BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 471| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 471 Author: Pavley (D) Amended: 6/2/15 Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 4/29/15 AYES: Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley SENATE APPROPRIATIONS COMMITTEE: 6-1, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza NOES: Nielsen SUBJECT: Greenhouse Gas Reduction Fund: water sector emissions SOURCE: Author DIGEST: This bill specifies that reductions of greenhouse gas (GHG) emissions associated with the water sector, including water use, supply, and treatment, are eligible investments from the Greenhouse Gas Reduction Fund (GGRF). ANALYSIS: Existing law: 1)Requires, under the California Global Warming Solutions Act of 2006 (also known as AB 32) (Health and Safety Code §38500 et seq.), the California Air Resources Board (ARB) to determine the 1990 statewide GHG emissions level and approve a statewide GHG emissions limit that is equivalent to that level, to be SB 471 Page 2 achieved by 2020. AB 32 authorizes ARB to adopt a regulation that establishes a market-based mechanism with declining annual aggregate emission limits for sources that emit GHGs. 2)Establishes the 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 (DOF), 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) 3) Requires moneys from the GGRF be used to facilitate the achievement of reductions of GHG emissions in this state consistent with AB 32, and authorizes the use of GGRF moneys for, among other things, funding to reduce GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. (HSC §39712) This bill: 1)Includes intent language pertaining to the nexus between water, energy, and GHG emissions reductions. 2)Specifies that reductions of GHG emissions associated with the water sector, including water use, supply, and treatment, are eligible investments from the GGRF. Background Water and energy use. According to the California Energy Resources Conservation and Development Commission (CEC), water-related energy use in California consumes approximately 20% of the state's electricity, and 30% of the state's non-power plant natural gas (natural gas not used to produce electricity). The water sector uses electricity to pump, treat, transport, deliver, and heat water. The CEC also found that the most energy-intensive uses of water in California are associated with end uses by the customer (e.g. heating, processing, and pressurizing water). To this point, the CEC states that 75% of the electricity and nearly all of the natural gas use related to water in California is SB 471 Page 3 associated with the end use of water, primarily for water heating. Additionally, expected increases in groundwater pumping, water treatment, and water recycling, due to drought conditions in the state, mean the energy intensity of water will likely increase. Cap-and-trade auction revenue. ARB has conducted eleven cap-and-trade auctions. The first 10 have generated almost $1.6 billion in proceeds to the state. Several bills in 2012 provided legislative direction for the expenditure of auction proceeds including SB 535 (de León, Chapter 830, Statutes of 2012) and AB 1532 (J. Pérez, Chapter 807, Statutes of 2012). SB 535 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 directs DOF 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 the reduction of GHG emissions associated with water use and supply are eligible investments of GGRF. 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, according to the report, 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 and Morning Star Packing Company 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's more akin to a regulatory SB 471 Page 4 fee. The plaintiffs filed an appeal with the 3rd District Court of Appeal in Sacramento in February of last year. Executive Order. Executive Order B-29-15, issued April 1, 2015, directed state agencies to perform various actions regarding saving water to respond to severe drought conditions in the state, including directing the CEC, jointly with the Department of Water Resources (DWR), to implement a Water Energy Technology program to deploy innovative water management technologies that achieve water and energy savings, and GHG emissions reductions. The Executive Order also directed the CEC, jointly with DWR, to implement a limited statewide appliance rebate program for inefficient appliances. Budget allocations. Emergency drought relief legislation, SB 103 (Budget Committee, Chapter 2, Statutes of 2014) appropriated $10 million to the California Department of Food and Agriculture (CDFA) for water and energy efficiency projects in the agricultural sector, and $30 million to DWR to implement a grant program to support local water-use efficiency projects and energy efficiency projects at State Water Project facilities. 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. Of that 40% available for annual appropriation, the Governor's proposed 2015-16 cap-and-trade expenditures appropriates $60 million to DWR and CDFA for water and energy efficiency projects, $30 million to the CEC and DWR for rebates to replace inefficient appliances, and $30 million to the CEC and DWR for the Water and Energy Technology Program, as described in the Executive Order. Comments SB 471 Page 5 Purpose of bill. According to the author, "SB 471 will ensure that project types that reduce emissions in furtherance of our state climate goals qualify for funding from the GGRF. Project types could include, but are not limited to precision agriculture, local water solutions that reduce energy-intensive water imports, clean energy generation at wastewater treatment facilities, leak detection, and water appliance efficiency." FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: Unknown possible cost pressures, likely in the hundreds of thousands to millions of dollars, to the GGRF for the addition of water treatment as an eligible use. SUPPORT: (Verified5/28/15) California Association of Sanitation Agencies California League of Conservation Voters Clean Water Action Coastal Environment Rights Foundation Environmental Entrepreneurs LA River Revitalization Corporation Las Virgenes Municipal Water District Mono Lake Committee Nexus eWater Sonoma County Water Agency Southern California Edison The Climate Registry The Energy Coalition The River Project TreePeople Union of Concerned Scientists US Green Buildings Council Water and Power Department, City of Pasadena SB 471 Page 6 OPPOSITION: (Verified5/28/15) None received Prepared by: Rebecca Newhouse / E.Q. / (916) 651-4108 6/2/15 20:04:42 **** END ****