BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Wieckowski, Chair
                                2015 - 2016  Regular 
           
          Bill No:            AB 1288
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          |Author:    |Atkins                                               |
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          |Version:   |2/27/2015              |Hearing      |7/15/2015       |
          |           |                       |Date:        |                |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Rebecca Newhouse                                     |
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          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 (Nez, Pavley, Chapter  
            488, Statutes of 2006) established a statewide GHG emissions  







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            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  








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            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  








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            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  








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             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. 









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            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  








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                         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.  

           
                                          
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