BILL NUMBER: AB 1404	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  APRIL 13, 2009

INTRODUCED BY   Assembly Members De Leon  , Carter,  and V.
Manuel Perez

                        FEBRUARY 27, 2009

   An act to  add Sections 38572 and 38573 to  
amend Section 38505 of, and to add Section 38573 to,  the Health
and Safety Code, relating to air pollution.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1404, as amended, De Leon. California Global Warming Solutions
Act of 2006: offsets.
   The California Global Warming Solutions Act of 2006 designates the
State Air Resources Board as the state agency charged with
monitoring and regulating sources of emissions of greenhouse gases.
The state board is required to adopt a statewide greenhouse gas
emissions limit equivalent to the statewide greenhouse gas emissions
level in 1990 to be achieved by 2020, and to adopt rules and
regulations in an open public process to achieve the maximum
technologically feasible and cost-effective greenhouse gas emission
reductions.  The act authorizes the state board to adopt by
regulation, after a public workshop, a schedule of fees to be paid by
the sources of greenhouse gas emissions regulated pursuant to the
act. The fee revenues are deposited into the Air Pollution Control
Fund and are available upon appropriation, by the Legislature, for
purposes of carrying out the act.  The state board is authorized
to adopt market-based compliance mechanisms, as defined, meeting
specified requirements to be used for compliance with those
regulations. The state board is required, before including any
market-based compliance mechanism, to maximize additional
environmental and economic benefits for California, as appropriate.
   This bill would require the state board, if the state board allows
the use of market-based compliance mechanisms, to  create an
independent entity to be regulated by the state board to
independently verify a greenhouse gas emission offset to ensure the
emission reduction claim is real, permanent, and additional. Both
providers and users of offsets would be required to pay a fee to this
entity, in amounts to be determined by the state board, to pay for
the costs of the verification.   limit the use of
compliance offsets, as defined, that meet specific criteria, to no
more than 10% of the greenhouse gas emission reductions expected from
market mechanisms during the compliance period. The bill would
require the state board to apply the limit as a percentage of each
regulated facility's reported emissions in a compliance period. The
bill would require the state board to impose an offset verification
fee on entities buying and selling compliance offsets, for deposit
into the fund. Under the bill, fee revenues would be available, upon
appropriation, to pay for expenses related to state board
administration of the compliance offset program.  
   The bill would require an offset used for compliance to be
similarly as effective in reducing emissions of pollutants in
addition to greenhouse gases as would a direct emission reduction
measure by the user of that offset. The bill would also require an
offset to be located in the same air pollution control district or
air quality management district in which the user of the offset emits
greenhouse gas emissions that makes them subject to emission
reduction requirements pursuant to this act, or if an offset cannot
be found that meets this requirement, an offset in California in an
environmentally disadvantaged community would be required to be
purchased, if an offset can be found that meets this requirement. In
addition, a source would be prohibited from using more than 10%
emission offsets to meet the greenhouse gas emission reductions
required during a compliance period created by the state board.

   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 38505 of the   Health
and Safety Code   is amended to read: 
   38505.  For the purposes of this division, the following terms
have the following meanings:
   (a) "Allowance" means an authorization to emit, during a specified
year, up to one ton of carbon dioxide equivalent.
   (b) "Alternative compliance mechanism" means an action undertaken
by a greenhouse gas emission source that achieves the equivalent
reduction of greenhouse gas emissions over the same time period as a
direct emission reduction, and that is approved by the state board.
"Alternative compliance mechanism" includes, but is not limited to, a
flexible compliance schedule, alternative control technology, a
process change, or a product substitution.
   (c) "Carbon dioxide equivalent" means the amount of carbon dioxide
by weight that would produce the same global warming impact as a
given weight of another greenhouse gas, based on the best available
science, including from the Intergovernmental Panel on Climate
Change.
   (d) "Cost-effective" or "cost-effectiveness" means the cost per
unit of reduced emissions of greenhouse gases adjusted for its global
warming potential. 
   (e) "Compliance offset" means the quantified reduction of
greenhouse gas emissions used as a substitute for direct compliance
with a greenhouse gas reduction regulation or market mechanism. A
compliance offset is based on emission reductions occurring outside
of the sector or sectors covered by the greenhouse gas regulation.
 
   (e) 
    (f) "Direct emission reduction" means a greenhouse gas
emission reduction action made by a greenhouse gas emission source at
that source. 
   (f) 
    (g)  "Emissions reduction measure" means programs,
measures, standards, and alternative compliance mechanisms authorized
pursuant to this division, applicable to sources or categories of
sources, that are designed to reduce emissions of greenhouse gases.

   (g) 
    (h)  "Greenhouse gas" or "greenhouse gases" includes all
of the following gases: carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

   (h) 
    (i)  "Greenhouse gas emissions limit" means an
authorization, during a specified year, to emit up to a level of
greenhouse gases specified by the state board, expressed in tons of
carbon dioxide equivalents. 
   (i) 
    (j)  "Greenhouse gas emission source" or "source" means
any source, or category of sources, of greenhouse gas emissions whose
emissions are at a level of significance, as determined by the state
board, that its participation in the program established under this
division will enable the state board to effectively reduce greenhouse
gas emissions and monitor compliance with the statewide greenhouse
gas emissions limit. 
   (j) 
    (k)  "Leakage" means a reduction in emissions of
greenhouse gases within the state that is offset by an increase in
emissions of greenhouse gases outside the state. 
   (k) 
    (l)  "Market-based compliance mechanism" means either of
the following:
   (1) A system of market-based declining annual aggregate emissions
limitations for sources or categories of sources that emit greenhouse
gases.
   (2) Greenhouse gas emissions exchanges, banking, credits, and
other transactions, governed by rules and protocols established by
the state board, that result in the same greenhouse gas emission
reduction, over the same time period, as direct compliance with a
greenhouse gas emission limit or emission reduction measure adopted
by the state board pursuant to this division. 
   (l) 
    (m)  "State board" means the State Air Resources Board.

   (m) 
    (n)  "Statewide greenhouse gas emissions" means the
total annual emissions of greenhouse gases in the state, including
all emissions of greenhouse gases from the generation of electricity
delivered to and consumed in California, accounting for transmission
and distribution line losses, whether the electricity is generated in
state or imported. Statewide emissions shall be expressed in tons of
carbon dioxide equivalents. 
   (n) 
    (o)  "Statewide greenhouse gas emissions limit" or
"statewide emissions limit" means the maximum allowable level of
statewide greenhouse gas emissions in 2020, as determined by the
state board pursuant to Part 3 (commencing with Section 38550).
   SEC. 2.    Section 38573 is added to the  
Health and Safety Code   , to read:  
   38573.  If the state board allows the use of market-based
compliance mechanisms pursuant to Section 38570, all of the following
shall apply:
   (a) The state board shall limit the use of compliance offsets
within a compliance period to no more than 10 percent of the
greenhouse gas emission reductions expected from market mechanisms
during that compliance period. The state board shall apply the limit
as a percentage of each regulated facility's reported emissions in a
compliance period.
   (b) The state board shall approve compliance offsets only if those
compliance offsets meet all of the following criteria:
   (1) The compliance offset has been verified by an independent,
third-party verifier who has been certified and assigned by the state
board.
   (2) The independent verifier has certified that the emission
reductions represented by the compliance offset meets the
requirements of a protocol adopted by the state board. Protocols
shall be developed to meet the requirements of paragraph (1) of
subdivision (d) of Section 38562.
   (3) The compliance offset is entered into a tracking system
developed or designated by the state board and assigned a unique
serial number.
   (4) The compliance offset is permanently retired and the emission
reductions represented by the compliance offset have not been claimed
by any other entity.
   (5) The compliance offset shall not cause or contribute to
significant adverse effects on human health or the environment as
determined by the state board.
   (6) The compliance offset is not a certified emission reduction
credit developed as part of the Kyoto Protocol's Clean Development
Mechanism.
   (c) Compliance offsets shall meet the requirements for emission
reductions in Section 38562.
   (d) Subject to subdivision (a), the state board shall establish
incentives or guidelines that prioritize the use of compliance
offsets in the following order:
   (1) Compliance offsets that result in air quality benefits to
California communities disproportionately impacted by air pollution,
as determined by the state board. A preference shall be made for
compliance offsets that benefit air quality in the same air pollution
control district or air quality management district where the
facility claiming the offset credit is located.
   (2) Compliance offsets that comply with Section 38565.
   (3) Compliance offsets that result in cobenefits to public health
and the environment anywhere in the state.
   (e) The state board shall impose an offset verification fee on
entities buying and selling compliance offsets. The fee shall be
imposed and collected, and the revenues shall be deposited into the
Air Pollution Control Fund, in accordance with Section 38597.
Revenues deposited into the Air Pollution Control Fund pursuant to
this section shall be available, upon appropriation by the
Legislature, to pay for expenses related to state board
administration of the compliance offset program.  
  SECTION 1.    Section 38572 is added to the Health
and Safety Code, to read:
   38572.  (a) If the state board allows the use of market-based
compliance mechanisms pursuant to Section 38570, the state board
shall create an independent entity to be regulated by the state board
to independently verify a greenhouse gas emission offset to ensure
the emission reduction claim is real, permanent, and additional,
including the creation of an auditing system to ensure the permanency
of an offset.
   (b) Any individual or entity may sell an offset if the offset
meets criteria to be developed by the state board, and the offset has
been verified pursuant to subdivision (a).
   (c) Both providers and users of offsets shall pay a fee, in
amounts to be determined by the state board, to the entity created
pursuant to subdivision (a) to pay for the costs of the verification.
The fee shall be set in a manner to ensure that an offset user pays
increased fees as the user purchases more offsets to meet the
emission reduction requirements established by the state board. All
fees shall be deposited pursuant to Section 38597.  

  SEC. 2.    Section 38573 is added to the Health
and Safety Code, to read:
   38573.  If the state board allows the use of market-based
compliance mechanisms pursuant to Section 38570, offsets may be used
to meet the requirements of this act only as follows:
   (a) An offset shall be similarly as effective in reducing
emissions of pollutants in addition to greenhouse gases as would a
direct emission reduction measure by the user of that offset.
   (b) (1) An offset may only be used for compliance, if the emission
reduction or sequestration project that generated the offset is
located in the same air pollution control district or air quality
management district in which the user of the offset emits greenhouse
gas emissions that makes them subject to emission reduction
requirements pursuant to this act.
   (2) If an offset cannot be found that meets the requirement of
paragraph (1), an offset shall be purchased where the emission
reduction or sequestration project that generated the offset is
located in California in an environmentally disadvantaged community.
   (3) If the state board verifies that an offset cannot be found
that meets the requirements of paragraphs (1) and (2), an offset
consistent with subdivision (a) may be used for compliance.
   (c) A source shall not be allowed to use more than 10 percent
emission offsets to meet the greenhouse gas emission reductions
required during a compliance period created by the state board.