BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 535 (De Leon) Hearing Date: 05/26/2011 Amended: 03/24/2011 Consultant: Brendan McCarthy Policy Vote: EQ 5-1 _________________________________________________________________ ____ BILL SUMMARY: SB 535 requires at least ten percent of any revenues generated under AB 32 be used in disadvantaged communities for greenhouse gas emission reduction projects, mitigation of health impacts of climate change, and support for green collar jobs. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Program implementation Likely in the tens of millions per yearSpecial * Program administration Likely in the millions per year Special * * California Communities Healthy Air Revitalizations Trust. _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Under current law (AB 32, Nunez, 2006), the Air Resources Board is required to reduce greenhouse gas emissions to 1990 levels by 2020. AB 32 authorizes the Air Resources Board to impose administrative fees on greenhouse gas emitters to carry out the provisions of AB 32. The Air Resources Board is also authorized to adopt market-based compliance measures, such as a cap and trade program, to achieve the state's goals. Under a cap and trade program, the total amount of allowed emissions would be capped by the Air Resources Board. Emitters of greenhouse gasses would either be given permits to emit, permits would be auctioned off, or some combination of the two. Emitters could then trade emission permits between themselves in order to meet the overall emission reduction target at least cost. The Air Resources Board is developing a cap and trade program, which will be implemented by 2012. (The environmental documentation of SB 535 (De Leon) Page 1 the cap and trade regulation is currently under judicial review.) At first, most of the emission credits will be given to regulated entities. The limited initial auction of emission credits is expected to generate about $100 million in 2012. In future years, the portion of emission credits that is to be auctioned will grow, as will auction revenues. SB 535 creates the California Communities Healthy Air Revitalization Trust (Trust). Under the bill, not less than ten percent of any revenues generated under AB 32 (excluding fees charged by the Air Resources Board to cover administrative costs), are to be deposited in the Trust. Using funds in the Trust, the Secretary for Environmental Protection is required to fund programs that reduce greenhouse gas emissions or mitigate public health impacts of climate change or support green collar jobs. All expenditures are to be made in communities that are the most impacted and disadvantaged, as determined by the Secretary. The bill caps administrative costs at five percent of total expenditures. Total expenditures under the bill are unknown and will depend on future revenues generated from the cap and trade program. Nevertheless, based on initial projections of cap and trade auction revenues, total program expenditures are likely to be in the tens of millions per year. This bill is similar to AB 1405 (De Leon) of 2009. That bill was vetoed by Governor Schwarzenegger. SB 237 (Wolk) creates a program to use revenues generated under the AB 32 cap and trade program for the support of agricultural activities relating to climate change. That bill is on this committee's suspense file. SB 246 (De Leon) requires the Air Resources Board to follow specified criteria if the Board allows greenhouse gas compliance offsets to be used in a cap and trade program under AB 32. That bill will be heard in this committee. SB 533 (Wright) makes changes to the process for adopting regulations under AB 32. That bill has been moved to the Senate Floor pursuant to Senate Rule 28.8. SB 535 (De Leon) Page 2 The proposed author's amendments add a reporting requirement and make technical corrections. The proposed Committee amendments eliminate the fixed set-aside of revenues, transfer program oversight to the Air Resources Board, and delay implementation of the program until $5 million in revenues have been received.