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: 8/24/12 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 SENATE ENVIRONMENTAL QUALITY COMMITTEE : 4-1, 8/29/12 (pursuant to Senate Rule 29.10) AYES: Simitian, Hancock, Kehoe, Lowenthal NOES: Blakeslee NO VOTE RECORDED: Strickland, Pavley SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/30/12 (pursuant to Senate Rule 29.10) 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 CONTINUED AB 1532 Page 2 DIGEST : This bill enacts the Greenhouse Gas Reduction Fund Investment Plan and Community Revitalization Act which requires the Department of Finance, on behalf of the Governor and in consultation with the Air Resources Board (ARB) or any other relevant state agency, to submit to the Legislature at the time of the department's adjustments to the proposed 2013-14 fiscal year budget, a three-year investment plan, as specified. This bill does not become operative unless SB 535 is enacted. ANALYSIS : The 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 that moneys must be used to facilitate the achievement of reductions of GHG emissions in this state and the following complementary goals: A. Maximize economic, environmental, and public 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. CONTINUED AB 1532 Page 3 E. Provide opportunities for businesses, public agencies, nonprofits, and other community institutions to participate in and benefit from statewide efforts to reduce GHG emissions. 2. 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, any of the following: A. Funding to reduce GHG emissions through energy efficiency, clean and renewable energy generation, distributed renewable energy generation, transmission and storage, and other related actions, including, but not limited to, at public universities, state and local public buildings, and industrial and manufacturing facilities. B. Funding to reduce GHG emissions through the development of state-of-the-art systems to move goods and freight, advanced technology vehicles and vehicle infrastructure, advanced biofuels, and low-carbon and efficient public transportation. C. Funding to reduce GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. D. Funding to reduce GHG emissions through strategic planning and development of sustainable infrastructure projects, including, but not limited to, transportation and housing. E. Funding to reduce GHG emissions through increased in-state diversion of municipal solid waste from disposal through waste reduction, diversion, and reuse. 3. Requires the Department of Finance (DOF), on behalf of the Governor, and in consultation with ARB and any other relevant state entity, to develop, beginning April 1, 2013, three investment plans for the time periods: 2013 CONTINUED AB 1532 Page 4 to 2014, 2015 to 2017, and 2018 to 2020. 4. Requires the ARB to, prior to the submission of each investment plan, 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 or other activities under the oversight or administration of the PUC that facilitate GHG emissions reductions consistent with this division. The investment plan shall include a description of the use of any moneys generated by the sale of allowances received at no cost by the investor-owned utilities pursuant to a market-based compliance mechanism. 5. Requires the Climate Action Team, established under Executive Order S-3-05, to provide information to the DOF and the state board to assist in the development of each investment plan. The Climate Action Team shall participate in each public workshop held on an investment plan and provide testimony to the state board on each investment plan. For purposes of this section, the Secretary of Labor and Workforce Development shall assist the Climate Action Team in its efforts. 6. Specifies that moneys in the fund shall be appropriated through the annual Budget Act consistent with the investment plan that is developed and submitted pursuant to this bill. Upon appropriation, moneys in the Greenhouse Gas Reduction Fund shall be available to the state board and to administering agencies for administrative purposes in carrying out this chapter. Any repayment of loans, including interest payments and all interest earnings on or accruing to any money, resulting from implementation of this bill shall be deposited in the Greenhouse Gas Reduction Fund for the purposes of this bill. 7. Requires ARB to hold at least two public workshops in different regions of the state and one public hearing prior to the DOF submitting 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. CONTINUED AB 1532 Page 5 8. Requires DOF to submit a report, on or before March 1, 2014, and annual thereafter, to the appropriate committees of the Legislature on the status of projects and their outcomes. 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 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 CONTINUED AB 1532 Page 6 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. 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 CONTINUED AB 1532 Page 7 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 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 CONTINUED AB 1532 Page 8 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 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 - CONTINUED AB 1532 Page 9 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 8/30/12) American Federation of State, County and Municipal Employees, AFL-CIO American Lung Association American Society of Landscape Architects -California 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 CONTINUED AB 1532 Page 10 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 San Francisco Bay Area Rapid Transit District Santa Clara County Open Space Authority Sensys Networks Silicon Valley Leadership Group Sonoma County Agricultural Preservation and Open Space District State Building and Construction Trades Council of California Sunrun Trust for Public Land Waste Management Water Replenishment District of Southern California Wilderness Society OPPOSITION : (Verified 8/24/12) 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 CONTINUED AB 1532 Page 11 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 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, CONTINUED AB 1532 Page 12 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 8/31/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED