BILL ANALYSIS Ó SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator Wieckowski, Chair 2015 - 2016 Regular Bill No: AB 1288 ----------------------------------------------------------------- |Author: |Atkins | ----------------------------------------------------------------- |-----------+-----------------------+-------------+----------------| |Version: |2/27/2015 |Hearing |7/15/2015 | | | |Date: | | |-----------+-----------------------+-------------+----------------| |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Rebecca Newhouse | | | | ----------------------------------------------------------------- SUBJECT: California Global Warming Solutions Act of 2006: regulations. ANALYSIS: Existing law, under the California Global Warming Solutions Act of 2006 (Health and Safety Code §38500 et seq.): 1)Requires the California Air Resources Control 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. 2)Authorizes ARB, in furtherance of achieving the statewide GHG emissions limit to adopt a regulation, by January 1, 2011, that establishes a system of market-based declining annual aggregate emission limits for sources or categories of sources that emit GHGs, applicable from January 1, 2012, to December 31, 2020, inclusive. This bill eliminates the December 31, 2020 limit on applicability of a market-based mechanism to reduce GHG emissions that may be adopted by ARB. Background 1)The Global Warming Solutions Act of 2006. In 2006, the Global Warming Solutions Act of 2006, AB 32 (Núñez, Pavley, Chapter 488, Statutes of 2006) established a statewide GHG emissions AB 1288 (Atkins) Page 2 of ? limit by 2020. AB 32 defines GHGs as carbon dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride and requires ARB to determine the 1990 statewide GHG emissions level and approve a statewide GHG emissions limit that is equivalent to that level, to be achieved by 2020. AB 32 also requires ARB, among other things, to inventory GHGs in California, outline a Scoping Plan for achieving the 2020 GHG emission limit, and implement regulations that achieve the maximum technologically feasible and cost-effective reduction of GHG emissions. The statute also specifies that ARB may include market-based compliance mechanisms in the AB 32 regulations, after considering the potential for direct, indirect, and cumulative emission impacts from these mechanisms, including localized impacts in communities that are already adversely impacted by air pollution, and must design any market-based compliance mechanisms to prevent any increase in the emissions of toxic air contaminants or criteria air pollutants. The statute also specifies that market-based compliance mechanisms must also maximize additional environmental and economic benefits for California, as appropriate. 2)AB 32 Scoping Plan. Pursuant to AB 32, ARB approved the first Scoping Plan in 2008. The Scoping Plan outlined a suite of measures aimed at achieving 1990-level emissions, a reduction of 80 million metric tons of CO2 (MMT CO2e). Average emission data in the Scoping Plan reveal that transportation accounts for almost 40% of statewide GHG emissions, and electricity and commercial and residential energy sector account for over 30% of statewide GHG emissions. The industrial sector, including refineries, oil and gas production, cement plants, and food processors, was shown to contribute 20% of California's total GHG emissions. The 2008 Scoping Plan recommended that reducing GHG emissions from the wide variety of sources that make up the state's emissions profile could best be accomplished through a cap-and-trade program along with a mix of other strategies including, among other measures, a low carbon fuel standard, light-duty vehicle GHG standards, expanding energy efficiency AB 1288 (Atkins) Page 3 of ? programs, and achieving a 33% renewable portfolio standard. 3)Cap and trade overview. 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 that it emits at the end of a compliance period. Over time, the cap declines, resulting in GHG emissions reductions. Based on the first update to the Climate Change Scoping Plan, the cap-and-trade program will be responsible for approximately 30% of the required GHG emission reductions to meet the AB 32 goal of reducing GHG emissions to 1990 levels by 2020. 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 inclusion of offsets in the cap-and-trade program is intended to help reduce entities' compliance costs. For the first compliance period (2013-14), the capped sector includes the electricity and industrial sectors. Uncapped sectors throughout the course of the program include small businesses (with annual emissions under 25,000 metric tons CO2e), agriculture, and forestry. In the second compliance period beginning in 2015, distributors of transportation fuels, natural gas, and other fuels also come under the cap. Once under the cap, an entity covered by the regulation must periodically submit to ARB allowances sufficient to match its GHG emissions during the period. ARB is allocating most allowances for free in order to provide transition assistance and to minimize leakage for trade-exposed industries (leakage refers to increased GHG emissions outside California either from entities leaving the state and producing emissions elsewhere, or by reduction of economic activity within the state that is offset by increased production outside the state). The remaining allowances (apart AB 1288 (Atkins) Page 4 of ? from a small amount set aside in a price containment reserve) are auctioned off. Electric and natural gas utilities are provided free allocation of allowances for the benefit of ratepayers. Offsets: Under the cap-and-trade regulation, offsets may be used to satisfy up to 8% of a covered entity's compliance obligation. The inclusion of offsets in the cap-and-trade program is designed to help reduce entities' compliance costs. To date, ARB has adopted protocols for the following project types: Livestock manure management Ozone depleting substances Urban forestry U.S. forestry Coal mine methane An offset protocol for rice cultivation is currently being developed. The cap-and-trade regulation establishes that offset projects must be located in the United States and its territories, Canada, or Mexico. However, all current offset protocols require that they be generated within the United States. Linkage: The cap-and-trade regulations approved on December 13, 2011, include general requirements for linking to other trading programs, where 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. In April of 2013, the ARB approved the regulatory amendments to link with Quebec beginning on January 1, 2014. Comments 1) Purpose of Bill. According to the author, "In 2006, the Legislature passed AB 32 - the California Global Warming Solutions Act - which requires California to reduce greenhouse gas emissions to 1990 levels by 2020. AB 32 tasked the Air Resources Board with developing a comprehensive Scoping Plan to serve as the state's blueprint for meeting AB 1288 (Atkins) Page 5 of ? the 1990 limit. "One of the tools identified in the Scoping Plan of regulatory, programmatic, and market-based measures to achieve GHG emission reductions is a cap and trade program. The cap and trade program, which was officially launched in 2013, provides a mechanism for specific industry sectors with high GHG emissions to meet their GHG reduction requirements in a cost-effective manner. Since its launch, the cap and trade program has proven to be an effective and complementary strategy for meeting our greenhouse gas reduction goals. "California's climate programs continue to serve as the national and international gold standard for tackling climate change in a manner that maintains our economic vibrancy. While we have made great strides in meeting our GHG reduction goals, there is more work to be done. "Recognizing California's commitment to setting new statewide greenhouse gas limits beyond 2020, AB 1288 clarifies that market-based mechanisms should continue to play a key role in achieving those reductions." 2) What is the status on emissions reductions from cap-and-trade? It may be too soon to tell. The cap-and-trade program has been operating since January 1, 2013. However, because of the time it takes for regulated entities to report emissions, and for the state to verify and analyze that information, an ARB summary of 2013 GHG emissions became available only last month. Therefore, at this time, the state only has one year of GHG emissions data with which to access the efficacy of the cap-and-trade program. The summary states that total 2013 statewide GHG reported emissions decreased by approximately 2.7 million metric tons of CO2e, or 0.6%. The statewide reduction is attributed mostly to a decrease in emissions in the electricity sector due to efficiency improvements and decreases in cogeneration activity. However, some sectors showed emissions increases, such as cement plants and oil and gas production. According to ARB, the increase in emissions for cement plant was due to increased production. AB 1288 (Atkins) Page 6 of ? Related/Prior Legislation SB 32 (Pavley) of 2015 requires ARB to approve statewide GHG emissions limits of 40% below the 1990 GHG emissions level, to be achieved by 2030, and 80% below the 1990 GHG emissions level, to be achieved by 2040. SB 32 is currently in the Assembly Natural Resources Committee. SOURCE: Author SUPPORT: American Lung Association, California Audubon California California League of Conservation Voters California Trout Californians Against Waste Calpine Corporation CALSTART Environmental Defense Fund EtaGen Natural Resources Defense Council ReLeaf Sierra Club California Silicon Valley Leadership Group The Nature Conservancy Union of Concerned Scientists OPPOSITION: California Manufacturers & Technology Association Center on Race, Poverty & the Environment ARGUMENTS IN SUPPORT: Supporters state that California's cap-and-trade program is a cornerstone of the state's strategy to achieve the emissions limits established by AB 32 and it acts as an insurance policy to ensure we meet our goals by providing a firm limit on the GHGs emitted by the state's largest polluters. Silicon Valley Leadership Group states that AB1288 AB 1288 (Atkins) Page 7 of ? is critical to maintain the state's leadership on climate action, provide businesses with regulatory certainty and continue to drive innovation. They note that Cap and trade is an effective way to send clear market signals by creating a financial incentive for reducing pollution and a profit motive for developing clean technologies. ARGUMENTS IN OPPOSITION: The Center for Race, Poverty and the Environment states that cap and trade allows major polluters to pay their way out of making real, on-site reductions at the expense of low-income communities, communities of color and indigenous communities. They note that reductions in GHGs also lead to reductions in co-pollutants, such as PM 2.5 and air toxics, emitted into the surrounding community, which is a benefit that is foregone when that facility buys allowances or offsets. They also argue that AB 1288 has been improperly designated as a majority vote bill, and should instead require a two- thirds vote, due to Proposition 26 requirements. California Manufacturers and Technology Association argues that, before establishing any post-2020 plan, it is critical that California understand the full extent of the current program, address necessary pre-2020 reforms and establish robust, enforceable economic impact analysis requirements going forward, which they note the state has yet to do. -- END --