BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1532 (J. Perez) - Greenhouse Gas Reduction Account.
Amended: August 6, 2012 Policy Vote: EQ 5-2
Urgency: No Mandate: No
Hearing Date: August 16, 2012
Consultant: Brendan McCarthy
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: AB 1532 would establish the eligible uses of
revenues generated from the auction of emissions allowances
authorized under AB 32 (Nunez, Chapter 488, Statutes of 2006)
and the processes for spending those revenues.
Fiscal Impact: Based on information developed by the Air
Resources Board, near-term administrative costs to adopt
spending guidelines and develop investment plans, pursuant to AB
1532, would likely be about $6 million per year (Greenhouse Gas
Reduction Fund) for several years (across all state agencies).
Background: Under the California Global Warming Solutions Act of
2006, the Air Resources Board is required to adopt greenhouse
gas emission reduction measures to reduce statewide greenhouse
gas emissions to 1990 levels. The Air Resources Board is allowed
to use market-based mechanisms to comply with these regulations
(e.g. a cap and trade program).
The Air Resources Board has released its cap-and-trade
regulations that became effective on January 1, 2012. These
regulations impose a cap on the aggregate greenhouse gas
emissions allowed from "capped sectors." Each year the cap
declines. To comply with the cap, a covered entity must
surrender an "allowance" (allowances are created by the state in
an amount equal to the cap) or an "offset" which are emission
reductions achieved in an uncapped sector. Allowances will be
freely allocated, held in a reserve, or auctioned.
The first auction of allowances is currently scheduled for
November 2012. Under existing law, the Air Resources Board has
the authority to deposit auction revenues into the Air Pollution
Control Fund. The Governor's January budget proposal estimates
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$1 billion auction revenues in 2012-13. The budget does not
contain a specific plan for expenditure of the revenue. Instead
the budget proposes a General Fund offset of $500 million, and
identifies general categories of spending including clean energy
and efficiency energy, low-carbon transportation, natural
resource protection, and sustainable infrastructure development.
The budget proposes that an expenditure plan for the revenues be
jointly submitted to the Legislature by the Director of Finance
and the Air Resources Board. The Legislature would have at least
30 days to review the plan before any funds are allocated.
Proposed Law: AB 1532 would establish the eligible uses of
revenues generated from the auction of emissions allowances
authorized under AB 32 (Nunez, Chapter 488, Statutes of 2006)
and the processes for spending those revenues.
Specifically, the bill would:
Create a new Greenhouse Gas Reduction Account in the
Greenhouse Reduction Fund.
Specify that any expenditure of funds from the Account must
conform to the "Sinclair Paint" rules established by the
California Supreme Court. (See below)
Direct that cap and trade auction revenues be spent to
achieve feasible and cost-effective reductions in greenhouse
gas emissions, while meeting specific goals outlined in the
bill.
Specify the types of projects or programs that can be
provided with financial support.
Require the Air Resources Board to adopt guidelines for
expenditure of funds.
Require the Air Resources Board to develop three investment
plans, for expenditures through 2020.
Related Legislation:
AB 237 (Wolk) would have established a program to use cap
and trade auction revenues for the support of the
agricultural industry. That bill was held on this
committee's Suspense File.
SB 535 (De Leon) would require ten percent of cap and trade
auction revenues to be expended for programs to mitigate
climate change impacts in disadvantaged communities. That
bill is in the Assembly Appropriations Committee.
SB 1572 (Pavley) establishes a fund for the deposit of cap
and trade auction revenues and requires that the lesser of
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half of cap and trade auction revenues in 2012-13 or $250
million would be available, upon appropriation, for
specified purposes. That bill is in the Assembly
Appropriations Committee.
AB 1186 (Skinner) would require the Public Utilities
Commission to require investor owned utilities to use at
least ten percent of the revenues that they receive from
auctioning their free emissions allowances for public school
energy efficiency projects. That bill will be heard in this
committee.
AB 2404 (Fuentes) requires cap and trade auction revenues
to be deposited in a specified fund, to be used to fund
local greenhouse gas emission programs. That bill is in the
Assembly Appropriations Committee.
Staff Comments: The Legislative Analyst's Office has projected
that long-term revenues from cap and trade auction proceeds will
be between $2 billion and $12 billion per year. Based on state's
recent history of expending bond funds, administrative costs to
plan for, expend, and monitor expenditures of those funds would
likely range from $40 million per year to as high as $600
million per year. However, it is important to note that those
revenues will be generated, and can be appropriated by the
Legislature, under the existing authority of AB 32.
The costs described above reflect an estimate of the
administrative costs directly attributable to AB 1532 -
primarily the development of guidelines and the preparation of
investment plans. The long-term costs to the state to oversee
the expenditure of cap and trade auction revenues, while very
significant, will occur whether or not this bill is enacted.
In the 2007 "Sinclair Paint" case, the California Supreme Court
ruled that fees assessed on an industry that are used to
mitigate or remediate harms caused by the industry, as a whole,
are not general taxes (subject to a 2/3 vote of the legislature)
but are fees (subject to majority vote). Such regulatory fees,
when enacted by a majority vote, must be spent in a manner with
a logical nexus to the harms caused by an industry. The Office
of Legislative Counsel has opined that cap and trade auction
revenues are regulatory fees and can be used to mitigate the
impacts of greenhouse gas emission, provided there is a logical
nexus to greenhouse gas emissions.
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Proposition 26 of 2010 amended the Constitution to overrule the
Sinclair Paint ruling. However, Proposition 26 does not apply to
fees enacted before 2010.
Proposed author's amendments: The proposed amendments require
the California Environmental Protection Agency to identify
priority communities for investment, require the Air Resources
Board to develop guidelines for allocating funds to priority
communities, require that 25 percent of expenditures go towards
projects in priority communities, and make technical
corrections.