BILL ANALYSIS
AB 1404
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Date of Hearing: May 6, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1404 (De Leon) - As Amended: April 13, 2009
Policy Committee: Natural
ResourcesVote:5-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill would limit the Air Resources Board's (ARB) use of
offsets to achieve required reductions in emissions of
greenhouse gases (GHGs). Specifically, this bill:
1)Directs ARB to limit use of "compliance offsets" to no more
than 10% of GHG emissions reductions expected from
market-based mechanisms in any given compliance period.
2)Requires that any compliance offset approved by ARB meet
certain criteria: offsets must be a) verified by an
independent, third-party verifier certified by ARB; b) meet
protocols established by ARB; c) be assigned a unique serial
number, d) be entered into a tracking database maintained by
ARB; e) be permanently retired by ARB; and f) not
significantly harm human health or the environment.
3)Directs ARB to establish incentives or guidelines that
prioritize offsets that, among other things, result in air
quality benefits to communities disproportionately impacted by
air pollution, as determined by the state board, and benefit
air quality in the same air district where the facility
claiming the offset credit is located.
4)Requires ARB to impose an offset verification fee on emitters
using such mechanisms in order to cover costs associated with
implementation of this bill.
FISCAL EFFECT
1)One-time costs of approximately $500,000 to ARB to establish a
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program for third-party verifier certification, offset use
protocols, incentives, and guidelines, and a database to track
offsets. (Air Pollution Control Fund (APCF))
2)Ongoing annual costs of about $300,000 to approve and track
offsets.
(Because the bill requires ARB to undertake actions that
result in the costs, this analysis attributes those costs to
the bill, even though ARB may choose to undertake those same
or similar actions absent this bill.)
3)Annual fee revenue sufficient to cover much of the costs
listed in 1) and 2). (APCF)
COMMENTS
1)Rationale . The author contends GHG reductions required by AB
32 provide the opportunity to reduce other harmful
"copollutants" that oftentimes are produced along with GHGs.
The author is concerned that use of offsets in place of actual
emissions reductions will diminish the opportunity to address
copollutants along with GHGs. The author contends that the
limits included in this bill will allow ARB to use compliance
offsets, while ensuring that GHG reductions also lead to
reduction of copollutants, especially in those areas of the
state already suffering from the dirtiest air.
2)Background. AB 32 (N??ez, Chapter 455, Statutes of 2006)
requires California to limit its emissions of GHGs so that, by
2020, those emissions are equal to what they were in 1990. To
that end, AB 32 requires ARB to quantify the state's 1990 GHG
emissions and to adopt, by January 1, 2009, a "scoping plan"
that describes the board's plan for achieving the maximum
technologically feasible and cost-effective reductions of GHG
emissions reductions by 2020. In keeping with AB 32, ARB
adopted its AB 32 scoping plan in December of 2008.
Consistent with AB 32, the scoping plan includes both direct
regulatory measures and market-based compliance mechanisms.
Direct regulatory requirements of the type that have typified
California's regulation of environmental quality, such as
efficiency and emissions standards, account for over
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three-quarters of the plan's GHG emissions reductions.
The remainder of the plan's GHG emissions reductions-about
20%-result from a cap-and-trade market in which regulated
emissions sources buy and sell credits that give the holder
the right to emit a quantity of GHGs. The scoping plan
indicates ARB's intent to link California's cap-and-trade
program to that of the Western Climate Initiative (WCI)-a
collaboration of several western states and Canadian
provinces.
3)Use of Offsets is Controversial. In keeping with WCI
guidelines, ARB states that no more than 49% of the
cap-and-trade program emissions reductions will be allowed
from offsets. "Offsets" refer to projects that reduce GHG
emissions by sources not subject to a cap-and-trade program's
GHG emissions cap. These projects are in lieu of emissions
reductions by a capped emissions source. Offsets have the
potential to result in a reduction in overall GHGs, but at a
cost that is lower than if only regulated emissions sources
were to directly realize those reductions themselves.
Use of offsets is controversial, however, because it can be
difficult to verify that offsets represent a "real" reduction
in GHG emissions. It also can be difficult to verify that the
emissions reductions represented by the offset are truly
"additional"-meaning they would not have occurred absent the
payment made by the regulated emission source. These
difficulties become more pronounced as the eligible geographic
location of potential offset projects is broadened. In
addition, offsets allow an emissions source to avoid reducing
its own emissions, a fact that some find objectionable for
ethical reasons.
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ARB notes the potential to reduce emissions reduction costs by
incorporating low-cost emissions reductions from nonregulated
emissions sources into the cap-and-trade program. ARB also
notes, for similar reasons, the desirability of recognizing
offsets from as wide a geographic area as possible.
4)Supporters of this measure , including some environmental and
environmental justice groups, contend the bill's restriction
on offsets will ensure that use of offsets to achieve the
state's GHG reduction goals will not cause the state to miss
opportunities to simultaneously reduce other types of air
pollution in those communities most severely effected by air
pollution.
5)Opponents, including some industry groups, claim the bill is
unnecessary and will add to the cost of achieving required
reductions in GHGs. Opponents note that the AB 32 scoping
plan already limits the use of offsets so that they achieve no
more than about 10% of overall emissions reductions. (Offsets
can represent no more than 49% of cap-and-trade GHG emissions
reductions, which themselves represent about 20% of ARB's
overall GHG emissions reductions).
Opponents additionally contend that offsets represent the
opportunity to reduce GHGs at a substantially lower cost than
would otherwise be possible, so restricting their use can only
add to the cost of GHG reduction. Opponents also claim that
the bill, by requiring ARB to develop guidelines for the use
of offsets, creates implementation costs for ARB.
The bill allows ARB to charge a fee to GHG emissions sources
that use offsets, revenue from which could cover the cost of
developing the guidelines. However, because those very
guidelines will severely restrict the use of offsets,
opponents argue that ARB will not recover those costs because
few, if any GHG emitters will actually be able to use offsets.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081