HomeMy WebLinkAboutStaff Report 2512-5623CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, February 02, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
B.Informational Report on Calendar Year 2024 Annual Update for the Cap-and-Trade
Program
City Council
Staff Report
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Utilities
Meeting Date: February 2, 2026
Report #:2512-5623
TITLE
Informational Report on Calendar Year 2024 Annual Update for the Cap-and-Trade Program
RECOMMENDATION
This is an informational item. There is no recommendation.
BACKGROUND
California’s Cap-and-Trade Program, launched in 2013 under the Global Warming Solutions
Act (AB 32), is a market-based system that caps greenhouse gas (GHG) emissions and lowers
the cap each year to drive greenhouse gas emissions reductions. Under CARB’s cap-and-trade
rules, Palo Alto must sell all of the allowances freely allocated to the Electric Utility. For the
Gas utility, Palo Alto uses some of the freely allocated allowances for greenhouse gas
compliance obligations and sells the remaining allowances using the proceeds for the benefit
of ratepayers, consistent with AB 32. The City Council has adopted a policy on the use of cap-
and-trade program revenue (see Resolution 94871 and Reso 100772). This City policy allows
auction proceeds from the sale of Allocated Allowances to be used for renewable energy
investments, energy efficiency programs, GHG emissions reduction initiatives, fuel-switching
(such as electrification), and ratepayer rebates (with Council approval). Revenues from the
sale of allowances freely allocated to the Electric Utility (“electric allowance revenues”) must
benefit electric customers only, and similarly, revenues from the sale of allowances freely
allocated to the Gas Utility (“gas allowance revenues”) must benefit gas customers.
ANALYSIS
Electric Utility
In calendar year (CY) 2024, Palo Alto received 142,536 freely allocated allowances from the
1 Council Resolution 9487 (adopted January 26, 2015):
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=53850&dbid=0&repo=PaloAlto 2 Council Resolution 10077 (adopted October 3, 2022):
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61567&dbid=0&repo=PaloAlto
State, all of which were sold at state-run auctions which generated about $5 million in
revenue. About $2.47 million was spent on renewable energy purchases to help meet the
City’s Renewable Portfolio Standard (RPS) targets. The remaining $2.55 million was transferred
to the Electric Cap and Trade reserve at the end of Fiscal Year (FY) 2025 to fund future electric
greenhouse gas emissions reduction programs. The Electric Cap and Trade reserve has about
$6.68 million at the end of FY 2025. The types of S/CAP related expenditures for Electric Cap
and Trade revenues are for Electric Vehicle Programs to provide access to EV charging for
multi-family residents and a proposed alternative transportation pilot.
Electric Allowance Revenues and Expenditures ($)
* Unspent funding transferred to reserve for future programs.
Gas Utility
In CY 2024, Palo Alto received 121,912 freely allocated allowances from the State. 70% or
85,338 of those allowances were required to be sold at State-run auctions, which generated
about $3.35 million in revenue. The remaining 36,574 allowances were used to meet Palo
Alto’s compliance obligation. About $0.72 million was spent on the heat pump water heater
direct installation and incentive program, while the remaining $2.63 million was transferred
to the Gas Cap and Trade reserve at the end of FY 2025 to fund future gas GHG emissions
reduction programs. The Gas Cap and Trade reserve has about $15.05 million at the end of
FY 2025. The types of S/CAP related expenditures for Gas Cap and Trade revenues are for
residential and non-residential building electrification pilot programs.
Gas Allowance Revenues and Expenditures ($)
* Unspent funding transferred to reserve for future programs.
FISCAL/RESOURCE IMPACT
This report is for informational purposes only and has no direct fiscal impact. Many of the City’s
multi-year sustainability and climate action programs
STAKEHOLDER ENGAGEMENT
This is an annual report to the City Council based on the City of Palo Alto’s policy on the use of
freely allocated allowances under the State’s Cap-and-Trade program. Staff collaborated with
internal teams to gather the information included in this report.
ENVIRONMENTAL REVIEW
APPROVED BY: Alan Kurotori, Director of Utilities