BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1404 (De Leon)
Hearing Date: 07/23/2009 Amended: 06/30/2009
Consultant: Brendan McCarthy Policy Vote: EQ 5-2
AB 1404 (De Leon)
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BILL SUMMARY: This bill limits the Air Resources Board's
authority to use compliance offsets as part of any market based
mechanism for achieving the state's greenhouse gas emission
reduction goals. The bill imposes additional requirements on the
potential use of compliance offsets. The bill directs the Board
to assess a fee to pay for the costs of administering the bill.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Air Resources Board $500 $300 Special
*
oversight
Air Pollution Control Fund. Ultimately offset with fees.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense file.
Under the Global Warming Solutions Act of 2006 (commonly
referred to as AB 32), the Air Resources Board is required to
approve a statewide greenhouse gas emission limit such that
total statewide emissions in 2020 are equivalent to the emission
level in 1990. AB 32 authorizes the Air Resources Board to
include market based mechanisms as a means of reaching the
state's emission goals.
In furtherance of AB 32, the Board has developed a Scoping Plan
which lays out the various regulatory strategies that will be
used to achieve the state's goals. One of the measures included
in the Scoping Plan is a market based mechanism known as "cap
and trade." Under a cap and trade mechanism, the Air Resources
Board would set a declining overall emission cap and award
permits to emitters. Emitters would be allowed to trade emission
permits. Emitters that can easily or inexpensively reduce
emissions could sell their permits to those that have greater
challenges in reducing emissions. In theory, this will lead to
the required emission reductions at the lowest cost by
encouraging greater reductions from those that can reduce
AB 1404 (De Leon)
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emissions at the least cost. One element of a cap and trade
system being evaluated by the Air Resources Board is the use of
compliance offsets. Compliance offsets allow an emitter to pay a
third party to take an action that "offsets" the emission of
greenhouse gasses. For example, rather than reducing greenhouse
gas emissions from a power plant directly, the operators of the
plant could pay a landowner to plant trees that would capture
and store greenhouse gasses equivalent to the emission reduction
required of the plant.
The Scoping Plan proposes that the state achieve 20 percent of
its overall emission reductions through the cap and trade
program. As part of the cap and trade program, the Air Resources
Board is considering allowing the use of compliance offsets to
make up as much as 49 percent of the emission reductions from
cap and trade (about 10 percent of the total emission reductions
required under AB 32).
One of the concerns raised about a cap and trade program in
general, and compliance offsets, in particular, is that they may
not lead to a reduction in other pollutants that are associated
with greenhouse gasses. For example, a power plant that emits
carbon dioxide (a greenhouse gas) would likely also emit
particulate matter (a local pollutant that may have impacts on
local air quality). In the absence of a cap and trade program, a
power plant operator may be required to directly reduce
greenhouse gas emissions which would also likely result in a
reduction of local air pollutants. However, under a cap and
trade program (particularly one that includes offsets) a power
plant operator could purchase emissions permits or pay for
offsets that reduce or offset overall greenhouse gas emissions,
but does not provide any local air pollution reductions.
Under this bill, if the Air Resources Board does ultimately
allow market-based mechanisms to be a part of the state's
strategy for addressing greenhouse gas emissions, the Board
would be required to take certain actions. Specifically, the
Board would be limited to using compliance offsets to achieve 10
percent of the emission reductions from market mechanisms. In
addition, the 10 percent limit would apply to each regulated
party's emissions. The Air Resources Board would be required to
ensure that any compliance offsets are verifiable and permanent,
are tracked by the board for ongoing compliance, have not been
claimed by any other emitter, shall not contribute to air
pollution or have impacts on public health or the environment,
AB 1404 (De Leon)
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and have not been registered under an existing offset registry.
Under the bill, the Air Resources Board is required to develop
incentives or guidelines to prioritize offsets that result in
air quality improvements in communities that are
disproportionately impacted by air pollution and that provide
air quality benefits in the same air district as the emitter is
located.
The bill directs the Air Resources Board to impose a fee to pay
for the administration of the program.
The Air Resources Board indicates that it will require
additional resources for developing guidelines and protocols and
for ongoing monitoring of compliance with the requirements of
the bill. In the long-term, these costs will be offset with fee
revenues.
To the extent that this bill limits the potential uses of
compliance offsets, it may increase the statewide costs of
achieving the state's greenhouse gas emission reduction goals.
On the other hand, to the extent the bill results in reduced
local air pollution, it may improve air quality and reduce
health care costs. The scope of either of these impacts is
unknown.