Cap and Invest Program
The Cap and Invest Program (formerly known as Cap and Trade) is a central element of the California Global Warming Solutions Act (AB 32), and encompasses major sources of greenhouse gas (GHG) emissions in the state such as refineries, power plants, industrial facilities, and transportation fuels. Under Cap and Invest, the state sets an annually declining statewide limit or "cap" on GHG emissions. Entities subject to the cap can buy and sell allowances to emit GHGs and must retire allowances to cover their emissions. Each allowance is a permit to emit a metric ton of carbon dioxide (or an equivalent amount of other GHGs). The net result of the declining cap is a steady decrease in statewide emissions.
How Palo Alto participates in Cap and Invest
Since 2013, the City of Palo Alto Utilities' (CPAU) electricity supply has been carbon neutral but also may include market power that partially includes fossil fuels. In recognition of higher regulatory compliance costs from the Cap and Invest Program, the State gives allowances to electric utilities, like the CPAU, to be used to relieve the impact on electric ratepayers. CPAU sells those allowances and the California Air Resources Board (CARB) requires those revenues to be used for the benefit of CPAU’s electric customers.
Learn more about Palo Alto's Carbon Neutral Electric Supply
As of 2015, CPAU’s gas utility is required to participate in the Cap and Invest Program. Like CPAU’s electric utility, the gas utility receives free allowances. Unlike the electric utility, the gas utility must both sell some of the allowances and purchase enough allowances to cover the GHGs resulting from natural gas used by CPAU's customers. Proceeds from the sale of allowances must be used for the benefit of CPAU's gas ratepayers.
How CPAU uses the money made by selling its allowances
Unlike PG&E, which uses its allowances to provide its ratepayers with an annual Climate Credit, the Palo Alto City Council has approved CPAU to use its allowances for the following uses.
For CPAU's electric customers:
- Purchases in renewable resources
- Keeping our electric resource mix 100% carbon neutral
- Programs and rebates to improve energy efficiency Rebates to electric ratepayers
For CPAU's gas customers:
- Programs and rebated to improve energy efficiency
- Purchases of, or investment in, biogas
- Fuel switching from natural gas to electricity
- Investment in carbon reduction activities including projects to reduce emissions caused by leaks
- Rebates to gas payers
Examples of programs funded by selling CPAU’s Cap and Invest allowances include the heat pump water heater program, purchasing renewable energy, and more.
Read about Palo Alto's electrification programs