BILL ANALYSIS                                                                                                                                                                                                    Ó





          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Wieckowski, Chair
                                2015 - 2016  Regular 
           
          Bill No:           SB 400
           ----------------------------------------------------------------- 
          |Author:    |Lara                                                 |
           ----------------------------------------------------------------- 
          |-----------+-----------------------+-------------+----------------|
          |Version:   |4/22/2015              |Hearing      | April 29, 2015 |
          |           |                       |Date:        |                |
          |-----------+-----------------------+-------------+----------------|
          |Urgency:   |No                     |Fiscal:      |Yes             |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant:|Rebecca Newhouse                                     |
          |           |                                                     |
           ----------------------------------------------------------------- 
          
          SUBJECT:  California Global Warming Solutions Act of 2006:   
          Greenhouse Gas Reduction Fund

            ANALYSIS:
                      
          Existing law:

          1. Under the California Global Warming Solutions Act of 2006,  
             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.  ARB  
             is authorized to include the use of market-based mechanisms  
             to comply with these regulations.  (Health and Safety Code  
             §38500 et seq.) 

          2. Establishes the Greenhouse Gas Reduction Fund (GGRF) in the  
             State Treasury, requires all moneys, except for fines and  
             penalties, collected pursuant to a market-based mechanism be  
             deposited in the fund, and requires the Department of  
             Finance, in consultation with the state board and any other  
             relevant state agency, to develop, as specified, a three-year  
             investment plan for the moneys deposited in the GGRF.   
             (Government Code §16428.8)









          SB 400 (Lara)                                           Page 2  
          of ?
          
          3. Requires moneys from the GGRF be used to facilitate the  
             achievement of 
             reductions of GHG emissions in this state consistent with the  

             California Global Warming Solutions Act of 2006, and  
             authorizes those 
             funds to be allocated for the purpose of reducing greenhouse  
             gas emissions.  Annual budget appropriations of GGRF funds  
             are required to be consistent with the investment plan.  (HSC  
             §39712) 

          4. Requires the GGRF investment plan to allocate, at a minimum,  
             25% of the funds to benefit disadvantaged communities, and to  
             allocate 10% of GGRF moneys within disadvantaged communities.  
              (HSC §39713)

          5. Continuously appropriates 25% of GGRF moneys to the  
             High-Speed Rail Authority for acquisition and construction,  
             environmental review and design, and other capital costs, as  
             well as repayments of loans made to the authority, for the  
             initial operating segment and Phase I Blended System. (HSC  
             §39719)

          This bill:

          1.Requires that at least 25% of the moneys appropriated to the  
            High-Speed Rail Authority for the initial operating segment  
            and the Phase I Blended System be allocated to environmental  
            mitigation measures and projects that reduce GHG emissions  
            from transportation sources, and provide a cobenefit of  
            improving air quality. 

          2.Specifies that priority for these expenditures be given to  
            measures and projects in communities that are located in areas  
            designated as extreme nonattainment. 

          3.Specifies that these projects may include, but are not limited  
            to, the following:

               A.     Public transit improvements that reduce congestion  
                 by improving transit service or frequency of transit  
                 service.

               B.     Transportation improvements that reduce congestion,  
                 including network improvements and roadway modifications.







          SB 400 (Lara)                                           Page 3  
          of ?
          

               C.     Alternative transportation options, including  
                 infrastructure improvements that support clean  
                 transportation, facilitate bicycle and pedestrian use,  
                 and connect bicycle and pedestrian routes to transit  
                 facilities.

               D.     Natural systems, including rural and urban forests,  
                 that reduce greenhouse gas emissions or increase the  
                 sequestration of carbon.

               E.     Reduction of emissions directly associated with  
                 construction of the high-speed rail project, including  
                 the use of low and zero-emission equipment for  
                 transportation and construction.

            Background
          
          1.Use of Cap and Trade Auction Revenue. 

            ARB has conducted ten cap-and-trade auctions, generating almost  
            $1.6 billion in proceeds to the state. 

            Several bills in 2012, and one in 2014, provide legislative  
            direction for the expenditure of auction proceeds including SB  
            535 (De León), Chapter 830, Statutes of 2012, AB 1532 (J.  
            Pérez), Chapter 807, Statutes of 2012, SB 1018 (Budget  
            Committee), Chapter 39, Statutes 2012, and SB 862 (Budget  
            Committee), Chapter  36, Statutes of 2014.

            SB 535 (De León), Chapter 830, Statutes of 2012, requires that  
            25% of auction revenue be used to benefit disadvantaged  
            communities and requires that 10% of auction revenue be invested  
            in disadvantaged communities. 

            AB 1532 (J. Pérez), Chapter 807, Statutes of 2012, directs the  
            Department of Finance to develop and periodically update a  
            three-year investment plan that identifies feasible and  
            cost-effective GHG emission reduction investments to be funded  
            with cap-and-trade auction revenues.  AB 1532 specifies that  
            reduction of greenhouse gas emissions through strategic planning  
            and development of sustainable infrastructure projects, are  
            eligible investments of GGRF. 

            SB 1018 (Budget Committee), Chapter 39, Statutes of 2012,  







          SB 400 (Lara)                                           Page 4  
          of ?
          
            created the GGRF, into which all auction revenue is to be  
            deposited.  The legislation requires that before departments can  
            spend moneys from the GGRF, they must prepare a record  
            specifying:  (1) how the expenditures will be used, (2) how the  
            expenditures will further the purposes of AB 32 (Nuñez, Pavley),  
            Chapter 488, Statutes of 2006, 
            (3) how the expenditures will achieve GHG emission reductions,  
            (4) how the department considered other non-GHG-related  
            objectives, and (5) how the department will document the results  
            of the expenditures. 

            SB 862 (Budget Committee), Chapter 36, Statutes of 2014,  
            requires the ARB to develop guidelines on maximizing benefits  
            for disadvantaged communities by agencies administering GGRF  
            funds, and guidance for administering agencies on GHG emission  
            reduction reporting and quantification methods. 

            Legal consideration of cap-and-trade auction revenues: The  
            2012-13 Budget analysis of cap-and-trade auction revenue by the  
            Legislative Analyst's Office noted that, based on an opinion  
            from the Office of Legislative Counsel, the auction revenues  
            should be considered mitigation fee revenues, and their use  
            requires that a clear nexus exist between an activity for which  
            a mitigation fee is used and the adverse effects related to the  
            activity on which that fee is levied.  Therefore, in order for  
            their use to be valid as mitigation fees, revenues from the  
            cap-and-trade auction must be used to mitigate GHG emissions or  
            the harms caused by GHG emissions. 

            In 2012, the California Chamber of Commerce filed a lawsuit  
            against the ARB claiming that cap-and-trade auction revenues  
            constitute illegal tax revenue.  In November 2013, the superior  
            court ruling declined to hold the auction a tax, concluding that  
            it is more akin to a regulatory fee. 

            AB 32 auction revenue investment plan: The first three-year  
            investment plan for cap-and-trade auction proceeds, submitted by  
            Department of Finance, in consultation with ARB and other state  
            agencies in May of 2013, identified sustainable communities and  
            clean transportation as one of the key sectors that provide the  
            best opportunities for achieving the legislative goals and  
            supporting the purposes of AB 32.  The plan recommended the  
            aforementioned sector receive the largest allocation of funds  
            from the GGRF, but did not specify a monetary amount. 








          SB 400 (Lara)                                           Page 5  
          of ?
          
            Budget allocations: The 2014-15 Budget allocates $832 million in  
            GGRF revenues to a variety of transportation, energy, and  
            resources programs aimed at reducing GHG emissions.  Various  
            agencies are in the process of implementing this funding.  The  
            budget agreement specifies how the state will allocate most  
            cap-and-trade auction revenues in 2015-16 and beyond.  For all  
            future revenues, the legislation appropriates 25% for the  
            state's high-speed rail project, 20% for affordable housing and  
            sustainable communities grants, 10% to intercity capital rail  
            projects, and 5% for low-carbon transit operations.  The  
            remaining 40% is available for annual appropriation by the  
            Legislature.

            The Governor's proposed 2015-16 cap-and-trade expenditures are  
            largely the same as the 2014-15 plan, albeit with larger amounts  
            proposed allocations for programs with continuous  
            appropriations, including the High-Speed Rail allocation ($250  
            million).

          2.High-Speed Rail.

             A.    NEPA and CEQA.

                The U.S. Surface Transportation Board, in a December 2014  
                ruling, voted 2-1 that the California Environmental  
                Quality Act, or CEQA, "is categorically pre-empted" in  
                connection with the Fresno-Bakersfield route of the  
                High-Speed Rail project. 

                Therefore, the environmental planning and review of this  
                segment of the project is governed solely by federal  
                statute pursuant to the National Environmental Protection  
                Act, or NEPA.  Although an environmental assessment is  
                required for both the federal and state acts, NEPA, unlike  
                CEQA, does not require that the lead agency take any  
                action to implement mitigation measures to reduce  
                environmental damages caused by the proposed project or  
                legislation. 

             B.    Components of the High-Speed Rail Route.

                i)         Initial Operating Section (IOS): According to  
                     the High-Speed Rail Authority's 2012 Business Plan,  
                     "the IOS of the California high-speed rail system  
                     will connect Merced to the San Fernando Valley  







          SB 400 (Lara)                                           Page 6  
          of ?
          
                     gateway to Los Angeles.  This facility will be  
                     transformational in creating a passenger rail nexus  
                     between one of the fastest growing regions in the  
                     state with the state's largest population center.   
                     Among its many benefits will be the realization of  
                     the state's highest intercity passenger rail  
                     priority- closing the state's single largest gap in  
                     intercity rail service-linking north and south at  
                     Bakersfield to Palmdale.  Immediate steps toward this  
                     goal include the prioritization of environmental  
                     clearance and other preliminary work necessary for  
                     this gap closure."

                ii)        Phase I Blended System: The Phase I Blended  
                     System refers to connecting San Francisco, the  
                     Central Valley, and Los Angeles/Anaheim through a  
                     combination of dedicated high-speed rail  
                     infrastructure blended or integrated with existing  
                     intercity and regional/commuter rail systems via  
                     coordinated infrastructure.

             C.    Plan for Mitigation.

                According to the High-Speed Rail Authority, high-speed  
                rail should begin reducing emissions in 2022, its first  
                year of operation.  The California High-Speed Rail  
                Authority's June 2013 report, Contribution of the  
                High-Speed Rail Program to Reducing California's  
                Greenhouse Gas Emission Levels, notes that the "Authority  
                recognizes the importance of delivering this major  
                infrastructure project in a sustainable manner and is  
                committed not only to clean, renewable energy for system  
                operation, but also to mitigating identified environmental  
                impacts during construction."  The report also states that  
                the "Authority is committed to achieving zero net GHG  
                emissions related to construction activities" and outlines  
                a plan for an urban forestry and tree planting program the  
                Authority to help offset direct GHG emissions associated  
                with construction and provide other environmental  
                benefits. 



          3.Extreme Nonattainment Areas. 








          SB 400 (Lara)                                           Page 7  
          of ?
          
             The National Ambient Air Quality Standards (NAAQS) are  
             standards established by the United States Environmental  
             Protection Agency under authority of the Clean Air Act that  
             apply for outdoor air throughout the country.  These federal  
             standards exist for several air pollutants due to their  
             negative impact on public health above specified  
             concentrations, including ozone, particulate matter, oxides  
             of nitrogen, oxides of sulfur, carbon monoxide, and lead.   
             Nonattainment areas are regions that do not meet the national  
             primary or secondary ambient air quality standard for one of  
             those pollutants.  There are several nonattainment  
             designations ranging from concentrations slightly above the  
             standard, termed marginal nonattainment, to extreme  
             nonattainment, where pollution levels far exceed the national  
             standard.  The San Joaquin and South Coast air basins are  
             both in extreme nonattainment for ozone.  

            Comments
          
          1. Purpose of Bill.  

             According to the author, "California's High Speed Rail  
             project will deliver the first high-speed rail system in the  
             nation, connecting the major population centers of the state.  
              High Speed Rail promises to contribute to economic  
             development and a cleaner environment, and create jobs and  
             preserve agricultural and protected lands.  By 2029, the  
             system will run from San Francisco to the Los Angeles basin  
             in under three hours at speeds capable of over 200 miles per  
             hour. 

             "Through last year's budget, the legislature appropriated  
             hundreds of millions of cap and trade dollars to the High  
             Speed Rail Authority for acquisition, construction, planning,  
             and other costs associated with the project.  SB 862 (Budget  
             and Fiscal Review Committee - 2014) continuously appropriated  
             25% of all cap and trade funds for the High Speed Rail  
             project. 

             "Once the project is completed, it will have a significant  
             beneficial effect on greenhouse gas emissions in California.   
             According to a 2013 report by the High Speed Rail Authority  
             titled "Contribution of the High-Speed Rail Program to  
             Reducing California's Greenhouse Gas Emission Levels" the  
             system will contribute to the State's goal to reduce  







          SB 400 (Lara)                                           Page 8  
          of ?
          
             greenhouse gasses once the Initial Operating Section is  
             operational, which is anticipated to happen in 2022.
             SB 400 provides additional criteria to ensure that a portion  
             of the cap and trade revenues appropriated to the authority  
             are directed to projects and measures that provide an  
             immediate benefit of reducing emissions and improving air  
             quality.  The bill will direct funding to transportation  
             projects that provide environmental mitigation opportunities,  
             many of which are identified in the 2013 report.

             "Many of the communities along the proposed HSR route are in  
             regions that are disproportionally impacted by poor air  
             quality.  Residents living in close proximity to heavily  
             congested transportation corridors through the Central Valley  
             and Los Angeles Basin already suffer adverse health effects  
             from increased emissions.  This bill will prioritize projects  
             in those communities."

            SOURCE:                    Author  

           SUPPORT:               
          None on file  

           OPPOSITION:    
          None on file  

           DOUBLE REFERRAL: 

          This measure was heard in the Senate Transportation and Housing  
          Committee on April 21, 2015, and passed out of committee with a  
          vote of 7-0.
          

                                      -- END --