BILL ANALYSIS
AB 1404
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2009-2010 Regular Session
BILL NO: AB 1404
AUTHOR: De Leon
AMENDED: June 30, 2009
FISCAL: Yes HEARING DATE: July 6, 2009
URGENCY: No CONSULTANT: Randy Pestor
SUBJECT : GREENHOUSE GAS EMISSION OFFSETS
SUMMARY :
Existing law , under the California Global Warming Solutions
Act of 2006 (CGWSA):
1) Requires the California Air Resources Board (ARB) to
determine the 1990 statewide greenhouse gas (GHG) emissions
level and approve a statewide GHG emissions limit that is
equivalent to that level, to be achieved by 2020, and sets
various requirements to meet this requirement. (Health and
Safety Code 38500 et seq.).
2) Requires ARB to prepare and approve a scoping plan by
January 1, 2009, for achieving the maximum technologically
feasible and cost-effective reductions in GHG emissions
from sources or categories of sources of GHGs by 2020. ARB
must evaluate the total potential costs and total potential
economic and noneconomic benefits of the plan for reducing
GHGs to the state's economy and public health, using the
best economic models, emission estimation techniques, and
other scientific methods. The plan must be updated at
least once every five years. (38561).
3) Requires ARB to adopt GHG emission limits and emission
reduction measures by regulation on or before January 1,
2011, and meet certain requirements in adopting the
regulations. ARB may include the use of market based
mechanisms to comply with these regulations. (38562,
38570).
AB 1404
Page 2
This bill :
1) Provides that if ARB allows market-based compliance
mechanisms:
a) ARB must limit use of compliance offsets to no more
than 10% of GHG emission reductions expected from market
mechanisms for the compliance period. ARB must apply
the limit to each regulated party's reported emissions
in a compliance period.
b) ARB must approve compliance offsets only if certain
criteria are met (e.g., offset has been verified by an
independent third-party verifier certified by the ARB,
offset is entered into tracking system and permanently
retired).
c) Compliance offsets must meet GHG emission reduction
requirements.
d) ARB must establish incentives or guidelines that
prioritize compliance offsets (i.e., result in air
quality benefits to California communities
disproportionately impacted by air quality and
disadvantaged communities, result in cobenefits to
public health and the environment in the state).
e) ARB must establish a fee with revenues to be placed
into the Air Pollution Control Fund and be available
upon appropriation by the Legislature to pay for
expenses related to ARB administration of the compliance
offset program. General Fund moneys cannot be expended
for program administration.
2) Defines "compliance offset" as a quantified GHG emission
reduction in a sector different than the sector regulated
by an ARB adopted GHG emission limit for which a market
based-compliance mechanism has been adopted, that is used
for specified compliance purposes.
COMMENTS :
AB 1404
Page 3
1) Purpose of Bill . According to the author and sponsor, ARB
is considering use of compliance offsets to meet the
state's emission reduction targets. They note that
"Compliance offsets are credits based on estimated global
warming emission reductions made outside the sectors
directly covered by California's emission reduction
regulations. Polluters in regulated sectors can buy
offsets to substitute for cuts that they otherwise would
have made directly in capped sectors." It is also noted
that while ARB has committed to implementing policies to
achieve about 80% GHG emission reductions, the remaining
20% of reduction would be achieved through a cap-and-trade
program - and ARB "has proposed that offsets could
substitute for up to 49 percent of the total emission
reductions below the 2012 cap - which could encompass all
of the emission reductions expected to be achieved through
the cap-and-trade program."
According to the author and sponsor, smog-forming and toxic
air pollutants are often reduced when electricity
generators, fuel providers, refineries, and other regulated
sources reduce GHG emissions - air quality cobenefits of
climate change actions that are "critically important."
They note that "The use of offsets can jeopardize the
reduction of air pollutants in many of California's most
heavily polluted communities . . . The use of offsets also
out-sources projects that could otherwise have created
green jobs in California."
The author and sponsor also note that, "The California LAO has
recommended that the legislature give [ARB] direction on
the issue of offsets. The US Government Accountability
Office has also recently affirmed the need for strict
limits on offsets."
2) Background . Under a cap and trade mechanism, ARB could
establish a declining cap on GHG emissions. Regulated
entities, such as powerplants, would obtain permits or
allowances to emit emissions up to their cap. Those
allowances could then be traded among regulated entities
with a purported result that those entities that could
lower their GHG emissions least expensively will do so and
sell their "excess" allowance to those who find it more
AB 1404
Page 4
costly to lower their GHG emissions. An issue with such a
program is how regulated entities obtain the emission
allowances. A broader concern is whether the auctioning of
allowances is enforceable, transparent, and allows public
participation - and whether many will simply experience the
same shortcomings that affected personal portfolios when it
was determined that derivatives and other financial
instruments were essentially unregulated market mechanisms.
A part of some cap and trade programs is the creation of
offsets whereby a regulated entity can pay another entity
for its GHG reductions, which can then be used by the
regulated entity to meet its GHG cap. Examples may include
planting trees, or developing landfill gas capture and
windfarm projects. Firms currently sell carbon offsets
which are used by those who want to "green" their
activities. A major concern with offsets is the validity
of their activities - yet legislation seeking to ensure the
legitimacy of offsets is also opposed by those advertising
their use.
According to the Climate Change Scoping Plan (December 2008),
"The foundation of the Scoping Plan's strategy is a set of
measures that will cut greenhouse gas emissions by nearly
30 percent by the year 2020 as compared to business as
usual and put California on a course for much deeper
reductions in the long term." The Scoping Plan also notes
that
"In December 2007, ARB approved a greenhouse gas emissions
target for 2020 equivalent to the state's calculated
greenhouse gas emissions level in 1990. ARB developed the
2020 target after extensive technical work and a series of
stakeholder meetings. The 2020 target of 427 MMTCO2E
[million metric tons of carbon dioxide equivalents]
requires the reduction of 169 MMTCO2E, or approximately 30
percent, from the state's projected 2020 emissions of 596
MMTCO2E (business-as-usual) and the reduction of 42
MMTCO2E, or almost 10 percent, from 2002-2004 average
emissions . . . The total reduction for the recommended
measures slightly exceeds the 169 MMTCO2E of reductions
estimated in the Draft Scoping Plan. This is the net
effect of adding several measures and adjusting the
emission reduction estimates for some other measures."
AB 1404
Page 5
ARB proposes to achieve 34.4 MMTCO2E through a cap and trade
program, or about 20% of a total 174 MMTCO2E reduction.
The CGWSA does not reference offsets, but focuses on GHG
emission reductions and only authorizes market based
mechanisms if certain conditions are met. As noted above,
the Scoping Plan includes cap and trade provisions, and
references the use of offsets to "no more than 49% of the
required reduction of emissions [within the 20% cap and
trade program]." Within this 20%, AB 1404 would set a 10%
limit on the use of compliance offsets from reductions
outside the regulated sector. AB 1404 also sets criteria
for using offsets, as well as priorities for use of those
offsets in California that are intended to increase
environmental and public health benefits in the state.
AB 1404 provisions would apply if ARB uses market-based
mechanisms as authorized under the CGWSA.
3) Opposition and support concerns . According to opponents,
"Of the 19% of reductions through cap and trade, [ARB]
suggests that 49% of the reductions could be satisfied by
offsets. AB 1404 would allow only 10% to be satisfied by
offsets, which will result in higher costs for California's
employers, the economy and consumers." Opponents also note
that this bill "would prematurely determine important
elements of the cap and trade program prior to expert
analysis and review" and offsets "are an important
cost-containment mechanism for the cap and trade program."
According to supporters, "AB 1404 establishes an offsets limit
that ensures that at least 90% of the global warming
pollution reductions promised by AB 32 occur in our state's
electricity and transportation sectors - the sectors with
the highest levels of global warming pollution. This will
help stimulate green technology innovation, boost markets
for renewable energy, and create green collar jobs."
Supporters note that "Offsets could drain funding renewable
energy development in California" and "limits on offsets
help spur innovation and drive venture capital investment
in California."
4) Technical consideration . SB 722 (Steinberg), currently
AB 1404
Page 6
with the Assembly Natural Resources Committee, addresses
GHG emission representations in an advertisement or other
promotional materials. If SB 722 is approved by that
committee, it may be necessary to ensure that AB 1404 and
SB 722 do not contain conflicting provisions.
AB 1404 and SB 104 (Oropeza) amend Public Resources Code
38505, so double-jointing amendments will be needed to
avoid chaptering out problems.
SOURCE : Union of Concerned Scientists
SUPPORT : African American Environmentalist Association
American Lung Association of California
Ausra, Inc.
Bayview Hunters Point
Breast Cancer Fund
Breathe California
California Apollo Alliance
California Interfaith Power and Light
California Labor Federation
California League of Conservation Voters
California Pan-Ethnic Health Network
California State Building and Construction
Trades
Council, AFL-CIO
California State NAACP
California Thoracic Society
California Wind Energy Association
Catholic Charities, Stockton Diocese
Center for Biological Diversity
Center for Environmental Health
Central Valley Air Quality Coalition Global
Warming and
Air Quality Committee
Clean Air Now
Clean Power Campaign
Cleantech America
Coalition for Clean Air
Communities for Clean Ports
Community Action to Fight Asthma
Ella Baker Center
End Oil
AB 1404
Page 7
Engineers and Scientists of California, Local
20 IFPTE,
AFL-CIO & CLC
enXco Development Corporation
Environment California
Faith2Green
Forests Forever
Fresno-Madera Medical Society
Global Green USA
International Rivers
Large Scale Solar Association
Latino Coalition for a Healthy California
Latino Issues Forum
Mark Z. Jacobson, Professor of Civil &
Environmental
Engineering, Stanford University
Medical Advocates for Healthy Air
Merced/Mariposa County Asthma Coalition
Moms CAN (Clean Air Network)
National Parks Conservation Association
Natural Resources Defense Council
New Voice of Business
Orange County Interfaith Coalition for the
Environment
Our Children's Earth Foundation
Physicians for Social Responsibility-Bay Area
Planning and Conservation League
Public Health Institute
Public Health Law and Policy
Recurrent Energy
Regional Asthma Management and Prevention
Santa Cruz County Board of Supervisors
Sharp, USA
Sierra Club California
Sierra Club, Loma Prieta Chapter
Solaria
Solar Millennium
SolFocus
Suntech America
Sustainable Energy Partners LLC
Sungevity
Vote Solar
Union of Concerned Scientists
AB 1404
Page 8
110 Individuals including:
David Roland-Holst, U.C. Berkeley; Dean Baker,
M.D., MPH (Professor, UC Irvine School of
Medicine, Director, Center for Occupational
Health and Environment); Rajiv Bhatia, MD, MPH
(Director, Occupational & Environmental Health,
San Francisco Department of Public Health,
Assistant Clinical Professor of Medicine,
UCSF); Curtis Eckhert, Ph.D. (Professor,
Environmental Health Sciences (Chair),
University of California, Los Angeles); Julia
Faucett, RN, PhD, FAAN (Professor Emerita,
UCSF); John Froines, Ph.D. (Director, Southern
California Particle Center); Robert Harrison,
MD, MPH (Professor of Medicine, Division of
Occupational and Environmental Medicine,
University of California, San Francisco);
Richard J. Jackson, M.d., MPH (Professor and
Chair, Environmental Health Sciences, School of
Public Health, UCLA); Rob S. McConnell, M.D.
(Professor, Department of Preventive Medicine,
Keck School of Medicine University of Southern
California); Anthony Molina, M.D. (Staff
Physician, Department of Preventive Medicine,
University of Southern California); Suzanne
Paulson, Ph.D. (Professor Atmospheric
Chemistry, UCLA); Kent E. Pinkeron, Ph.D.
(Professor and Director, Center for Health and
the Environment, University of California,
Davis); Beate Ritz, M.D., Ph.D. (Vice Chair,
Department of Epidemiology & Professor of
Epidemiology, Environmental Health Sciences and
Neurology, Schools of Public Health and
Medicine, UCLA); Linda Rosenstock, MD,MPH
(Dean, UCLA School of Public Health); Robert
Schiestl, Ph.D. (Department of Pathology, UCLA)
OPPOSITION : Azusa City Council
BOMA California
California Association of Small and Multi-jurisdictional
Utilities
California Building Industry Association
California Business Properties Association
AB 1404
Page 9
California Chamber of Commerce
California Council for Environmental and Economic Balance
California Forestry Association
California Grocers Association
California Independent Petroleum Association
California League of Food Processors
California Manufacturers & Technology Association
California Retailers Association
California Taxpayers Association
Ecosecurities
Industrial Environmental Associates
International Council of Shopping Centers
NAIOP of California
Sacramento Municipal Utility District
Santa Barbara Technology & Industry Association
Western States Petroleum Association