BILL ANALYSIS Ó AB 1532 Page 1 ( Without Reference to File ) CONCURRENCE IN SENATE AMENDMENTS AB 1532 (John A. Pérez) As Amended August 31, 2012 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |49-27|(May 29, 2012) |SENATE: |21-15|(August 31, | | | | | | |2012) | ----------------------------------------------------------------- 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 AB 1532 Page 2 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. AB 1532 Page 3 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 AB 1532 Page 4 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 AB 1532 Page 5 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 AB 1532 Page 6 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, AB 1532 Page 7 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 AB 1532 Page 8 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 AB 1532 Page 9 FN: 0005913