BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 726|
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THIRD READING
Bill No: SB 726
Author: Lara (D)
Amended: 5/24/13
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE : 9-0, 5/1/13
AYES: Hill, Gaines, Calderon, Corbett, Fuller, Hancock,
Jackson, Leno, Pavley
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/23/13
AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
SUBJECT : California Global Warming Solutions Act of 2006:
Western
Climate Initiative, Incorporated
SOURCE : Author
DIGEST : This bill makes several new requirements of the
Western Climate Initiative, Inc. (WCI Inc.), including requiring
WCI Inc. to comply with the Bagley-Keene Open Meeting Act (Act),
comply with the California Public Records Act, and report to the
Legislature regarding emission reductions achieved until its
California voting board members are confirmed by the Senate.
Requires that expenditures and allocations of monies to WCI
Inc., be included in the Governor's budget for the Air Resources
Board (ARB).
ANALYSIS :
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Existing law:
1.Requires, under the California Global Warming Solutions Act of
2006 (CGWSA), the 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.
2.Requires that the California membership of the board of
directors of the WCI, Inc. include one ex officio nonvoting
member appointed by the Senate Rules Committee, one ex officio
nonvoting member appointed by the Speaker of the Assembly, the
Chairperson of the ARB, or their designee, and the Secretary
of the Environmental Protection Agency (Secretary), or their
designee.
3.Requires that the ARB provide notice to the Joint Legislative
Budget Committee (JLBC) of any funds over $150,000 provided to
the WCI, Inc., or its derivatives or subcontractors, no later
than 30 days prior to the transfer or expenditure of the
funds.
4.Requires the ARB Chairperson and the Secretary to report every
six months to the JLBC on any actions proposed by the WCI,
Inc. that affect the state government or entities within the
state.
5.Defines "link" or "linkage" to mean an action taken by the ARB
or other state agency that results in acceptance of compliance
instruments by the State of California, issued by any other
governmental agency, for purposes of demonstrating compliance
with a market-based compliance mechanism.
6.Prohibits a state agency from linking with any other state,
province, or country unless the state agency notifies the
Governor, as specified.
7.Requires the above findings consider advice from the Attorney
General, and that the Governor issue the above findings within
45 days of receiving notice from the state agency.
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8.The Act, requires state boards, commissions, committees,
panels, and councils, meeting certain criteria and that are
required to hold official meetings, to publicly notice their
meetings, prepare agendas, accept public testimony and conduct
their meetings in public, unless specifically authorized by
the Act to meet in closed session.
9.Exempts WCI, Inc. and the appointees when performing their
statutory duties related to the WCI, Inc. from the
requirements of the Act.
This bill:
1.Repeals the provision exempting the WCI, Inc. from the Act and
specifies that WCI, Inc. and the appointees when performing
their statutory duties related to the WCI, Inc. are subject to
the requirements of the Act and the California Public Records
Act.
2.Prohibits the ARB, on or after January 1, 2014, from entering
into any contract or revising any existing contract with the
WCI, Inc. until the non-ex officio California membership of
the board of directors of the WCI, Inc., is confirmed by the
Senate.
3.Requires the WCI, Inc. to annually submit a report to the
Governor and appropriate legislative committees that includes
the emissions reductions achieved pursuant to the WCI Inc.
general plans to foster relationships with other locations,
states and nations in order to reduce greenhouse gas emissions
in California.
4.Requires that, beginning January 1, 2014, the ARB include
information on all proposed expenditures and allocations of
monies to the WCI, Inc. in the Governor's budget.
Background
Brief background on cap-and-trade . Pursuant to authority under
AB 32 (Nuñez, Chapter 488, Statutes of 2006), 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 regulation set a firm, declining cap on total GHG
emissions from sources that make up approximately 85% of all
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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
entity's 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. After the
first compliance period for the program, the number of
allowances freely distributed to entities declines, 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.
Linkage . For the purposes of the cap-and-trade regulation,
linkage refers to the use of compliance instruments from a GHG
emission 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. On May 9, 2012, ARB staff noticed
regulatory amendments to allow for linkage between the
California and Québec cap-and-trade programs.
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Subsequent to the notice, SB 1018, (Senate Budget and Fiscal
Review Committee, Chapter 39, Statutes of 2012), was enacted,
with provisions intended to establish new oversight and
transparency over proposed linkages and the WCI, Inc.
Specifically, the bill requires state agencies to notify the
Governor that the agency intends to link with another GHG
emissions trading program, and also requires the Governor to
make specified findings, reviewed by the Attorney General, prior
to the agency taking action to approve the linkage.
On February 22, 2013, ARB's Executive Officer sent a notice of
the intent to link with Québec, and requested the Governor
consider and make four findings required by statute so that the
ARB may adopt regulatory amendments to link the California and
Québec cap-and-trade programs. On April 8, 2013, Governor Brown
sent a letter to the ARB making the required findings. In
mid-April, the ARB approved the regulatory amendments to link
with Québec beginning on January 1, 2014.
WCI and the WCI, Inc . The WCI is a collaboration of independent
jurisdictions working together to identify, evaluate, and
implement emissions trading policies to address climate change
at a regional level. The WCI Inc., began in February 2007 when
the Governors of California, Arizona, New Mexico, Oregon, and
Washington, signed an agreement directing their respective
states to develop a regional target for reducing GHG emissions,
participate in a multi-state registry to track and manage GHG
emissions in the region, and develop a market-based program to
reach the target. The WCI Inc. partner jurisdictions released
recommendations for designing and implementing an emissions
trading program. Those recommendations are consistent with the
design of the ARB cap-and-trade program. Current WCI Inc.
membership differs substantially from the inception, since all
US states besides California dropped out, and the Provinces of
British Columbia, California, Ontario, Québec and Manitoba, have
since joined.
In November 2011, the WCI Partner jurisdictions created WCI,
Inc. a non-profit corporation formed to provide administrative
and technical support to state and provincial GHG emissions
trading programs. The administrative services that WCI, Inc.
plans to provide to participating jurisdictions include
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development of a compliance tracking system for allowance and
offset certificates, administration of allowance auctions, and
market monitoring of allowance auctions and allowance and offset
certificate trading. The WCI, Inc. governing board is made up
of eight members: four representing California, two
representing British Columbia and two representing Québec.
ARB's agreement with WCI, Inc. provides ARB access to the
administrative systems that WCI, Inc. is developing. According
to the ARB, the benefits of participating in WCI, Inc. will
include reduced administrative costs through cost sharing with
other jurisdictions and enhanced security and effectiveness of
program infrastructure across programs, including the tracking
system, auction operation, and market monitoring.
ARB's share of the WCI, Inc. budget is approximately $3.7
million over two years. Québec's share of the budget over the
same time period is approximately $1.6 million. Thus, the
preliminary WCI, Inc. budget for its first two years of
operation is $5.3 million. The distribution of funding across
jurisdictions is based on the number of participating
jurisdictions and the total emissions covered by each
jurisdiction's emissions trading program.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Minor costs to comply with the Act.
Potential costs in the tens of thousands of dollars from
the Cost of Implementation (COI) Account (special) to
comply with the Public Records Act, depending on the number
and complexity of actual requests.
Possible, but unlikely, costs in the tens of thousands
of dollars to low hundreds of thousands from the COI
Account for temporary cessation of work by the WCI Inc. on
behalf of the state, depending on the length of the
cessation.
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ARGUMENTS IN SUPPORT : According to the author, "There have
been several concerns raised with the operations of WCI, Inc.
Specifically, related to accessibility of information to the
public, lack of time to review agendas prior to meetings, and
the specific benefits that will be achieved by linking with
entities, such as Québec." The author notes that as California
explores and actually links with other states and nations, the
state must ensure that proper oversight is in place and the
linkage effort is monitored appropriately. The author states
that the requirements contained in SB 726, including subjecting
California voting members of the WCI, Inc. Board to Senate Rules
confirmation, requiring the WCI, Inc. be subject to the
Bagley-Keene Open Meeting Act and the California Public Records
Act, and requiring the WCI, Inc. to submit an annual report to
the Legislature regarding linkage updates and GHG emission
reductions, will provide necessary legislative and public
oversight of California-funded linkage efforts.
RM:ej 5/25/13 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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