How Climate Change Is Complicating California Democrats’ Affordability Agenda

California Democrats, humbled by losses in the November election, returned to the capitol this year resolving to narrow their focus on bringing down the cost of living.

As the Southern California wildfires have made tragically apparent, those goals are running headlong into the impacts of extreme weather brought on by climate change.

Thousands of homes and businesses have burned, further sapping the housing supply and leaving victims with costly rebuilds. The state’s shaky home insurance market now must absorb record losses, likely resulting in higher premiums for all policyholders.

Meanwhile, residential energy costs, already the second-highest in the nation, seem destined to rise further as utilities pass along the expense of reducing their own fire risk.

“The more disasters that happen, the more insurance costs rise. And the more that existing housing is destroyed, we have to build even more in order to respond to the need,” said Moira Birss, an Oakland-based senior fellow with the Climate and Community Institute. “So climate change is definitely making things a lot harder.”

The state appears to have reached an inflection point. Californians, already grappling with expensive housing and years of inflation, are being hit simultaneously with the costs of slowing global warming and the price of living on an overheated planet. This conundrum is forcing state leaders to consider whether more of the state’s climate spending should be used to ease the hit on Californians’ wallets.

California has led global efforts to combat climate change, which scientists say is driving unprecedented fires, storms and heat waves. Tough restrictions on pollution and unmatched investments in clean energy and electric vehicles allowed California to meet early benchmarks for reducing greenhouse gas emissions. While researchers warn that the consequences of inaction will saddle residents with exorbitant costs in the future, many of California’s climate initiatives come with added costs at the gas pump or on their electricity bills, at a time when prices have risen across the economy.

In the lead-up to the election, prices and jobs topped the list of concerns for Californians. While Democrats maintained supermajorities in both houses of the Legislature, Republicans flipped two seats in the state Assembly and one in the state Senate.

On the first day of the new legislative session in December, Assembly Speaker Robert Rivas (D-Hollister), urged his caucus to “consider every bill through the lens of Californians who are anxious about affordability.”

“Specifically, we must focus on building more housing and lowering energy costs,” he said.

According to private-sector estimates, the Los Angeles fires will be the costliest in American history, leaving thousands of homeowners to navigate a lengthy rebuild in neighborhoods where demand for contractors and construction materials will be overwhelming. Others without insurance could be forced to sell and simply walk away from their previous lives.

Federal and state leaders have mobilized resources to assist with the recovery. Gov. Gavin Newsom and legislative leaders proposed $2.5 billion in addition to federal funding, along with streamlined rules for rebuilding homes. California Insurance Commissioner Ricardo Lara has blocked insurance companies from not renewing policies in the fire zone for one year.

But the hit to the insurance market will spread far beyond the fire lines. The rising threat of wildfire, along with the escalating costs of construction, have already led insurance companies such as State Farm, Allstate and Nationwide to reduce or eliminate coverage in the state. To draw those companies back into California’s teetering market, Lara agreed to allow the insurers to raise premiums on homeowners more easily — a move they are likely to make to cover the losses incurred in Los Angeles.

“Rates were already going to go up as a result of the regulatory changes,” Dave Jones, California’s former insurance commissioner, told KQED’s Forum. “They’re going to go up even higher as a result of the experience of these wildfires.”

Jones added the state may need to step in and provide subsidies for premiums — basically Obamacare for home insurance.

“Given what’s happening vis-à-vis climate change and our failure to transition [away from] fossil fuels, it’s only going to get worse,” Jones said. “And I don’t think we’re going to rate-increase or modify regulations out of this problem.”

The home energy market has become ground zero for some of the toughest choices pitting economic equity against emission reductions. The state has placed ambitious mandates on utilities such as Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison to generate more of their power from renewable sources, which has raised the cost of electricity. Additionally, the utilities are scrambling to prevent their aging power lines from continuing to spark wildfires — and they’ve added the costs of infrastructure upgrades to energy bills.

When state regulators decided to spread electricity costs more equitably among ratepayers — by reducing payments to rooftop solar users in 2022 and approving an income-based fixed charge on monthly power bills last year — they were met with outrage from some environmentalists who argued the changes would remove the incentive for users to conserve energy.

In a report released last month, the state’s Legislative Analyst’s Office warned that more tradeoffs are ahead.

“The Legislature likely will confront difficult decisions about how to approach electricity rates in order to best support its varied goals, including balancing the desires to both mitigate and adapt to climate change as well as preserve affordability,” the report read.

Taken together, the impacts of a warming planet and efforts to slow that warming will add more costs for Californians in the short-term, at a time when residents already feel burdened by the price of housing and groceries.

“The conventional wisdom over the years, when the economies were strong and the state budget was strong, was to pass [climate-related] costs on to the consumer,” said former state Sen. Bill Dodd, a Democrat who represented Napa and Sonoma during the 2017 North Bay fires.

Dodd said the election revealed a political version of “price elasticity” — that is, how sensitive voters are to price increases.

“So if [reducing emissions] is going to be a major policy in the state — and it should be — well, the state is going to have to prioritize in its budget ways of getting these things done without tacking it on the bills,” he said.

Many Democrats remain confident that programs to reduce greenhouse gas emissions do not need to be sacrificed at the altar of affordability.

“We’re able to walk and chew gum at the same time,” state Sen. Catherine Blakespear (D-Encinitas) said. “We can focus on the climate crisis, which is a multiyear, and really, a multidecade effort, and also focus on the affordability crisis.”

The Legislature’s best opportunity to navigate those twin crises may come this year when members of the Assembly and Senate could begin negotiations with Newsom to renew California’s landmark climate program, known as cap-and-trade.

The program sets a limit on the amount of planet-warming greenhouse gasses that can be emitted each year and then holds auctions where refineries, power plants and factories bid for the ability to pollute.

Blakespear, who chairs the Senate’s Environmental Quality Committee, pointed to the importance of existing programs like the California Climate Credit, which uses revenue from the cap-and-trade auctions to pay down the costs of Californians’ energy bills.

“It’s not well recognized what it is and people don’t recognize it as a rebate that’s coming back to them,” Blakespear said. “So it’s really important that when the state does these things, that we communicate with people what’s happening.”

But far more cap-and-trade dollars are invested into efforts to further reduce carbon emissions, such as constructing a high-speed rail system, improving buses and trains and building more housing near transit.

Some Democrats in the Legislature are eyeing more of that money for immediate financial relief for Californians.

A report last year from members of the Democrat-led Joint Legislative Committee on Climate Change Policies urged colleagues to consider using more cap-and-trade revenue to help residents pay their energy bills. Raising the price of carbon and putting the new money into programs like the California Climate Credit, they argued, could chop $350 a year from the average household’s energy bill.

“Delivering climate solutions at scale that actually reduce household energy-related expenses has never been more critical,” the authors wrote.

At stake is whether California leaders can maintain global leadership in reducing carbon emissions while easing the energy transitions for residents — and whether Newsom and the Legislature will be forced to prioritize spending more of the state’s limited dollars ensuring Californians are not crushed by the costs of a warming planet.