BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1285
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          Date of Hearing:  May 2, 2011

                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES
                                Wesley Chesbro, Chair
                   AB 1285 (Fuentes) - As Amended:  March 31, 2011
           
          SUBJECT  :  Regional greenhouse gas emission reduction program

           SUMMARY  :  Requires the Air Resources Board (ARB) to establish a 
          program to maximize regional greenhouse gas (GHG) emission 
          reduction and sequestration projects, as specified.  Permits GHG 
          offsets produced by these projects to be used for compliance 
          with AB 32.

           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 permit the use of market-based compliance 
            mechanisms to comply with GHG reduction regulations, to be 
            adopted by 2011 and operative by 2012, under limited 
            circumstances once specified conditions are met.  

          3)Requires any direct regulation or market-based compliance 
            mechanism to achieve GHG reductions that are real, permanent, 
            quantifiable, verifiable and enforceable by ARB.

          4)Requires ARB, in adopting regulations, including market-based 
            compliance mechanisms, to design the regulations in a manner 
            that is equitable, seeks to minimize costs and maximize the 
            total benefits to California, and encourages early action to 
            reduce GHG emissions. 

           THIS BILL  :

          1)Requires ARB to establish a program to maximize regional GHG 
            emission reduction and sequestration projects.

          2)Requires federal, state, regional, local, and nonprofit 
            entities and Native American tribes to develop and implement 
            GHG emission reduction and sequestration projects.









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          3)Provides that eligible projects include energy efficiency, 
            localized clean energy generation, urban greening, natural 
            resource protection and conservation, recycling and 
            composting, and other interventions that reduce GHG emissions 
            and co-pollutant emissions.

          4)Requires the program to:

             a)   Promote the aggregation of projects.

             b)   Provide incentives to entities subject to an emissions 
               cap to invest in projects.

             c)   Contain design elements that maximize the ability of 
               federal, state, regional, local, and nonprofit entities and 
               Native American tribes to participate in the program.

             d)   Promote emission reduction projects that provide 
               multiple benefits, including, decrease in air or water 
               pollution, reduction in the consumption of natural 
               resources or energy, increase in the reliability of local 
               water supplies, reduction in vehicle miles traveled, and 
               increased adaptability to climate change.

             e)   Provide for state review and oversight of the program.

             f)   Create incentives that take into account future state or 
               federal climate change programs.

             g)   Maximize interagency cooperation and integration, 
               investments in existing agency and nonprofit programs, and 
               the use of existing public lands and public resources.

             h)   Include standardized auditing of projects.

          5)Requires ARB to create a system by which emission reductions 
            achieved by projects result in the creation of qualified units 
            of exchange (i.e. offsets) that may be transferred to entities 
            subject to an emissions cap for compliance.

          6)Requires ARB to establish a Regional Emission Reduction 
            Exchange to provide oversight and facilitate the transfer of 
            offsets.  Requires the Exchange to meet all of the following 
            requirements: 









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             a)   Ensure that only real, verifiable, and additional 
               projects result in the creation of offsets.

             b)   Ensure the proper accounting of emission reductions 
               represented by offsets.

             c)   Promote the financing of projects, especially those 
               projects located in a disadvantaged community.

          7)Establishes the Regional Emission Reduction System Account 
            within the Air Pollution Control Fund and authorizes deposit 
            of moneys from federal, state, regional, and private sources, 
            and authorizes use of funds for the purposes of this bill, 
            upon appropriation by the Legislature.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :

           1)Background.   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 percent 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.  Reductions of approximately 140 MMT (~80 
            percent) will be achieved through identified "regulatory" 
            measures.  Of the regulatory measures, more than 54 percent of 
            the tons come from four measures in the transportation and 
            electricity sectors.  ARB proposes to achieve an additional 
            34.4 MMT (~20 percent) reductions necessary to meet the 2020 
            limit through a cap-and-trade program.  

            ARB's proposed cap-and-trade program would apply to an 
            estimated 600 regulated entities engaged in stationary 
            combustion, cement manufacturing, cogeneration, petroleum 
            refining, hydrogen production, aluminum production, facility 
            operators calcining carbonates, CO2 supplier or transfer 








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            recipient, electricity generation, glass production, iron and 
            steel production, lime production, natural gas transmission 
            and distribution, nitric acid production, oil and gas 
            extraction field operation, production of industrial gases, 
            pulp and paper production, soda ash production, electricity 
            deliverers, transportation fuel deliverers, and natural gas 
            deliverers.

            In a cap-and-trade program, a limit, or cap is put on the 
            amount of pollutants (GHGs) that can be emitted.  Each 
            allowance equals one metric ton of carbon dioxide equivalent.  
            The total number of allowances created is equal to the cap set 
            for cumulative emissions from all the covered sectors.  These 
            allowances may be auctioned and/or freely given to companies 
            or other groups.  In addition to allowances, a emissions 
            reductions from sources that are outside the cap coverage, 
            called offsets, could be authorized.  This would allow 
            emissions in the capped sectors to exceed the allowances 
            issued.  After initial distribution of allowances-or in the 
            use of offsets-compliance instruments may be traded among 
            entities.  At the end of each compliance period, covered 
            entities are required to turn in, or surrender, enough 
            compliance instruments to match their emissions during this 
            time period.

            Compliance offsets allow regulated entities to purchase 
            emission reduction credits from unregulated entities in 
            sectors that are not subject to emission limits, instead of 
            directly reducing their own emissions or causing emissions to 
            be reduced amongst other regulated entities.

           2)Are offsets an appropriate tool for AB 32 compliance?   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 proposed cap-and-trade 
            program, has been invented by ARB without any statutory 
            guidance.  While ARB has indicated a 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.

            It's no mistake that AB 32 does not require offsets - they 
            were quite intentionally omitted during the negotiation of 








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            that bill.  This committee has previously passed legislation 
            (e.g. AB 1404 (De Leon) in 2009) to apply stringent limits to 
            ARB's use of offsets for AB 32 compliance.  To remain 
            consistent with the policy of AB 32, this bill should not 
            require offsets.  Instead  the author and the committee may 
            wish to consider  adding language to say "if compliance offsets 
            are authorized by ARB as a market-based compliance mechanism 
            pursuant to Section 38570," then ARB may establish the program 
            proposed by the bill.

           3)If offsets are to be used for AB 32 compliance, standards are 
            needed to assure integrity.  This bill includes eligible 
            projects that would not be legitimate sources of offsets 
            because they would originate from within a capped sector, such 
            as energy efficiency and energy generation.  Reductions 
            originating from these sources would be counted by electric 
            utilities toward their caps, so saying they are a source of 
            offsets is inappropriate and an invitation to double count the 
            same reduction.   The author and the committee may wish to 
            consider  amending the bill to exclude any project from within 
            a capped sector.

            In addition, to assure that offsets from appropriate sources 
            represent legitimate emission reductions,  the author and the 
            committee may wish to consider  amending the bill to require 
            that offsets must be developed pursuant to an approved 
            protocol and must meet existing requirements for emission 
            reductions in AB 32 (e.g. AB 32 requires GHG reductions used 
            for compliance purposes to be "real, permanent, quantifiable, 
            verifiable, and enforceable by ARB.").

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          None on file

           Opposition 
           
          None on file

           
          Analysis Prepared by  :  Lawrence Lingbloom / NAT. RES. / (916) 
          319-2092 









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