May 12, 2025 www.cityofpaloalto.org
Strategies for Use
of LCFS, Cap and
Trade, and Public
Benefits Revenues
City Council
Overview
2 • City receives revenues sources it can use for climate action, resiliency, municipal electrification, or to reduce utility bills • Policy direction to-date focused on efficiency, cutting emissions • Future large City S/CAP programs could use these sources • City also facing uncertain economy, increasing utility costs • Staff seeking Council feedback on strategy for use of revenues:
• FY 2026 budget strategy
• Proposed policy for use of Public Benefits revenues
3 Revenue Sources
Thanks to its municipal utilities, the City receives various revenue sources driven by State regulations
Revenue Source Why CPA Receives It Electric Utility Gas Utility Cap and Trade Mandated participation in
State Cap and Trade program X X
Low Carbon Fuel
Standard
For serving electricity to EVs
registered in Palo Alto X
Public Benefits State-mandated for energy
efficiency and other purposes X X
Council Policies
4 Council has set various policies for their use
Revenue Source Policy Year Policy
Electric Cap and Trade 2012, 2022 Use for emissions-reducing activities or climate credits
Gas Cap and Trade 2015, 2022 Use for emissions-reducing activities (preferred) or climate credits
Low Carbon Fuel
Standard 2016, 2019 Use to benefit current and future EV drivers Electric Public Benefits 1998 Council policies to collect funds per State law.
Spending allocations set through periodic
plans and budgets adopted by CouncilGas Public Benefits 1997 The policies above are intended to be consistent with State regulations on how these revenue sources can be used
Uses To-Date
5 Revenue Source Uses To-Date
Electric Cap and Trade
• Renewable energy
• Energy efficiency
• Some funds set aside for electrification
Gas Cap and Trade • Advanced Heat Pump Water Heater Pilot Program Low Carbon Fuel Standard • EV Promotion
• Multi-family / nonprofit EV charging
• EV incentives
Electric Public Benefits
• Energy efficiency (including low-income)
• Local solar
• Electrification and efficiency pilot program
Gas Public Benefits
• Gas efficiency (including low-income)
• Low-income rate discounts
• Solar hot water
6 Opportunities for Use of Revenues
• Furthering 80x30 Goals: Pilot programs to develop strategies to enable community-wide emissions reduction
• Assisting with State and regional electrification mandate compliance: Creating programs (e.g. financing, facilitating EV charging) to help community comply with mandates
• Utility bill competitiveness: Reduce customer bills
• Other community goals:
• Municipal electrification: Help City lead by example
• Resiliency: Cover above-market costs of local renewables FY 2026 Proposed Budget Strategy
7 • Focused climate programs in line with 2023-2025 S/CAP Work Plan and 2025 Council Priorities
• Budget for “proof of concept” programs that can be expanded with additional Council approvals
• Single-year climate credit due to gas utility COSA adjustments (Finance Committee expressed preference for using interest income)
• Continued spending on:
• Energy efficiency (including low-income services)
• Renewable energy
• Rate assistance
Proposed Public Benefits Policy
8 • Per statute, Public Benefits funds may be used for energy efficiency, low-income discounts / services, renewable energy, and research and development
• Staff proposing policy to prioritize and increase flexibility:
• (E) Building electrification qualifies as energy efficiency, building electrification and energy efficiency prioritized • (E) E-bikes as energy efficiency
• (E) Low-income EV charging
• (G) Prioritize low-income discounts and programs
(E) = Electric Public Benefits policy (G) = Gas Public Benefits policy Next Steps
9 • May: Council and Finance Committee discussions of utility rates and FY 2026 budget
• Consider possible gas utility climate credits
• Consider FY 2026 Climate Action budget proposal
• June:
• Council budget and utility rate adoption
• (Tentative) CASC-recommended affordable housing and
whole home electrification programs
• Summer/Fall: Discussions of how to scale up climate action community-wide, funding needs and potential sources, and 2026-2027 S/CAP Work Plan