California climate adaptation trust fund: exploring the leveraging of cap-and-trade proceeds

Abstract

This article provides an exploratory evaluation of the extent to which statutorily unallocated revenues under California’s cap-and-trade (“CT”) program could be securitized to lever an investment trust fund, referenced as the California Climate Adaptation Trust Fund (“CCA Fund”). The article seeks to address two research questions. First, how much money could the state raise from securitizing CT revenue, if at all? Second, what are the challenges and uncertainties to operating a levered fund? Based on a modified portfolio model initially capitalized by CT revenue, this article evaluates not only the size and potential performance of a CCA Fund, but also the range of challenges and opportunities facing the development of a portfolio of products advanced in the name of financing climate adaptation investments. The model results are presented through various expert-derived scenarios that are framed by various political drivers and market parameters. While the totality of resources needed to adapt public infrastructure and programs to climate change is unknown, local economic extrapolations of climate change impacts are increasingly well understood across sectors—with the California Climate Assessment putting the annual price tag at $50 billion by 2050. This article contributes to a current legislative and policy debates that are seeking to develop methods for understanding and exploring the range of opportunities and challenges associated with state-sponsored adaptation trust funds.