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  ****