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 --