BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1532| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1532 Author: John A. Pérez (D), et al. Amended: 8/21/12 in Senate Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE : 5-2, 7/2/12 AYES: Simitian, Hancock, Kehoe, Lowenthal, Pavley NOES: Strickland, Blakeslee SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/16/12 AYES: Kehoe, Alquist, Lieu, Price, Steinberg NOES: Walters, Dutton ASSEMBLY FLOOR : 49-27, 5/29/12 - See last page for vote SUBJECT : Greenhouse gas emissions SOURCE : Author DIGEST : This bill (1) requires moneys in the Greenhouse Gas Reduction Fund to facilitate the achievement of feasible and cost-effective reductions of greenhouse gas (GHG) emissions in the state; (2) requires administering agencies, including the ARB and any other state agency identified by the Legislature, to allocate those moneys to measures and programs that meet specified criteria; (3) requires the Air Resources Board (ARB) to develop, as specified, three investment plans that identify the anticipated expenditures of moneys appropriated from the Fund, to submit each plan to the Budget Committees of each CONTINUED AB 1532 Page 2 house of the Legislature, as specified, and to adopt each investment plan, as specified; (4) requires the Governor to submit a budget to the Legislature that includes specified appropriations consistent with each investment plan and requires the Legislature to consider these appropriations when adopting the Budget Act; and (5) requires the ARB to annually submit a report no later than December of each year to the appropriate committees of the Legislature on the status of projects and their outcomes and any changes the ARB recommends need to be made to the investment plan. ANALYSIS : The California Global Warming Solutions Act of 2006 (CGWSA) designates the ARB as the state agency charged with monitoring and regulating sources of emissions of GHGs. The ARB is required to adopt a statewide GHG emissions limit equivalent to the statewide GHG emissions level in 1990 to be achieved by 2020, and to adopt rules and regulations in an open public process to achieve the maximum, technologically feasible, and cost-effective GHG emissions reductions. The CGWSA authorizes the ARB to include use of market-based compliance mechanisms. The CGWSA authorizes the ARB to adopt a schedule of fees to be paid by the sources of GHG emissions regulated pursuant to the act, and requires the revenues collected pursuant to that fee schedule be deposited into the Air Pollution Control Fund and be available, upon appropriation by the Legislature, for the purposes of carrying out the CGWSA. This bill: 1. Requires no measure or programs be approved using money appropriated from the Greenhouse Gas Reduction Fund unless it is determined that the use is consistent with the requirement of 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). 2. Requires that moneys must be used to facilitate the achievement of feasible and cost-effective reductions of GHG emissions in this state and the following complementary goals: A. Maximize economic, environmental, and public CONTINUED AB 1532 Page 3 health benefits to the state. B. Foster job creation by promoting in-state GHG emission reduction projects carried out by California workers and businesses. C. Complement efforts to improve air quality. D. Direct investment toward the most disadvantaged communities and households in the state. E. Provide opportunities for small businesses, schools, affordable housing developers, water agencies, local governments, and other community institutions to participate in and benefit from statewide efforts to reduce GHG emissions. F. Mitigate the impacts and effects of climate change on the state's communities, economy, and environment. 3. Provides that moneys appropriated from the fund may be allocated for the purpose of reducing GHG emissions in this state through investments that include, but are not limited to, investments in: A. Clean and efficient energy including: (1) Industrial and manufacturing investment in energy efficiency, energy storage, and clean and renewable energy project. (2) Public universities, schools, water agencies, and other public facilities and fleets and their energy suppliers to reduce GHG emissions by investment in energy and water use efficiency, energy storage, and clean and renewable energy and fuel projects. (3) Single-family and multifamily residential and commercial distributed generation and energy efficiency programs. (4) Waste reduction and low-carbon recycled-content processing and manufacturing, CONTINUED AB 1532 Page 4 including market development activities. B. Low-carbon transportation, sustainable development, and infrastructure, including: (1) Public transportation and sustainable transportation and infrastructure development, including, but not limited to, transportation, bicycle, and pedestrian facilities. (2) Programs for clean vehicles and the advancement of transportation technologies. (3) Advanced transportation and fueling infrastructure. (4) Local and regional sustainable development efforts. (5) Low-carbon goods movement and freight vehicle technologies and infrastructure, including, but not limited to, locomotives and heavy-duty fleets. C. Natural resource protection, including: (1) Natural resource management programs and projects. (2) Land conservation and restoration, including, but not limited to, watershed projects with cobenefits of water quality, flood protection, and coastal and ocean protection. (3) Development and implementation of sustainable agriculture, forestry, and related water, land, and resource management practices. D. Research, development, and deployment of innovative technologies, measures, and practices related to programs and projects funded pursuant to this part; and specified categories for each of these investment areas. CONTINUED AB 1532 Page 5 E. Investments in community climate innovation programs. 4. Requires the California Environmental Protection Agency to develop a methodology that identifies priority community areas for investment opportunities related to this bill. These priority community investment areas shall be identified and updated no less than every two years, based on geographic, socioeconomic, and environmental hazard criteria, which may include, but not limited to, any of the following: A. Areas disproportionately adversely affected by environmental pollution and hazards. B. Areas that contain or produce material that, because of its quantity, concentration, or physical or chemical characteristics, pose a significant hazard to human health and safety. C. Areas with concentrations of people that are of low income, high unemployment, low levels of homeownership, high rent burden, and low levels of educational attainment. 5. Requires ARB to develop guidelines for administering agencies for purposes of allocating moneys to projects that maximize benefits for priority community areas. 6. Requires administering agencies to have the authority to set aside a percentage of their appropriated moneys from the fund for projects that maximize benefits to priority community investment areas. 7. Requires, in implementing #4, #5, and #6 above, administrative agencies to ensure the investments maximize the benefits for investments to priority co munity investment areas through activities that include, but are not limited to, any of the following: A. Participatory program guideline development. B. Targeted solicitation outreach. C. Education and training efforts. D. Solicitation scoring criteria priority. CONTINUED AB 1532 Page 6 8. Specifies ARB and any other state agency identified by the Legislature are the administering agencies and are required to carry out programs to allocate moneys appropriated by the Legislature using financial mechanisms, such as competitive grants, loans, or other specified mechanisms. 9. Requires ARB to adopt guidelines, after one or more public hearings, to provide state agencies, potential funding applicants and the public guidance regarding the allocation and allowable uses of moneys. The guidelines must, at a minimum, do all of the following: A. Establish minimum criteria for receiving funding and additional criteria, as specified, that the state agencies shall take into account in establishing preferences for awarding moneys. B. Provide a process to verify the qualifications of recipients. C. Provide for the monitoring and, as deemed necessary, the audit of expenditures and outcomes. 10.Requires any state agency that allocates moneys, as described above, adopt guidelines that meet the requirements of #9 above. 11.Requires ARB to develop and adopt, beginning April 1, 2013, three investment plans for the time periods: 2013 to 2014, 2015 to 2017, and 2018 to 2020. Requires that each investment plan identify, for the specified time period, the anticipated expenditures of moneys appropriated from the account. Each investment plan must establish priorities for the allocation of moneys, identify specific categories of programs and projects, identify proposed levels of expenditures for each category, identify the state agencies best qualified to implement the programs, maximize benefits to priority community investment areas, list and describe the key measures and strategies that the state is relying on to achieve GHG emissions, reduction targets by sectors, analyze gaps, where applicable, in current state CONTINUED AB 1532 Page 7 strategies to meeting the state's GHG emissions reduction goals by sector, and identify programmatic investments of moneys appropriated from the fund that will facilitate the achievement of feasible and cost-effective GHG emissions reductions toward achievement of reduction targets by sector. 12.Requires the Public Utilities Commission (PUC) to develop and send to ARB a report to be included in each investment plan adopted by ARB. The report must include its requirements on how investor-owned utilities (IOUs) may use moneys they might collect from allowance auctions pursuant to cap-and-trade. 13.Requires ARB, prior to adopting each investment plan, to consult with the PUC to ensure the investment plan is coordinated with, and does not conflict with or unduly overlap with, activities under the oversight or administration of the PUC that facilitate GHG emissions reductions consistent with the law. 14.Requires ARB receive input from an advisory body that includes the secretaries for the Natural Resources Agency, the California Environmental Protection Agency, the Department of Food and Agriculture, the Labor and Workforce Development Agency, and the Business, Transportation and Housing Agency; and to hold at least two public workshops in different regions of the state and one public hearing prior to adopting any investment plan. The advisory body must participate in each public workshop on an investment plan and provide testimony to the ARB on each investment plan. 15.Requires ARB to submit to the budget committees of both houses each of the following 30 days prior to adoption, each proposed investment plan; any amendment to an adopted investment plan that would, in the aggregate, modify the adopted investment plan. 16.Provides that if the ARB finds in its report to the Legislature, pursuant to this bill, that an investment plan did not allocate at least 25% of the available moneys from the prior fiscal year to projects that provide benefits described in the bill to priority CONTINUED AB 1532 Page 8 community investment areas, then the Governor shall include as part of the Governor's annual budget submission to the Legislature, allocations to administering agencies to make investments in eligible projects in priority community investment areas in an amount equal to the difference between the total investments in the prior fiscal year that benefited priority community investment areas and an amount equal to 25% of the total allocations from the prior fiscal year. This allocation shall not be considered part of the next fiscal year's priority community investment area considerations for purposes of this part and shall be separately identified in the Governor's annual budget submission to the Legislature to provide transparency to the investment. 17.Requires ARB to provide to the Governor a plan consistent with the relevant investment plan detailing proposed appropriations from the Fund and that the Governor include proposed appropriations as part of the annual January budget proposal. 18.Requires ARB to submit a report, on or before December of each year, to the appropriate committees of the Legislature on the status of projects and their outcomes and any changes ARB recommends to the investment plan and declares legislative intent that the appropriations required for implementation of these changes be included in the annual Budget Act for the subsequent fiscal year, and a description of how agencies have maximized the benefits of the investments to priority community investment areas, including, but not limited to, the percentage of funds allocated to date and in the prior fiscal year that have been invested in projects in priority community investment areas and that have provided benefits to priority community investment areas. Background Cap-and-trade . The adopted cap-and-trade regulation imposes a cap on the aggregate GHG emissions allowed from "capped sectors." The entities covered within these sectors constitute approximately 85% of all statewide GHG CONTINUED AB 1532 Page 9 emissions. Each year the cap declines, thus resulting in a reduction in GHG emissions over time. To comply with the cap, covered entities must surrender to the state a number of "compliance instruments" equal to the amount of their GHG emissions, as expressed in the equivalent metric tons of CO2. The regulations describe two types of compliance instruments: a) an "allowance" to emit GHGs, all of which are generated by the state in an amount equal to the cap and; b) an "offset" resulting from an emissions reduction achieved in an uncapped sector and generated by third party pursuant to a protocol adopted by ARB. Under the cap-and-trade regulation many of the allowances are freely allocated to the covered entities, some are held in a price containment reserve, and the remainder auctioned. Allowances received or purchased can be traded, thus creating an emissions market which according to ARB minimizes compliance costs and encourages businesses to invest in GHG emissions reductions. ARB plans to hold auctions quarterly starting in November 2012, and moneys collected for allowances sold at auction are deposited into the Air Pollution Control Fund, with the exception of allowances sold on behalf of Investor Owned Utilities (IOUs). In fiscal year 2012-13, ARB plans to auction over 60 million tons of allowances at a floor price of $10 per ton. The amount of allowances auctioned declines in fiscal year 2013-2014, before expanding as transportation fuels and natural gas are brought into the cap-and-trade program. Barring a change in the regulation as many as 230 million tons of allowances will be auctioned in fiscal year 2015-16 which will decline in subsequent years as the state approaches its 2020 limit. IOUs and publicly owned utilities (POUs) are allocated free allowances to cover the majority of their emissions in order to lessen impacts of CGWSA implementation on electricity ratepayers. ARB requires IOUs to auction them all; POUs are permitted, but not required, to offer their allowances auction. The revenues from these auctions are then returned to the IOUs to be used for ratepayer benefit in accordance with an ongoing rulemaking at the PUC. CONTINUED AB 1532 Page 10 Cap-and-trade revenues in the Budget . The Governor's budget proposal estimated that fee revenues from the first set of auctions will be $1 billion in the 2012-13 Budget, with auctions planned for November 2012, February 2013, and May 2013. Actual revenues cannot be known until the auctions have been completed. The proposal does not contain a specific plan for expenditure of the revenue, rather it includes a General Fund offset of $500 million, and identifies general categories of spending, including (1) clean and efficient energy, (2) low-carbon transportation, (3) natural resource protection, and (4) sustainable infrastructure development. The Natural Resources Budget Trailer Bill establishes the Greenhouse Gas Reduction Fund as a special fund in the State Treasury to receive all funds resulting from cap-and-trade auctions. It also specifies that the fund be appropriated in the annual Budget Act and requires the Department of Finance to submit to the Legislature a proposal for expenditure of the Fund, unless the Legislature passes a bill before August 31, 2012, specifying a process for establishing a long-term spending plan that includes (1) criteria and requirements for the use of the auction proceeds, (2) establishment of program categories eligible for funding, and (3) the specification of the process that ARB use to develop the strategy. The Trailer Bill further requires agencies expending moneys from the fund to prepare a record describing the uses of the funds, how they further the goals of the CGWSA, including attainment of the 2020 limit, how non-GHG emissions objectives of the CGSWA were considered, and a description of how the agency will document the results of the expenditure. The Trailer Bill also allows the PUC to allocate up to 15% of proceeds from the auction of allowance distributed to IOUs for clean energy and energy efficiency projects established by statute and administered by the IOUs. The remainder of the IOU allowance allocation proceeds must be credited directly to residential, small business, and emissions-intensive trade-exposed retail ratepayers. Sinclair Paint nexus test . The Childhood Lead Poisoning Prevention Act of 1991 required the Department of Health CONTINUED AB 1532 Page 11 Services to establish a regulatory fee on businesses that are or were sources of lead contamination to implement various lead poisoning programs. Sinclair Paint Company argued that this regulatory fee was a tax because (1) the program provides a broad public benefit, not a benefit to the regulated business, and (2) the companies that pay the fee have no duties regarding the lead poisoning program other than payment of the fee. The California Supreme Court upheld the fee, as a "mitigation fee," ruling that the state may impose fees on companies that make contaminating products and use those proceeds to mitigate the adverse effects resulting from those products. According to an opinion received by the Legislative Analyst's Office (LAO) from Legislative Counsel, revenues resulting from ARB's cap-and-trade auctions would constitute "mitigation fee" revenue, and be subject to the limitations of the Sinclair nexus. Thus the revenues must only be used to mitigate GHG emissions or the adverse effects caused by them. This bill requires that no funding be approved unless it is determined to meet the limitations of the Sinclair nexus. Related Legislation AB 237 (Wolk) establishes a program to use cap and trade auction revenues for the support of the agricultural industry. The bill was held on this committee's Suspense File. SB 535 (De Leon) requires 10% of cap and trade auction revenues to be expended for programs to mitigate climate change impacts in disadvantaged communities. The 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 half of cap and trade auction revenues in 2012-13 or $250 million would be available, upon appropriation, for specified purposes. The bill is in the Assembly Appropriations Committee. AB 1186 (Skinner) requires the Public Utilities Commission to require investor owned utilities to use at least ten CONTINUED AB 1532 Page 12 percent of the revenues that they receive from auctioning their free emissions allowances for public school energy efficiency projects. The bill is on Senate Third Reading. 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. The bill is in the Assembly Appropriations Committee. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee, based on information developed by the ARB, near-term administrative costs to adopt spending guidelines and develop investment plans, pursuant to this bill, would likely be about $6 million per year (Greenhouse Gas Reduction Fund) for several years (across all state agencies). 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 this bill - 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. SUPPORT : (Verified 8/20/12) American Federation of State, County and Municipal Employees, AFL-CIO American Lung Association American Society of Landscape Architects -California CONTINUED AB 1532 Page 13 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 Housing Partnership Corporation California Infill Builders Federation California Interfaith Power & Light California ReLeaf California State Association of Counties California Transit Association California Urban Forests Council California Watershed Coalition California Watershed Network Californians Against Waste CALSTART Coalition for Clean Air Electrification Leadership Council Ella Baker Center, Green Collar Jobs Campaign Energy Independence Now Environmental Defense Center Environmental Defense Fund Friends of Harbors, Beaches and Parks Global Green Golden Gate Audubon Society Greenlining Institute Honda North America Intelligent Transportation Society of California Land Trust of Santa Cruz County Los Angeles County Metropolitan Transportation Authority Marin Agricultural Land Trust Nature Conservancy Natural Resources Defense Council Non-Profit Housing Association of Northern California Open Space District Pacific Forest Trust Peninsula Open Space Trust Santa Clara County Open Space Authority Sensys Networks Silicon Valley Leadership Group CONTINUED AB 1532 Page 14 Sonoma County Agricultural Preservation and Open Space District State Building and Construction Trades Council of California Sunrun Trust for Public Land Union of Concerned Scientists Waste Management Water Replenishment District of Southern California Wilderness Society OPPOSITION : (Verified 8/20/12) American Council of Engineering Companies of California California Asian Pacific Chamber of Commerce California Business Properties Association California Chamber of Commerce California Chapter of the American Fence Association California Fence Contractors' Association California Framing Contractors Association California Grocers Association California Independent Oil Marketers Association California League of Food Processors California Manufacturers & Technology Association California Metals Coalition California Retailers Association California Taxpayers Association Can Manufacturers Institute Chemical Industry Council of California Engineering Contractors' Association Flasher/Barricade Association Golden State Builders Exchange Marin Builders' Association National Federation of Independent Business United Contractors Western State Petroleum Association ARGUMENTS IN SUPPORT : According to the author, "there is no current statutory direction as to the expenditure of the revenue from Ýcap-and-trade allowance] auctions, whether CONTINUED AB 1532 Page 15 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? AB 1532 addresses the above issues by establishing the criteria and requirements for use of the auction revenue, establishing the program categories eligible for funding and defining a process that the ARB shall use to develop an investment plan and the role of the legislature in reviewing it." According to supporters, this bill advances the goals of CGWSA by creating a clear and open framework for developing the investment plan and the adoption of funding criteria. Supporters also endorse application of Sinclair tests in funding determinations. ARGUMENTS IN OPPOSITION : Opponents state that this bill prematurely anticipates proceeds resulting from the allowance auctions that the ARB may not have the necessary authority to conduct. Opponents also contend that not all priorities indicated in AB 1532 are consistent with the Sinclair decision. ASSEMBLY FLOOR : 49-27, 5/29/12 AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani, Gatto, Gordon, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mitchell, Monning, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Solorio, Swanson, Torres, Wieckowski, Williams, Yamada, John A. Pérez NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly, Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman, Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller, Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Valadao, Wagner NO VOTE RECORDED: Cedillo, Fletcher, Hall, Mendoza DLW:m 8/21/12 Senate Floor Analyses CONTINUED AB 1532 Page 16 SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED