BILL ANALYSIS Ó
AB 1532
Page 1
Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 1532 (John A. Pérez) - As Amended: April 17, 2012
SUBJECT : California Global Warming Solutions Act of 2006:
Greenhouse Gas Reduction Account
SUMMARY : Establishes procedures for deposit and expenditure of
regulatory fee revenues derived from the auction of GHG
allowances pursuant to the cap and trade program adopted by ARB
pursuant to AB 32.
EXISTING LAW :
1)Requires ARB, pursuant to AB 32, to adopt a statewide
greenhouse gas (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.
THIS BILL :
1)Creates the GHG Reduction Account (Account) within the Air
Pollution Control Fund.
2)Requires all funds, excluding penalties and fines, collected
pursuant to the "Market-Based Compliance Mechanism" part of AB
32 (i.e. cap and trade) to be deposited in the Account, and
makes these fund available, upon appropriation, for purposes
of carrying out AB 32.
3)Declares that cap and trade, or any other market-based
compliance mechanism, shall be a regulatory program and any
funds collected are regulatory fees that shall conform to
Sinclair Paint Co. v. State Bd. of Equalization (1997) 15
Cal.4th 866 (Sinclair). Requires ARB, prior to funding any
measure or program from the Account, to determine that the use
is consistent with the requirements for the use of moneys
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derived from valid regulatory fees, as established by the
California Supreme Court in Sinclair.
4)Requires Account funds to be used to facilitate the
achievement of feasible and cost-effective GHG reductions
consistent with AB 32 and, to the extent feasible, achieve the
following complementary goals:
a) Maximize economic, environmental, and public health
benefits to the state.
b) Foster job creation by promoting in-state GHG
emissions reduction projects carried out by California
workers and businesses.
c) Complement efforts to improve air quality.
d) Direct investment toward the most disadvantaged
communities in the state.
e) Provide opportunities for small businesses, schools,
affordable housing associations, water agencies, local
governments, and other community institutions to
participate in and benefit from statewide efforts to
reduce GHG emissions.
5)Authorizes allocation of funds appropriated from the account
for the following purposes:
a) Investments in clean and efficient energy,
including:
i. Industrial and manufacturing facilities
to reduce GHG emissions by investment in energy
efficiency, energy storage, and clean and renewable
energy projects.
ii. Public universities, schools, water
agencies, and other public facilities and fleets to
reduce GHG emissions by investment in energy and
water use efficiency, energy storage, and clean and
renewable energy and fuel projects.
iii. Residential and commercial distributed
generation and energy efficiency programs that serve
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to reduce GHG emissions.
iv. Waste reduction and low-carbon
recycled-content processing and manufacturing that
serve to reduce GHG emissions.
b) Investments in low-carbon transportation and
infrastructure, including:
i. Public transportation and sustainable
transportation and infrastructure development.
ii. Programs for clean vehicles and the
advancement of transportation technologies.
iii. Advanced transportation and fueling
infrastructure.
iv. Local and regional sustainable
development efforts that are, to the extent
applicable, consistent with the sustainable
communities strategy or alternative planning
strategy adopted and approved pursuant to Section
65080 of the Government Code (i.e. SB 375).
v. Low-carbon goods movement and freight
vehicle technologies and infrastructure.
c) Investments in natural resource protection,
including:
i. Natural resource management programs and
projects.
ii. Land conservation and restoration.
iii. Development and implementation of
sustainable agriculture, forestry, and related
water, land, and resource management practices.
d) Investments in research, development, and deployment
of innovative technologies, measures, and practices
related to programs and projects funded pursuant to this
part.
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6)Provides ARB, and any other state agency identified by the
Legislature, to administer funds appropriated from the Account
and carry out a program to allocate appropriated funds through
competitive grants, revolving loans, loan guarantees, loans,
or other appropriate funding measures.
7)Requires, prior to the initial allocation of funds, that ARB
and other state agency administrators adopt guidelines to
establish funding criteria, a process to verify the
qualifications of recipients, and monitoring and auditing of
expenditures and outcomes.
8)Requires ARB to adopt an investment plan (Plan) every three
years which identifies and prioritizes expenditure of funds
appropriated from the Account. Requires the Public Utilities
Commission (PUC) to develop and send to ARB an investment plan
regarding investor-owned utility use of GHG allowance auction
revenues, to be included in ARB's Plan. Requires ARB to
consult with the PUC to ensure coordinate of their plans.
9)Requires ARB to receive input from a Plan advisory body
composed of the Secretaries for Natural Resources,
Environmental Protection, Agriculture, and Business,
Transportation and Housing.
10)Requires ARB's proposed Plan to be submitted to the Assembly
and Senate Budget Committees. Requires the Budget Committees,
in consultation with all relevant policy committees, to adopt
changes to the proposed Plan. Requires ARB to incorporate the
committees' changes and adopt a final Plan at a public
hearing.
11)Authorizes ARB to adopt minor changes to the Plan, subject to
notification of the Joint Legislative Budget Committee.
12)Requires ARB to report annually on the status of projects,
their outcomes and any recommended changes to the Plan.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background on cap and trade. 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
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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 beginning on January 1, 2012.
According to ARB, a total reduction of 80 million metric tons
(MMT), or 16 percent compared to business as usual, is
necessary to achieve the 2020 limit. Approximately 78 percent
of the reductions will be achieved through identified
"regulatory" measures. ARB proposes to achieve the balance of
reductions necessary to meet the 2020 limit (approximately 18
MMT) through a cap and trade program.
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, 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.
ARB has adopted a cap and trade program that applies 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
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.
According to ARB, the first auction of allowances will take
place on November 14, 2012 and the auctions will be held
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quarterly thereafter. Following the first auction, revenues
will be deposited in the Air Pollution Control Fund. ARB has
decided to hold a practice auction in August prior to the
November auction to ensure that all logistical and oversight
aspects of the program are fully operational prior to the
launch of the program. Allowing more time to launch and test
the allowance tracking system as well as the auction platform
will be beneficial to stakeholders, giving them more time to
be prepared, and ARB plans to hold workshops and stakeholder
training during this time to ensure everyone is ready and
familiar with both systems prior to the first auction.
Governor Brown's proposed 2012-13 budget assumes ARB will
raise $1 billion from the auctions for the budget year. The
budget proposes the creation of a new Greenhouse Gas Reduction
Account within the Air Pollution Control Fund. Five hundred
million dollars would be used to pay for unspecified GHG
mitigation activities previously funded by the General Fund.
The remaining $500 million would be devoted to investments in
"(1) clean and efficient energy, (2) low-carbon
transportation, (3) natural resource protection, and (4)
sustainable infrastructure development." After the first
auction, the Governor would submit an expenditure plan to the
Assembly Committee on Appropriations, the Senate Committee on
Appropriations, and the Joint Legislative Budget Committee no
fewer than 30 days prior to allocating any moneys. The
legislature would not be asked to approve the plan. ARB would
then begin allocating funds based upon the plan.
In addition, electric utilities are given free allowances by
ARB in order to lessen impacts of AB 32 implementation on
electricity ratepayers. ARB requires investor-owned utilities
to offer their freely allocated allowances for auction each
year while publicly-owned utilities are permitted, but not
required, to offer their allowances for auction. Revenue from
the sale of utility allowances is to be used for the benefit
of their ratepayers. The Public Utilities Commission has an
ongoing proceeding that is examining the potential uses of the
funds.
2)Background on Sinclair. In July 1997, the California Supreme
Court held in Sinclair that the Childhood Lead Poisoning
Prevention Act of 1991 imposed bona fide regulatory fees and
not taxes requiring a two-thirds vote of the Legislature under
Proposition 13. In summary, the Court found that while the
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Act did not directly regulate by conferring a specific benefit
on, or granting a privilege to, those who pay the fee, it
nevertheless imposed regulatory fees under the police power by
requiring manufacturers and others whose products have exposed
children to lead contamination to bear a fair share of the
cost of mitigating those products' adverse health effects.
The Sinclair decision ratified the use of fees approved by a
majority of the Legislature to address health or other social
problems created by the use or production of a particular
product. In order to pass judicial scrutiny, the Court
suggests that: (1) a fee must not exceed the cost of providing
services related to the remediation of the problem created by
a particular product; and (2) a reasonable connection must
exist between the social problems remedied by a fee and the
payer of the fee.
3)Author's statement :
There is no current statutory direction as to the
expenditure of the revenue from the auctions, whether for
eligible investments or criteria to use to differentiate
between potential projects, a process the state should use
to develop plans and programs for investment or direction
on how to ensure legislative oversight on the use of the
funds.
The Governor's proposal establishes a series of possible
funding areas that ARB may consider but does not specify
how the ARB shall administer the funds, allocate between
funding areas or decide between eligible project
applicants. The Governor's proposal also does not allow
for the legislature to have an adequate role in
establishing state investment priorities, criteria or
process and does not allow for a sufficient amount of time
for legislative review.
AB 1532 addresses the above issues by creating the
Greenhouse Gas Reduction Account, establishing the criteria
and requirements for use of the auction revenue,
establishes the program categories eligible for funding and
defines a process that the ARB shall use to develop an
investment plan and the role of the legislature in
reviewing it.
4)Suggested amendment. Clarify that funds are to be used to
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achieve GHG reductions in California by, for example,
inserting "in this state" after "emissions" on page 3, line 16
and page 3, line 34.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
AFL-CIO
American Lung Association
American Society of Landscape Architects - California Council
Asian Pacific Environmental Network
Audubon California
Big Sur Land Trust
Bolsa Chica Land Trust
Breathe California
California Association of Local Conservation Corps
California Biomass Energy Alliance
California Clean DG Coalition
California Climate and Agriculture Network
California ReLeaf
California Urban Forests Council
California Watershed Coalition
California Watershed Network
Californians Against Waste
CALSTART
Coalition for Clean Air
Ella Baker Center, Green Collar Jobs Campaign
Energy Independence Now
Environmental Defense Fund
Greenlining Institute
Land Trust of Santa Cruz County
Marin Agricultural Land Trust
Natural Resources Defense Council
Open Space District
Pacific Forest Trust
Peninsula Open Space Trust
Sonoma County Agricultural Preservation and Open Space District
Sunrun
The Nature Conservancy
The Wilderness Society
Trust for Public Land
Union of Concerned Scientists
Waste Management
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Opposition
American Council of Engineering Companies of California
California Chamber of Commerce
California Grocers Association
California Manufacturers & Technology Association
California Metals Coalition
California Taxpayers Association
Can Manufacturers Institute
Chemical Industry Council of California
Western State Petroleum Association
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092