BILL ANALYSIS Ķ
SB 497
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: SB 497
AUTHOR: Walters
AMENDED: April 15, 2013
FISCAL: Yes HEARING DATE: May 1, 2013
URGENCY: No CONSULTANT: Rebecca
Newhouse
SUBJECT : CALIFORNIA GLOBAL WARMING SOLUTIONS ACT
SUMMARY :
Existing law , under the California Global Warming Solutions
Act of 2006 (CGWSA):
1) Requires the California Air Resources Board (ARB) to
determine the 1990 statewide greenhouse gas (GHG) emissions
level and approve a statewide GHG emissions limit that is
equivalent to that level, to be achieved by 2020, and to
adopt GHG emission reduction measures by regulation, and
sets certain requirements in adopting the regulations. ARB
may include the use of market-based mechanisms to comply
with these regulations. (Health and Safety Code §38500 et
seq.).
2) Requires ARB to prepare and approve a scoping plan by
January 1, 2009, for achieving the maximum technologically
feasible and cost-effective reductions in GHG emissions
from sources or categories of sources of GHGs by 2020. ARB
must evaluate the total potential costs and total potential
economic and noneconomic benefits of the plan for reducing
GHGs to the state's economy and public health, using the
best economic models, emission estimation techniques, and
other scientific methods. The plan must be updated at
least once every five years. (§38561).
3) Authorizes ARB to adopt a schedule of fees to be paid by
GHG emission sources regulated under CGWSA, to be deposited
into the Air Pollution Control Fund and available upon
appropriation by the Legislature for carrying out the
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CGWSA. (§38597).
4) Establishes the Cost of Implementation Account (account)
within the Air Pollution Control Fund (fund), and requires
that revenue collected pursuant to #3 above be deposited in
the account and be maintained separately from all other
funds in the fund (Government Code §16428.95).
5) Creates the University of California as a public trust, to
be administered by the UC Regents, with full powers of
organization and government (California Constitution,
Article IX).
This bill :
1) Requires the ARB to freely allocate GHG allowances to the
California State University (CSU), the University of
California (UC), and private colleges and universities, for
any market-based compliance mechanism adopted by the ARB.
2) Prohibits the ARB from assessing a fee on CSU, UC and
private colleges and universities, for purposes of any
program or regulation adopted pursuant to the GWSA.
COMMENTS :
1) Purpose of Bill . According to the author, "The bill seeks
to provide necessary relief to [UCs] and [CSUs]. Five UC
campuses and one medical center are currently subject to AB
32 reporting requirements: UCLA, UC San Diego, UC Irvine,
UC San Francisco, UC Santa Cruz and UC Davis. In the CSU
system, three campuses are expected to be impacted: San
Diego, San Jose and Channel Islands. These campuses are
not on target to meet the requirements outlined in AB 32.
Instead, they must increase compliance actions which are
costly and will reduce the level of resources available for
more direct educational activities. The cost of compliance
will ultimately place an undue burden on California's
public postsecondary education. Student tuitions are
already high and college costs continue to rise."
2) Brief background on cap-and-trade . Pursuant to authority
under AB 32 (Nuņez) Statutes of 2006, Chapter 488, the ARB
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adopted cap-and-trade regulations and those regulations
were approved on December 13, 2011. Beginning on January 1,
2013, the cap-and-trade regulation sets a firm, declining
cap on total GHG emissions from sources that make up
approximately 85% of all statewide GHG emissions. Sources
included under the cap are termed "covered" entities. The
cap is enforced by requiring each covered entity to
surrender one "compliance instrument" for every metric ton
of carbon dioxide equivalent (MTCO2e) that it emits at the
end of a compliance period. Over time, the cap declines,
resulting in GHG emission reductions. Compliance
instruments include allowances and offsets, where
allowances are generated by the state in an amount equal to
the cap, and offsets result from emission reductions
achieved in an uncapped sector, generated pursuant to an
approved protocol adopted by ARB. Offsets may be used to
satisfy up to 8% of a covered entities compliance
obligation.
Initially, 90% of all allowances will be allocated freely
to covered entities. A small percentage of the remaining
allowances are set aside for an allowance price-containment
reserve, and the rest are sold at quarterly auctions.
Initially most allowances will be freely distributed to
entities, however that fraction will decline over time and
entities must either reduce emissions or purchase a greater
number of allowances at auction. The program authorizes
entities to buy or sell their allowances, creating a market
that is intended by ARB to minimize the cost of compliance
and encourage entities to invest in GHG emissions
reductions.
For the first two years, the program will cover electricity
generation, and large industrial sources and processes with
annual GHG emissions at or above 25,000 MTCO2e. The
program will expand in 2015 to include fuel distributors to
address emissions from combustion of transportation fuels
and combustion of natural gas and propane at sources not
covered in the first phase of the program.
Allowance allocation and leakage . The ARB allocates free
allowances for the industrial sector based primarily on a
covered entity's risk of "leakage." Leakage refers to the
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shift of production outside California as a result of
facilities either leaving the state to operate (and
therefore generating GHG emissions elsewhere), or to
emission increases caused by out-of-state facilities
increasing production to meet new demand caused by
decreased production in state. Industries at higher risk
for leakage (determined by the emissions intensity of an
entity's production process and their ability to pass costs
on to consumers) are allocated a larger percentage of their
allowances for free over the life of the program than
industries at low or negligible risk of leakage. ARB also
includes, in their methodology for allowance allocation for
leakage-exposed covered industrial entities, emissions
efficiency benchmarks to account for previous investments
in energy efficiency and carbon reductions by those
entities.
Electrical distribution utilities receive 100% of their
allowances to meet their compliance obligation for free to
ensure that electricity ratepayers do not experience sudden
increases in their electricity bills due to cap-and-trade.
3) Covered universities . Ten universities in California (and
a UC medical center) are subject to the cap-and-trade
program, including five campuses of the University of
California (UC Los Angeles, UC San Diego, UC Irvine, UC San
Francisco, and UC Davis), three campuses of the California
State University system (San Diego State, San Jose State
and Channel Islands), California Institute of Technology,
and Loma Linda University. Under ARB's methodology for
determining allowance allocation, the universities are not
eligible for free allowances primarily because they are not
leakage-exposed entities. To comply with current
cap-and-trade regulations, the universities must surrender
compliance instruments for all emissions in excess of
25,000 MTCO2e. Based on 2011 emission data, ARB can
estimate a 2013 annual compliance cost for all CSUs and UCs
at approximately $8 million, using the allowance price of
$10.71.
These campuses fall within the cap-and-trade program, in
part, because they operate on-site electrical generating
facilities. Most of these electrical generating facilities
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are combined heat and power facilities (CHP), also known as
cogeneration (or cogen).
Cost of implementation fee . AB 32 authorizes the ARB to
adopt a schedule of fees to be paid by sources of GHG
emissions to support the administration costs of
implementing AB 32. These fees are based on the total
required revenue (implementation expenses plus loan
repayment) divided by the total statewide emissions covered
by the regulation. The AB 32 Cost of Implementation Fee
regulation does not require colleges or universities to pay
this fee.
4) Combined Heat and Power . CHP is the production of
electricity and heat from a single fuel source. Considered
highly efficient, CHP captures heat lost during the
production of electricity and converts it into useful
thermal energy, usually in the form of steam or hot water.
CHP systems are significantly more efficient than the
traditional power plant efficiency of approximately.
Increasing the use of CHP is identified as an energy
efficiency measure in the 2008 Scoping Plan to meet
California's 2020 GHG emission reduction goal.
5) ARB resolution . On September 20, 2012, the ARB issued a
resolution that recognizes that California universities
have taken early action by investing in GHG emission
reduction measures and further states that the
cap-and-trade program should award existing, and
incentivize new, efficient distributed electricity
generation technologies such as CHP. The resolution
directs the executive officer to develop a methodology to
allocate allowances to California's universities that
recognizes early actions to reduce greenhouse gas
emissions, energy efficiency and combined heat and power
(CHP). The resolution also directs the executive officer
to work with the California Public Utilities Commission and
the California Energy Commission to develop a methodology
that exempts the steam and waste heat emissions for all
facilities that are only covered under the cap-and-trade
program because of their investment in CHP. The ARB has
noticed a public workshop on May 1, 2013, to present and
discuss the proposed methodologies.
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6) Prop 39 . Proposition 39 passed on November 6, 2012, and
requires multistate businesses to pay income taxes based on
the percentage of their sales in California. The measure
is expected to generate increased state revenues of $1
billion annually, with half of the revenues over the next
several years spent on energy efficiency projects.
Specifically, Prop 39 creates the Clean Energy Job Creation
Fund and provides that $550 million be transferred to the
Fund for five fiscal years, beginning in 2013, and be
available for, among other things, appropriation for the
purpose of funding energy efficiency retrofits, clean
energy installations, and other energy system improvements
to reduce costs and achieve energy and environmental
benefits for universities and colleges. The Governor's
2013-14 budget proposal allocates Prop 39 revenue to school
districts and community colleges.
7) Is this bill premature ? ARB is currently working on a
methodology to fully exempt entities that fall under the
cap solely due to CHP usage, and to provide allowances for
California universities based on early action GHG
reductions, energy efficiency measures and use of CHP.
This proposal will likely reduce the compliance costs of
covered universities substantially. Providing full
exemptions from the regulation invites other entities to
seek legislative exemptions, and should only be done when
solutions to legitimate policy concerns cannot or are not
being accomplished through regulation. The bill should be
held pending the review of ARB's proposal, so that the
Committee may evaluate whether the proposed regulatory
amendments appropriately address the concern of rising
tuition costs as a result of the cap-and-trade regulation.
SOURCE : Senator Walters
SUPPORT : University of California
OPPOSITION : None on file
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