BILL ANALYSIS                                                                                                                                                                                                    Ó




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                                   THIRD READING 


          Bill No:  AB 1288
          Author:   Atkins (D)
          Introduced:2/27/15  
          Vote:     21  

           SENATE ENVIRONMENTAL QUALITY COMMITTEE:  5-2, 7/15/15
           AYES:  Wieckowski, Hill, Jackson, Leno, Pavley
           NOES:  Gaines, Bates

           SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15
           AYES: Lara, Beall, Hill, Leyva, Mendoza
           NOES: Bates, Nielsen

           ASSEMBLY FLOOR:  51-28, 6/3/15 - See last page for vote

           SUBJECT:   California Global Warming Solutions Act of 2006:  
                     regulations


          SOURCE:    Author

          DIGEST:   This bill eliminates the December 31, 2020, limit on  
          applicability of a market-based mechanism for greenhouse gas  
          (GHG) emissions reductions that may be adopted by California Air  
          Resources Control Board (ARB).

          ANALYSIS:   Existing law, under the California Global Warming  
          Solutions Act of 2006 (Health and Safety Code §38500 et seq.):

          1)Requires the 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, and to adopt  
            GHG emissions reductions measures by regulation.  

          2)Authorizes the ARB, in furtherance of achieving the statewide  








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            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 for GHG emissions  
          reductions that may be adopted by the ARB.

          Background
          
          1)The Global Warming Solutions Act of 2006.  In 2006, the Global  
            Warming Solutions Act of 2006, AB 32 (Núńez, Pavley, Chapter  
            488, Statutes of 2006) established a statewide GHG emissions  
            limit by 2020.  AB 32 defines GHGs as carbon dioxide (CO2),  
            methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons,  
            and sulfur hexafluoride and requires the 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 the 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 the 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, the ARB approved the  
            first Scoping Plan in 2008.  The Scoping Plan outlined a suite  








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            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  
            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 CO2 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  








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            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 the ARB  
            allowances sufficient to match its GHG emissions during the  
            period. 

            The 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 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, the 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. 








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            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 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."








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          2)Statewide GHG emissions in 2013.  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 earlier  
            this year.  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 MMT 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 the ARB, the  
            increase in emissions for cement plants were due to increased  
            production.  

          Related/Prior Legislation
          
          SB 32 (Pavley, 2015) requires the 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 on the Assembly  
          Floor.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No

          According to the Senate Appropriations Committee:

           Potential ongoing costs of $6.5 million annually beginning in  
            2020 from the Cost of Implementation Account (special) for the  
            ARB to continue to administer the cap-and-trade program beyond  
            2020.

           Potential ongoing costs in the low millions of dollars to the  
            Cost of Implementation Account (special) for the contract with  
            the Western Climate Initiative, Inc. to support the  
            cap-and-trade auctions.








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           Potential ongoing auction revenues in the billions of dollars  
            to the GHG Reduction Fund (special) 


          SUPPORT:   (Verified8/28/15)


          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:   (Verified8/28/15)


          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 the goals are met by providing  
          a firm limit on the GHGs emitted by the state's largest  
          polluters.  Silicon Valley Leadership Group states that AB 1288  
          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  








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          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 & 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.  
           
          ASSEMBLY FLOOR:  51-28, 6/3/15
          AYES:  Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,  
            Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,  
            Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin,  
            Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin,  
            Nazarian, O'Donnell, Perea, Quirk, Rendon, Ridley-Thomas,  
            Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber,  
            Williams, Wood, Atkins
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley,  
            Harper, Jones, Kim, Lackey, Linder, Maienschein, Mathis,  
            Mayes, Melendez, Obernolte, Patterson, Steinorth, Wagner,  
            Waldron, Wilk
          NO VOTE RECORDED:  Olsen

          Prepared by:Rebecca Newhouse / E.Q. / (916) 651-4108
          8/30/15 19:27:46










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