BILL ANALYSIS Ó
AB 1532
Page 1
ASSEMBLY THIRD READING
AB 1532 (John A. Pérez)
As Amended May 1, 2012
Majority vote
NATURAL RESOURCES 5-3 APPROPRIATIONS 12-5
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|Ayes:|Chesbro, Dickinson, |Ayes:|Fuentes, Blumenfield, |
| |Huffman, Monning, Skinner | |Bradford, Charles |
| | | |Calderon, Campos, Davis, |
| | | |Gatto, Ammiano, Hill, |
| | | |Lara, Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Knight, Grove, Halderman |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Establishes procedures for deposit and expenditure of
regulatory fee revenues derived from the auction of greenhouse
gas (GHG) allowances pursuant to the cap and trade program
adopted by the Air Resources Board (ARB) pursuant to the
California Global Warming Solutions Act of 2006 (AB 32 (Núñez
and Pavley), Chapter 488, Statutes of 2006). Specifically, 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 funds available, upon appropriation, for purposes
of carrying out AB 32.
3)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 derived from valid
regulatory fees, as established by the California Supreme
Court in Sinclair Paint Co. v. State Bd. of Equalization
(1997) 15 Cal.4th 866 (Sinclair).
4)Requires Account funds to be used to facilitate the
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achievement of feasible and cost-effective GHG reductions in
this state 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 to reduce GHG
emissions.
iv) Waste reduction and low-carbon recycled-content
processing and manufacturing that serve to reduce GHG
emissions.
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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 Government Code
Section 65080 (i.e., SB 375 (Steinberg), Chapter 728,
Statutes of 2008).
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.
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
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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 coordination 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.
EXISTING LAW :
1)Requires ARB, pursuant to AB 32, 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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
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Costs to develop and implement the financial assistance program
created by this bill are unknown but certainly will be
substantial and likely will vary, somewhat proportionally, with
the amount of revenue deposited into the Account and available
for program use. ARB estimates annual revenue from the auction
of GHG emission allowances to range from $2 billion to $5
billion in 2013, with that amount increasing to between $17
billion and $67 billion in later years.
ARB estimates it will cost approximately $9.3 million in 2012-13
and in 2013-14, and approximately $13.5 million in 2014-15, to
develop and administer the financial assistance program required
by this bill, with costs growing in future years as ARB
administers substantially greater amounts of funds.
Other agencies, including, but likely not limited, to the PUC,
which the bill explicitly requires to develop an investment
plan, also will experience costs in implementing the program
required by this bill. While unknown, these costs will likely
be substantial, though less than ARB's.
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 beginning on
January 1, 2012.
According to ARB, a total reduction of 80 million metric tons
(MMT), or 16% compared to business as usual, is necessary to
achieve the 2020 limit. Approximately 78% 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
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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
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
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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.
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 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.
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
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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.
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092 FN: 0003869