Gov. Newsom’s 2022-2023 budget: It takes green to go green

Corporations and others looking to conduct business in California would be wise to consider the implications of Gov. Gavin Newsom’s sweeping new budget proposal if approved.

Newsom’s budget, following the Biden Administration’s holistic government approach to addressing climate change, environmental justice and reducing environmental impacts, goes far beyond the expected tax incentives for electric vehicles (EVs) and other clean energy technologies.

Earlier this year, the governor unveiled his 2022-2023 state budget, including $22.5 billion allocations towards climate, water, and wildfire initiatives over the next five years. From the beginning, the budget was dubbed the California Blueprint for its forward-thinking approach to the existential environmental threats facing the state and our nation.

Newsom’s proposed budget places climate change at its core through a multifaceted approach touching all sectors – including transportation, construction, grid resilience, economic incentives, and workforce development. It builds on the 2021-2022 budget, which made waves among its supporters and skeptics with its over $15 billion price tag.

To move forward, Newsom must secure the Legislature’s approval by June 15. Since its release, the budget has secured praise from the Environmental Defense Fund (EDF), Natural Resources Defense Council (NRDC), and other progressive stakeholders.

The California Blueprint has significant implications for the transportation sector, the source of 40 percent of state pollution. In 2020, Newsom announced that the state will phase out all gas-powered car and truck sales by 2035. The plans for massive climate and environmental spending further intends to bolster a shift away from internal combustion engines (ICEs). The 2022-2023 budget commits $6.1 billion for zero emission vehicle advancement, building on the $3.9 billion already allocated for this purpose through 2024.

Just as the federal Bipartisan Infrastructure Law shed light on critical infrastructure needs last year, Newsom’s plan expands infrastructure spending in low-income areas and for heavy-duty zero emission vehicles. Businesses operating in the state should consider how these changes will affect their place in the market, especially the shift from ICEs to EVs. Companies up and down the transportation value chain, with a particular emphasis on infrastructure players, will see opportunities and challenges arise from the governor’s work to transition California’s gasoline dependence to other alternative energy sources.

In addition to the $3.25 billion carved out for various carbon-conscious transit and train projects, Newsom allocated $4.2 billion to the establishment of a high-speed rail system. Bullet train financing negotiations were postponed after state lawmakers failed to reach an agreement with Newsom in late 2021. The resurgence in interest surrounding a high-speed rail project, however, could serve to attract major stakeholders to the state in conjunction with compelling new tax credits.

California business prospects will undoubtedly be shaped by energy efficiency policies aimed at the built environment. For starters, a major investment of $40 billion has specifically been tagged for cleaner refrigerants in California homes. Additionally, the California Blueprint targets phasing out natural gas heating and cooking and includes $1 billion for building retrofits using energy-efficiency lighting, improved insulation, and fully electric appliances with a two-thirds carve out aimed at low-income neighborhoods.

The plan requires building upgrades that will pose new costs for firms already operating in California, but businesses should also be cognizant of the requirements for new construction. The state’s new building codes mandate new and renovated commercial structures, including solar power and battery storage. These laws aim to make green buildings an integral part of California’s environmental targets. And starting in 2023, new brick and mortar businesses will have to communicate with utility providers to manage energy flows to and from their buildings.

With the state’s wildfires and increased dependence on electricity, grid reliability and resilience have become a pressing issue. As extreme weather events due to climate change threaten grid security, Newsom’s budget includes $720 million for the advancement of long-term energy storage, which is key for both grid reliability and decarbonization.

Energy storage firms have the most to gain from increased investment in long-term storage. The California Energy Storage Alliance determined that more than 50GW of long-term energy would be needed for California to decarbonize its electricity sector by 2045. With $380 million earmarked for this sector over the next two years, the state seeks to nurture an ecosystem to support clean energy entrepreneurship and on-site battery storage facilities for industrial areas, ports and residential communities.

Companies should be aware of continually updating requirements to address grid reliability. Proponents argue that these requirements, rather than a barrier to thriving in the California market, provide an opportunity for innovative, forward-thinking companies. New technologies will give building managers and businesses an enhanced understanding of energy consumption, which can provide traction with investors and partners interested in environmental and sustainability goals.

Tax incentives likely fall among the most attractive elements of the 2022-2023 proposed budget. The governor has included new corporate tax credits for firms making significant contributions to climate change mitigation. The proposal introduces a new temporary corporate tax credit designed to incentivize California-headquartered companies to invest in technologies that will play pivotal roles in fighting climate change. This incentive will cost the state around $250 million annually for three years and is designed as a dual purpose for the California economy: to incentivize California companies to pursue clean energy investments, and encourage others to move to California.

The national dialogue surrounding the U.S. energy future often involves issues of workforce displacement and empowerment among those employed in the fossil fuel sector. California has long advocated capping and sealing oil and gas wells, leaving many to question the loss of jobs as a result. In response, the proposal allocates $265 million to retrain oil and gas workers as they transition to cleaner industries, with a focus on those displaced by well-capping.

Broadly, the California Blueprint offers opportunities for firms to take advantage of the billions available for career pathway programs that advance climate-related fields and other critical industries. Further, $235 million is reserved for training initiatives and grants across the climate industry spectrum. This includes $60 million for the state’s Low Carbon Economy Workforce grant program and $35 million for the University of California to create climate-centric training hubs across the UC system.

In keeping with President Biden’s aggressive policy focused on climate change mitigation, Newsom’s budget reflects what his advisors describe as an “all of society, all of government response.” Their emphasis on equity opens doors for all Californians to take part in a just energy transition, but also presents the private sector with significant economic incentives to take part in advancing the state’s climate mitigation goals.