and beyond their borders.

Laura Tyson, a former chair of the President’s Council of Economic Advisers during the Clinton administration, is a professor at the Haas School of Business at the University of California, Berkeley, and a member of the Board of Advisers at Angeleno Group. Lenny Mendonca, senior partner emeritus at McKinsey & Company, is a former chief economic and business adviser to Governor Gavin Newsom of California and chair of the California High-Speed Rail Authority. Copyright: Project Syndicate, 2023. www.project-syndicate.org