BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1532
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          (  Without Reference to File  )

          CONCURRENCE IN SENATE AMENDMENTS
          AB 1532 (John A. Pérez)
          As Amended  August 31, 2012
          Majority vote
           
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          |ASSEMBLY:  |49-27|(May 29, 2012)  |SENATE: |21-15|(August 31,    |
          |           |     |                |        |     |2012)          |
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          Original Committee Reference:    NAT. RES.  

           SUMMARY  :  Creates the Greenhouse Gas Reduction Fund Investment 
          Plan and Communities Revitalization Act (the Act) to set 
          procedures for the investment 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) under the California Global Warming Solutions Act of 2006 
          (AB 32 (Nuñez and Pavley), Chapter 488, Statutes of 2006).  

           The Senate amendments  delete the Assembly version of the bill, 
          and instead establish the Act to:

          1)Require moneys from the Greenhouse Gas Reduction Fund (GHGR 
            Fund), which holds all moneys collected by ARB from the 
            auction of GHG allowances, be used to facilitate the 
            achievement of reductions of GHG emissions in the state and, 
            where applicable and to the extent feasible:

             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 and households in the state;

             e)   Provide opportunities for businesses, public agencies, 
               nonprofits, and other community institutions to participate 








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               in and benefit from statewide efforts to reduce GHG 
               emissions; and,

             f)   Lessen the impacts and effects of climate change on the 
               state's communities, economy, and environment.

          2)Authorize moneys appropriated from the GHGR Fund to be 
            allocated for the purpose of reducing GHG emissions in this 
            state through investments that may include 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 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 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;

             f)   Funding to reduce GHG emissions through investments in 
               programs implemented by local and regional agencies, local 
               and regional collaborative, and nonprofit organizations 
               coordinating with local governments; and,

             g)   Funding in research, development, and deployment of 
               innovative technologies, measures, and practices related to 
               programs and projects funded by the GHGR Fund.









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          3)Require the Department of Finance (DOF), on behalf of the 
            Governor, and in consultation with ARB and any other relevant 
            state entity, to develop and submit a three-year investment 
            plan to the Legislature at the time of DOF's adjustments to 
            the proposed 2013-14 fiscal year budget.  

          4)Require, commencing with the 2016-17 fiscal year budget and 
            every three years thereafter, with the release of the 
            Governor's budget proposal, DOF to include updates to the 
            investment plan following the public process and interaction 
            with ARB, the Public Utilities Commission (PUC), and Climate 
            Action Team as specified in 8) through 10) below.

          5)Require the investment plan to do all of the following:

             a)   Identify the state's near-term and long-term GHG 
               emission reduction goals and targets by sector;

             b)   Analyze gaps, where applicable, in current state 
               strategies to meeting the state's GHG emissions reduction 
               goals by sector; and,

             c)   Identify priority programmatic investments of moneys 
               that will facilitate the achievement of feasible and 
               cost-effective GHG emission reductions toward achievement 
               of GHG reduction goals and targets by sector.

          6)Require ARB to hold at least two public workshops in different 
            regions of the state and one public hearing prior to DOF 
            submitting the investment plan.

          7)Require ARB, prior to the submission of 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 undertaken pursuant to AB 32's market-based compliance 
            mechanisms (i.e., cap and trade) or other activities under the 
            oversight or administration of the PUC that facilitate GHG 
            emission reductions consistent with AB 32.  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.

          8)Require the Climate Action Team to provide information to DOF 








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            and ARB to assist in the development of each investment plan, 
            as specified.

          9)Require the moneys in the GHGR Fund to be appropriate through 
            the annual Budget Act consistent with the investment plan 
            developed and submitted pursuant to this bill.

          10)Require, upon appropriation, the moneys in the GHGR Fund to 
            be available to ARB and to administrating agencies for 
            administrative purposes carrying out the Act.

          11)Require any repayment of loans, including interest payments 
            and all interest earnings on or accruing to any money, 
            resulting from the implementation of the Act to be deposited 
            in the GHGR Fund for the purposes of the Act.

          12)Require DOF to submit an annual report to the Legislature on 
            the status and outcomes of projects funded.

          13)Prohibit the state from approving allocations for a measure 
            or program using moneys appropriated from the Greenhouse Gas 
            Reduction Fund (GHGR Fund) except after determining, based on 
            the available evidence, that the use of the moneys further the 
            regulatory purpose of AB 32 and is consistent with law.  If 
            any expenditure is determined by a court to be inconsistent 
            with law, the allocation for the remaining measures or 
            projects to shall be severable and not affected.

          14)Prohibits the bill from becoming operative unless SB 535 (De 
            León) is enacted.

          15)Precludes judicial review of the Governor's findings related 
            to linkage with other states and countries for the purpose of 
            implementing AB 32.  This provision is separate from the Act.

           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 








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            circumstances once specified conditions are met.

          3)Requires all moneys, excluding penalties and fines, collected 
            by ARB from the auction or sale of allowances pursuant to a 
            market-based compliance mechanism established pursuant to AB 
            32 to be deposited into the GHGR Fund.  

          4)Require, unless the Legislature passes a bill on or before 
            August 31, 2012, that becomes law specifying a process for the 
            establishment of the long-term spending strategy for moneys in 
            the GHGR Fund, DOF to submit to the Legislature, in bill 
            format, on or before January 10, 2013, a proposal that 
            provides a detailed spending plan for the expenditure of 
            moneys in the GHGR Fund that includes a) criteria and 
            requirements for use of these moneys; b) establishment of 
            program categories eligible for funding; c) the specification 
            of a public process that ARB shall use to develop the 
            strategy; and, d) the role of the Legislature in reviewing the 
            strategy.  

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Created the GHG Reduction Account (Account) within the Air 
            Pollution Control Fund.

          2)Required all funds, excluding penalties and fines, collected 
            pursuant to the "Market-Based Compliance Mechanism" part of AB 
            32 to be deposited in the Account, and makes these funds 
            available, upon appropriation, for purposes of carrying out AB 
            32.

          3)Required Account funds to be used to facilitate the 
            achievement of feasible and cost-effective GHG reductions in 
            this state consistent with AB 32 and, to the extent feasible, 
            achieve other specified complementary goals.

          4)Authorized allocation of funds appropriated from the account 
            for a) investments in clean and efficient energy; b) 
            investments in low-carbon transportation and infrastructure; 
            c) investments in natural resource protection; and, d) 
            investments in research, development, and deployment of 
            innovative technologies, measures, and practices related to 
            programs and projects funded pursuant to the bill.

          5)Provided ARB, and any other state agency identified by the 








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            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.

          6)Required, 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.

          7)Required ARB to adopt an investment plan every three years 
            which identifies and prioritizes expenditure of funds 
            appropriated from the Account.  

           FISCAL EFFECT  :  Unknown with latest amendments.
           
          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 
          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, 








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          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, carbon dioxide 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 
          development."  After the first auction, the Governor would 
          submit an expenditure plan to the Assembly Appropriations 
          Committee, the Senate Appropriations Committee, and the Joint 
          Legislative Budget Committee no fewer than 30 days prior to 
          allocating any moneys.  The Legislature would not be asked to 








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          approve the plan.  ARB would then begin allocating funds based 
          upon the plan.




          According to the Author:

               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?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.

          This bill is contingent on the enactment of SB 535.  SB 535 
          requires the Act's investment plans to allocate 1) a minimum of 
          25% of the available moneys in the GHGR Fund to projects that 
          provide benefits to identified disadvantaged communities; and, 
          2) a minimum of 10% of the available moneys in the fund to 
          projects located within identified disadvantaged communities.  
           

          Analysis Prepared by :    Lawrence Lingbloom / NAT. RES. / (916) 
          319-2092                                          










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