After years of claiming to be a leader in climate action, California might be finally starting to step into its promised role — and it is bringing a secret weapon to the challenge.

On November 19, Gov. Gavin Newsom announced the state was placing a moratorium on new permits for oil drilling activities that involved steam injection and fracking. The announcement came just a few months after news broke that not only did California’s top oil regulators have a vested interest in major oil companies, but since Newsom became governor, the number of oil permits had doubled.

“Governor Newsom has shown the world today that the future of climate leadership means saying ‘no’ to the fossil fuel industry’s dreams of endless expansion,” said Stephen Kretzmann, head of Oil Change International, one of the organizations behind the Keep It in the Ground movement. “While there is still a long road ahead, the measures announced today are important steps towards comprehensive action to phase out California’s oil and gas production and align its economy with climate safety,” he added.

Governor Newsom agrees there is a long road ahead. In his press release, he explicitly mentioned that the moratorium was undertaken with California’s goal of achieving carbon neutrality by 2045 in mind, and the subsequent need to manage the decline of oil production and consumption in the state — all while ensuring that the transition protects California’s people, environment and economy.

As in many climate discussions, the promises of balancing economic goals with the winding down of fossil fuel production and the ramping up of new infrastructure are often received with skepticism and raised eyebrows. Soon, climate action numbers in the scale of trillions are thrown into the debate in an attempt to align climate ambition with “achievable” solutions. But fortunately, California can bypass this misguided set of choices. Enter the state’s secret weapon: public banks.

Largely unnoticed in the environmental sphere, Newsom also made headlines last month when he passed the Public Banking Act. The act, the first of its kind in the country, legalized the creation of public banks across the state’s cities and counties. Public banks, financial institutions that are owned and accountable to their people through their representative government, are often praised for their investments in much-needed projects and businesses in their localities. Supported projects typically include affordable housing initiatives and small business development.

Just as they can provide support to local initiatives that are often considered too risky or not profitable by their commercial counterparts, public banks have the potential to close the energy transition investment gap by financing the series of projects and programs needed to wind down California’s fossil fuel production. In particular, public banks can be created throughout the state with the explicit mandate of building green and resilient infrastructure, supporting communities’ economic diversification, and encouraging education and training programs that can create a local, 21st-century workforce. They can do all of that while ensuring that the transition is done equitably and democratically.

Public banks have the potential to close the energy transition investment gap by financing the series of projects and programs needed to wind down California’s fossil fuel production.

Unlike commercial banks, public banks are guided for and by public purposes instead of the profit demands of shareholders. The end result is that public banks have more flexibility in providing services at lower interest rates and longer time frames. Furthermore, because of their public nature, they can — and should — be purposefully designed to promote accountability, transparency and participation through such features as open meetings, multi-stakeholder boards and public assemblies that would keep them in step with the needs of community residents.

Add these to the potential of public banks as depository institutions to leverage up to 10 times their capital, and it’s clear how they can play a unique role in financing the just transition in the form of cheaper renewable and resilience projects, lower energy rates and reduced energy poverty, while ensuring low-income residents, often left aside in renewable and resilience projects, have access to the benefits.

California has the unique opportunity to be the first state to materialize the ambitions put forward in Green New Deal proposals. By combining its efforts to decrease its fossil fuel production with the creation of a network of public banks that can support decarbonization activities, California can finally make a U-turn from its dominant fossil fuel producer status and step up to the climate leadership role it has always wanted to play.

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