BILL ANALYSIS
AB 1404
Page 1
ASSEMBLY THIRD READING
AB 1404 (De Leon, Carter, and V. Manuel Perez)
As Amended June 1, 2009
Majority vote
NATURAL RESOURCES 5-3 APPROPRIATIONS 12-5
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|Ayes:|Skinner, Brownley, |Ayes:|De Leon, Ammiano, Charles |
| |Chesbro, | |Calderon, Davis, Fuentes, |
| |De Leon, Hill | |Hall, John A. Perez, Price, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Krekorian |
| | | | |
|-----+--------------------------+-----+----------------------------|
|Nays:|Gilmore, Knight, Logue |Nays:|Nielsen, Duvall, Harkey, |
| | | |Miller, |
| | | |Audra Strickland |
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SUMMARY : Limits the use of "compliance offsets," as defined, to
10% of the greenhouse gas (GHG) emission reductions expected
from market mechanisms used to meet the GHG reduction goals of
the Global Warming Solutions Act of 2006 [AB 32 (Nunez and
Pavley), Chapter 488, Statutes of 2006]. Specifically, this
bill:
1)Defines "compliance offset" as the quantified reduction of GHG
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.
2)Requires the Air Resources Board (ARB) to limit the use of
compliance offsets to no more than 10% of the GHG emission
reductions expected from market mechanisms during any
compliance period.
3)Imposes detailed conditions on ARB approval of compliance
offsets to assure the offsets represent GHG emission
reductions that are real, permanent, quantifiable, verifiable
and enforceable by ARB, and otherwise meet the requirements
for GHG emission reductions established by AB 32.
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4)Requires ARB to establish incentives or guidelines to
prioritize the use of compliance offsets in the following
order:
a) 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;
b) Compliance offsets that direct investment toward the
most disadvantaged communities in California and provide an
opportunity for small businesses, schools, affordable
housing associations, and other community institutions to
participate in and benefit from statewide efforts to reduce
GHG emissions; and,
c) Compliance offsets that result in co-benefits to public
health and the environment anywhere in the state.
5)Requires ARB to use the fees authorized by AB 32 to administer
the compliance offset program. ARB may not use General Fund
revenues to administer this program.
EXISTING LAW :
1)Requires ARB to adopt a statewide GHG emissions limit
equivalent to 1990 levels by 2020 and adopt regulations to
achieve maximum technologically feasible and cost-effective
GHG emission reductions.
2)Authorizes ARB to use market-based compliance mechanisms to
comply with GHG reduction regulations.
3)Requires any direct regulation or market-based compliance
mechanism to achieve GHG reductions that are real, permanent,
quantifiable, verifiable and enforceable by ARB.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, one-time special fund costs of approximately $500,000
to ARB to establish a program for third-party verifier
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certification, offset use protocols, incentives, and guidelines,
and a database to track offsets; ongoing annual special fund
costs of about $300,000 to approve and track offsets.
COMMENTS : The AB 32 Scoping Plan is a description of the
specific measures ARB and others must take to meet the objective
of AB 32: reduce statewide GHG emissions to 1990 levels by
2020. The reduction measures identified in the Scoping Plan
must be proposed, reviewed, and adopted as individual
regulations by January 1, 2011, to become operative by January
1, 2012.
According to ARB, a total reduction of 174 million metric tons
(MMT), or 30%compared to business as usual, is necessary to
achieve the 2020 limit. The major sources of GHG emissions that
must be cut are the transportation and electricity sectors, as
well as high global warming potential (GWP) products.
According to the Scoping Plan, reductions of approximately 140
MMT (~80%) will be achieved through identified "regulatory"
measures. Of the regulatory measures, more than 54% of the tons
come from four measures in the transportation and electricity
sectors.
ARB proposes to achieve an additional 34.4 MMT (~20%) reductions
necessary to meet the 2020 limit through a cap-and-trade program
that links with other states participating in the Western
Climate Initiative (WCI) to create a regional market. ARB's
pledges to ensure California's program meets all applicable AB
32 requirements for market-based mechanisms.
Within this 20%, this bill would impose a 10% limit the use of
compliance offsets representing reductions from outside of a
regulated sector. Within the limited amount of offsets
permitted, this bill would further impose priorities to favor
offsets from local sources. This is intended to maximize
environmental and public health benefits within California.
AB 32 makes no mention of offsets, instead focusing on direct
GHG emission reductions and only permitting market-based
mechanisms to the extent they produce equivalent results. The
potential use of offsets for compliance with AB 32, as
envisioned in the Scoping Plan and the WCI, has been invented by
ARB without any statutory guidance. While ARB has indicated a
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heavy reliance on offsets, citing an opportunity for low-cost
reductions, it has not spelled out how these offsets might meet
AB 32's requirements or otherwise produce benefits in
California. This bill explicitly authorizes the use of
compliance offsets, albeit subject to very stringent constraints
that significantly diminish their value in the eyes of offset
proponents. For those that might view offsets as a low-cost,
"outsourced" alternative to investing in direct GHG emission
reductions at home, this bill essential defeats that purpose.
The bill limits offsets in three main ways - by percentage,
criteria and location. The 10% limit is significantly lower
than the 49% limit envisioned in the Scoping Plan and WCI
proposal. The criteria limits generally are consistent with AB
32's requirement that market-based mechanisms produce real
emission reductions equivalent to direct regulatory measures.
The location limits, in the form of priority for offsets from
sources near in-state sources of pollution, operate to further
constrain the limited range of offset sources that would qualify
under the first two limits.
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092
FN: 0001282