BILL ANALYSIS Ķ
SB 605
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: SB 605
AUTHOR: Lara
AMENDED: April 8, 2013
FISCAL: Yes HEARING DATE: May 1, 2013
URGENCY: No CONSULTANT: Rebecca Newhouse
SUBJECT : CALIFORNIA GLOBAL WARMING SOLUTIONS ACT OF 2006:
SCOPING PLAN
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 emissions
reductions 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, emissions estimation techniques, and other scientific
methods. The plan must be updated at least once every five
years. (§38561).
This bill :
1) Requires the ARB, when updating the scoping plan, to:
a) Revise the million metric tons of emissions (MMTE) to
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emphasize in-state actions that create jobs in the state,
including, but not limited to, retrofits.
b) Achieve maximum technologically feasible and
cost-effective emissions reductions in short-lived climate
pollutants no later than December 31, 2015.
c) Limit the use of offsets to offsets originating and
achieved within the state, offsets used to offset GHG
emissions in a location that has GHG emissions, and, to the
extent feasible, offsets occurring at the same time GHG
emissions are occurring.
d) Adopt a backstop plan in the event that a market-based
compliance mechanism and the Low Carbon Fuel Standard
(LCFS) regulations do not accomplish the Scoping Plan
goals.
e) Expend special funds, including, but not limited to,
funds derived from market-based compliance mechanisms, the
Electric Program Investment Charge Fund and the Alternative
and Renewable Fuel and Vehicle Technology Fund, for
emissions reductions from sources within the state to
achieve and maintain the 2020 GHG emissions limit.
2) Requires all GHG reductions be achieved within the state in
areas that are most impacted by GHG pollutants, and other air
pollutants, unless:
a) The ARB makes a finding at a public hearing that there
are no technologically feasible and cost-effective
emissions reductions that may be made in areas that are
most impacted by greenhouse gas pollutants within the state
and the ARB submits that finding to the Joint Legislative
Budget Committee; and
b) The Joint Legislative Budget Committee concurs or
nonconcurs with the ARB's finding within 30 days of
receiving the finding, and if the Committee makes no
finding within 30 days, the finding shall be deemed
concurred.
COMMENTS :
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1) Purpose of Bill . According to the author, "SB 605 meets AB 32
climate pollution objectives while ensuring that pollution
reduction efforts are focused in California and benefit the
state's economy and environment." The author further notes
that, "Over the past six years, the California Air Resources
Board has implemented several market-based mechanisms that are
intended to reduce greenhouse gas emissions - such as cap and
trade and the LCFS. It is anticipated that these measures
alone will account for over 40 MMTE (nearly 40%) of the
reductions needed to meet the goals of AB 32. The reliance on
market-based systems can lead to emissions reductions, but
unfortunately not always in California and not for
disadvantaged communities or areas hardest hit by pollution.
Recently, Shell, which owns two oil refineries and numerous
other high polluting facilities in the state, purchased
500,000 California forest carbon credits to meet its AB 32
obligations - an offset based on the purchase of an existing
forest in Michigan. While this action is allowed under
California's cap and trade program, it does nothing to reduce
GHG's or air pollution in California. It creates no jobs,
makes no in-state investment, or results in any new
environmental benefits. Instead, it allows an industry to
maintain or increase its emissions reductions in California
and worsen the health of our vulnerable populations."
2) Background . In 2006, AB 32 required the ARB to develop a
Scoping Plan that describes the approach California will take
to reduce GHG emissions to achieve the goal of reducing
emissions to 1990 levels by 2020. The Scoping Plan was first
approved by the Board in 2008 and must be updated every five
years to evaluate the mix of AB 32 policies to ensure that
California is on track to achieve the 2020 GHG reductions
goal.
This spring, ARB plans to hold initial public workshops in
coordination with local air and transportation agencies to
discuss preliminary concepts for updating the Scoping Plan and
to gain local and regional perspective on both progress and
future direction for California's climate change programs. In
summer 2013, ARB plans to release a preliminary draft of the
2013 update to the AB 32 Scoping Plan for public review and
comment. In fall of this year, ARB expects to bring an updated
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Scoping Plan document to the Board for consideration.
Estimate of emissions reductions . The Scoping Plan outlines a
suite of measures aimed at achieving 1990-level emissions of
427 million metric tons of carbon dioxide equivalent (MMTCO2e)
in 2020, a reduction of about 80 MMTCO2e from California's
2020 "business-as-usual" GHG emissions projection. The
emissions reductions measures outlined in the plan include a
cap-and-trade program, the low carbon fuel standard (LCFS),
light-duty vehicle GHG standards, energy efficiency actions,
the Renewable Portfolio Standard, regional
transportation-related GHG targets, as well as a variety of
other actions and programs recommended to achieve the 2020
goal.
3) Cap and trade . Pursuant to authority under AB 32 (Nuņez)
Statutes of 2006, Chapter 488, the ARB adopted cap-and-trade
regulations, and those regulations were approved on December
13, 2011. Beginning on January 1, 2013, the cap-and-trade
regulations set 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 (MMTCO2e) that
it emits at the end of a compliance period. Over time, the
cap declines, resulting in GHG emissions 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 emissions reductions achieved
in an uncapped sector and are quantified and verified using an
ARB approved compliance offset protocol.
The mix of measures in the Scoping Plan, including both direct
regulatory measures and cap-and-trade, are intended to achieve
the aggregate emissions reductions target by 2020. At full
implementation of the current Scoping Plan, cap-and-trade is
expected to contribute the equivalent of 18 MMTCO2e in
reductions in GHG emissions annually by 2020 compared with 62
MMTCO2e from direct regulatory measures. Because the sectors
covered under the cap-and-trade program are also subject to
various direct regulatory measures, any underperformance of
direct regulatory measures at reducing emissions will result
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in additional reductions needed under the cap-and-trade
program. In other words, ARB intends the cap of the
cap-and-trade program to serve as a backstop to achieve the
2020 GHG emissions reductions goal, regardless of the
performance of the direct regulatory measures in achieving
their estimated emissions reductions.
Cap-and-trade has been the subject of numerous law suits. The
California Chamber of Commerce filed a suit in November 2012
claiming that the allowances sold at auction represent an
unlawful tax and that the ARB lacks authority to sell them.
That case is pending in state court in Sacramento. On April
16th, the Pacific Legal Foundation filed a suit based on a
similar claim. Earlier this year, the ARB won a lawsuit
against Citizens Climate Lobby and Our Children's Earth
Foundation that argued against the legality of allowing
offsets in the program.
Linkage . For the purposes of the cap-and-trade regulation,
linkage refers to the use of compliance instruments from a GHG
emissions trading system outside California to meet compliance
obligations under California's cap-and-trade regulation, and
the reciprocal approval of compliance instruments issued by
California to meet compliance obligations in the external
trading program. The cap-and-trade regulations approved on
December 13, 2011, include general requirements for linking to
other trading programs. In mid-April, the ARB approved the
regulatory amendments to link with Quebec beginning on January
1, 2014.
Offsets . Under the cap-and-trade regulation, offsets may be
used to satisfy up to 8% of a covered entity's compliance
obligation. The cap-and-trade regulation includes
requirements for collecting and submitting the appropriate
monitoring documentation to support the verification and
enforcement of the generation and retirement of ARB offset
credits and requires third-party verification of all GHG
emissions reductions before any ARB offset credits may be
issued. Only ARB-accredited offset verification bodies and
offset verifiers may provide offset verification services
under the Compliance Offset Protocol (COP) for approved
project types. To date, ARB has adopted protocols for the
following four project types: livestock manure management,
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ozone depleting substances, urban forestry, and U.S. forestry.
On February 22, the ARB held a public workshop for the new
offset protocol development of GHG emissions reductions
associated with biomass waste resulting from rice cultivation
and projects for the mitigation of methane from coal mines.
The cap-and-trade regulation establishes that offset projects
must be located in the United States and its territories,
Canada, or Mexico. Individual COPs, however, may specify a
more limited geographic area within that range. For example,
the protocol for Livestock Projects is only applicable in the
United States. Quebec has developed three offset protocols
for livestock digesters, small landfills and the destruction
of ozone depleting substances from foam.
4) LCFS . The Low Carbon Fuel Standard (LCFS) requires the
reduction of carbon intensity of transportation fuels used in
California by an average of 10% by 2020. Carbon Intensity (CI)
is a measure of the direct and indirect GHG emissions
associated with each of the steps in the full fuel-cycle of a
transportation fuel. A party's overall CI for its
transportation fuels needs to meet each year's specified CI
level target. If the reduction in intensity exceeds the
target, the provider earns a credit, which can be sold or
carried forward. Regulated fuel providers, therefore, can meet
their annual CI levels by making low-GHG fuels, carrying
forward credits from previous years from their own production
process, buying credits from other fuel producers, or reducing
the amount of fuel they sell. According to the 2008 Scoping
Plan, the LCFS is projected to result in 15 MMT of emissions
reductions to reach the 2020 GHG emissions reductions goal.
The LCFS is currently being challenged by the oil industry and
several corn-based ethanol producers from the Midwest, who
argued in federal court that California's regulations violate
the Commerce Clause of the U.S. Constitution. One of the
district court's rulings preliminarily enjoined the ARB from
enforcing the regulation. In January 2012, ARB appealed that
decision to the Ninth Circuit Court of Appeals and then moved
to stay the injunction pending resolution of the appeal. On
April 23, 2012, the Ninth Circuit granted the ARB's motion for
a stay of the injunction while it continues to consider ARB's
appeal of the lower court's decision.
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5) Short-lived climate pollutants . CO2 remains in the atmosphere
for centuries, which makes it the most important greenhouse
gas to reduce in order to limit long-term climate change.
However, climate pollutants including methane, tropospheric
ozone, hydrofluorocarbons, and soot (black carbon), are
relatively short-lived, but have much higher global warming
potentials than CO2. New research suggests that black carbon
is the second largest man-made contributor to global warming
and its influence on climate has been greatly underestimated.
Another recent study published in the journal Nature Climate
Change found that reducing emissions of short-lived climate
pollutants, including soot and methane, by 30 to 60 percent by
2050 would slow the annual rate of sea level rise by about 18
percent by 2050. In addition, the study found that, compared
to just cutting CO2 emissions, reducing the release of
short-lived climate pollutants would do more to slow sea level
rise before 2050, but that lowering CO2 emissions would be
required to limit warming and warming-related impacts beyond
that point.
The 2008 Scoping Plan recommends policies to reduce methane in
the recycling and waste sector, as well as in the industrial
sector, specifically recommending actions for reductions from
refinery flare improvements and during oil and gas extraction.
SB 605 would require, in the Scoping Plan update, that the
maximum technologically feasible and cost-effective emissions
reductions in short-lived climate pollutants be achieved no
later than December 31, 2015.
6) Backup Plan . SB 605 requires that the ARB adopt a "backstop"
plan to be included in the updated Scoping Plan, in the event
that the cap-and-trade regulation and the LCFS regulation, the
two measures that make up the largest portion of emissions
reductions to reach the 2020 GHG emissions reductions goal, do
not meet their emissions reductions targets.
The 2008 Scoping Plan asserts that it provides a 'margin of
safety,' in terms of additional reductions to account for
measures in uncapped sectors that do not, or may not, achieve
the estimated reductions of GHG emissions in the plan. As
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noted above, the ARB designed the cap-and -trade program as a
backstop measure in the event that emissions reductions
resulting from direct regulatory measures do not meet current
projections. The failure of one of the two primary measures
that the state is relying on to achieve the 2020 GHG goal,
either through legal invalidation, market failure or
technological infeasibility, would likely put the attainment
of that goal in jeopardy, especially since the cap-and-trade
program itself is the primary back up plan.
7) Concerns surrounding offsets . AB 32 makes no mention of
offsets, instead focusing on direct GHG emissions reductions
and only permitting market-based mechanisms to the extent they
produce equivalent results. The use of offsets for compliance
with AB 32 in the cap-and-trade program has been designed by
ARB without statutory guidance. While ARB has justified the
reliance on compliance offsets in their cap-and-trade program
as an opportunity for low-cost reductions from outside the
capped sector, others have questioned how offsets,
particularly from sources outside the state, might meet AB
32's requirements or otherwise produce benefits in California.
SB 605 would prohibit the use of offsets not achieved and
generated within the state. Offsets are intended by ARB to be
a cost-containment mechanism for the program. Because about
85% of GHG emissions in California are covered under the
cap-and-trade program, and offsets may only be generated from
the uncapped sector, there are limited offset projects
available within the state. This restriction of offsets to
California-only projects will likely significantly increase
their cost and reduce their effectiveness as a
cost-containment mechanism for the cap-and-trade program.
8) Amendments needed .
a) Timing . SB 605 requires that the ARB make revisions, as
specified, when updating the Scoping Plan. The bill will
not go into effect until January 1, 2014, and if the
Scoping Plan is updated and approved this year, the current
language in SB 605 would not require ARB to revise the
Scoping Plan, as specified, until the next update in five
years.
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The bill should be amended to require the ARB incorporate
the changes specified in SB 605 in the 2013 Scoping Plan.
b) Oversight . SB 605 requires the Joint Legislative Budget
Committee (JLBC) to concur with specified findings from ARB
that there are no cost-effective and technologically
feasible GHG emissions reductions in the state in regions
most impacted by GHGs and other air pollutants, in order
for GHG emissions reductions to be achieved elsewhere. This
provision may negatively affect a whole host of GHG
reduction measures already being implemented. It may be
more appropriate to bring Legislative oversight to the
process through review and concurrence of the Scoping Plan
revisions.
The bill should be amended to require the ARB to submit the
revisions required by SB 605 to the JLBC for review and
concurrence, in consultation with other appropriate
legislative committees.
c) Prioritizing certain emissions reductions . SB 605 would
require the ARB to revise the million metric tons of
emissions to emphasize in-state actions that create jobs.
As written, this statement is unclear. Additionally, in
provisions not applicable to the updating of the Scoping
Plan, the bill prioritizes GHG reduction in areas also
impacted by other air pollutants.
To add clarity, the bill should be amended to
require the ARB, when updating the Scoping Plan,
prioritize and emphasize measures and actions resulting
in GHG emissions reductions that both create jobs within
the state, and reduce air pollutants that negatively
impact air quality in regions of the state with poor air
quality.
a) Maximum technically feasible reductions . SB 605
requires the updated Scoping Plan achieve maximum
technologically feasible and cost-effective emissions
reductions in short-lived climate pollutants no later than
December 31, 2015. This provision is confusing and seems
to preclude emissions reductions in short-term climate
pollutants after December 31, 2015.
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The bill should be amended to require the ARB, when
updating the Scoping Plan, prioritize and emphasize
current regulations and actions, and recommend additional
measures and actions that can be implemented beginning no
later than December 31, 2015, to achieve the maximum
technologically feasible and cost-effective reductions in
short-lived climate pollutants with high global warming
potentials.
a) Offsets . SB 605 requires that, when ARB updates the
Scoping Plan, they limit the use of offsets to those
originating and achieved within the state. Offsets
generated within the state produce the most air quality and
economic co-benefits to California, however, limiting them
to originating within the state will likely drive up their
cost.
The bill should be amended to require ARB, when
updating the Scoping Plan, limit the use of offsets
originating and achieved within the state, to the maximum
extent feasible.
The bill also limits offsets used to offset GHG emissions
in a location that has GHG emissions, and those offsets
occurring at the same time GHG emissions are occurring, to
the extent possible. However, climate change due to GHG
emissions is not a localized phenomenon.
For that reason, the committee may wish to amend
the bill to strike the provisions requiring offsets be
used in the same region in which they were generated.
In addition, the provision in SB 605 requiring offsets
occur at the same time GHG emissions are occurring is
problematic and could be interpreted to preclude the use of
offsets that are not precisely synchronized with GHG
emissions.
The committee may wish to strike this requirement.
The bill references "offsets" but neither the bill, nor the
existing AB 32 statute, gives a definition of offsets.
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The bill should be amended to define "offsets."
a) Backstop plan . SB 605 requires the ARB to have a
backstop plan in the event that cap-and-trade and LCFS
fail, but does not specifically state what the plan should
accomplish, or reference the failure of other regulatory
measures intended to help achieve the 2020 goal.
The bill should be amended to clarify the provision
regarding the adoption of a "backstop" plan, specifically
to clarify the plan achieves the goals of AB 32 in the
event that current regulatory measures are not projected
to meet the 2020 GHG emissions reductions goal.
a) Special funds . SB 605 requires that the Scoping Plan be
updated to incorporate the expenditure of special funds to
help achieve and maintain the 2020 GHG goal. Only special
funds that are authorized to be used for GHG emissions
mitigation should be included in the updated Scoping Plan.
The bill should be amended to clarify that only
special funds that are authorized to be expended for GHG
emissions reductions purposes should be considered for
the funding of measures and activities to help achieve
the 2020 GHG goal, as well as help to continue to reduce
emissions beyond the 2020 time frame.
a) In-state GHG reductions . SB 605 contains provisions
that require all GHG reductions to occur within the state
in areas that also suffer from other air pollutants, unless
ARB makes certain findings and the Legislature concurs.
Those provisions are not limited to the update of the
Scoping Plan, and may have unintended consequences
impacting various ARB programs and regulations that are
currently achieving other priorities this bill identifies,
such as reduction of short-lived climate pollutants and
in-state job creation. Instead, incorporating those
co-benefit requirements into the Scoping Plan, as
recommended in (c), may help achieve the goal of this
provision in SB 605, and also limit unintended
consequences.
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The bill should be amended to repeal the provisions
requiring all GHG emissions reductions be achieved within
the state, unless the ARB makes specified findings and
the Legislature concurs.
SOURCE : Senator Lara
SUPPORT : None on file
OPPOSITION : None on file