BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1405 - De Leon/V. Manuel Perez Hearing Date: July
7, 2009 A
As Amended: June 23, 2009 FISCAL B
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DESCRIPTION
Current law requires the California Air Resources Board (CARB)
to reduce its greenhouse gas (GHG) emissions to 1990 levels by
2020. CARB is authorized to employ market-based compliance
mechanisms under specified circumstances in pursuit of
compliance. CARB may adopt fees to be paid by the sources of
GHG emissions with the revenues deposited into the Air Pollution
Control Fund (APCF) and made available upon appropriation for
purposes of reducing GHG emissions.
This bill establishes the Community Benefits Fund (CBF) within
the State Treasury. At least 30% of the revenues generated by
the CARB pursuant to its AB 32 implementation shall be deposited
in the CBF. These revenues, upon appropriation by the
Legislature, shall be spent on competitive grants for projects
which reduce GHG emissions in the most disadvantaged and
impacted communities in California, as determined by the CARB.
This bill requires the CARB to adopt a methodology to identify
the most impacted and disadvantaged communities, using a
specified process. CARB, the California Energy Commission, and
the State Department of Public Health shall jointly develop
biennial plans for the use of funds in the CBF.
BACKGROUND
Under the fee authority established in AB 32, CARB is in the
process of establishing a carbon fee to fund its operations.
This fee has been challenged in court by a number of business
groups.
CARB has been leading California's effort to comply with AB 32.
In late 2008 CARB developed a scoping plan laying out its major
GHG reduction programs. Central to CARB's efforts is the
implementation of a market mechanism known as cap-and-trade.
Under this mechanism CARB establishes an annual, declining cap
on GHG emissions. Regulated entities (e.g. powerplants, major
industrial facilities) must obtain permits, or allowances, to
emit emissions up to their cap. Those allowances can then be
traded among the regulated entities with the theoretical result
that those entities who can lower their GHG emissions least
expensively will do so and sell their "excess" allowances to
those who find it more costly to lower their GHG emissions. The
hoped for result is that emissions are reduced in the least
costliest way.
A critical component of cap-and-trade is how the regulated
entities obtain the necessary emission allowances. A variety of
mechanisms have been proposed, from giving them away for free,
to charging a specific price, to auctions.
A feature of some cap-and-trade mechanisms is the creation of
"offsets". With offsets a regulated entity can pay another
entity for its GHG reductions, which can then be used by the
regulated entity to meet its GHG cap. Examples of offsets
include landfill gas capture, dairy digesters, and wind farms.
Several firms sell carbon offsets today, which are used by the
virtuous and guilt-ridden to offset their own carbon emissions
and by entities seeking to "green" their activities. An ongoing
concern with offsets is the validity of the GHG reductions, and
legislation to verify the veracity of offsets has been
considered by the Legislature.
The Western Climate Initiative (WCI) is a collaboration of the
governors of seven western states and the premiers of four
Canadian provinces to jointly evaluate, develop, and implement
ways to reduce GHG emissions, including specifically to evaluate
a regional cap-and-trade system. In 2007 the WCI established a
regional goal of reducing GHG emissions by 15% from 2005 levels
by 2020. In September 2008 the WCI issued design
recommendations for a regional cap-and-trade program. As part
of those recommendations the WCI agreed that at least some of
the monies raised by the allocation of GHG emission allowances
would be used for the following purposes:
Energy efficiency and renewable energy incentives and
achievement;
Research, development, demonstrations, and deployment
(RDD&D) with particular reference to carbon capture &
sequestration (CCS); renewable energy generation,
transmission and storage; and energy efficiency;
Promoting emission reductions and sequestration in
agriculture, forestry and other uncapped sources; and
Human and natural community adaptation to climate change
impacts.
Congress Too - Earlier this year the House Energy and Commerce
Committee considered an Obama Administration proposal to
establish a national cap-and-trade system. The EPA testified
that such a proposal would cost the average household between
$98 and $140 per year, though the specific assumptions behind
that estimate would change those figures substantially.
COMMENTS
1. Big Money - The revenues being considered by this bill
are substantial. Allocating GHG emission allowances could
raise billions of dollars annually.<1> And with the CARB
instituting a cap-and-trade program by January 1, 2012,
revenue from the allocation of the allowances could start
showing up in two years. This bill deals with how these
funds, and potentially other GHG related funds, should be
spent.
2. No New Taxes or Fees - Opponents are concerned that the
existing fee authority in AB 32 is limited to funding CARBs
administrative costs, which does not include implementing
fees pursuant to a cap and trade program. They are also
concerned that the CARB has not yet authorized a cap and
trade program. Establishing programs to be funded by these
questionable fees is premature and creates unjustified
expectations, according to the opponents.
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<1> An early estimate of revenues derived from electric
utilities when all the GHG allowances are auctioned is over $3
billion. Electricity & Natural Gas GHG Modeling , May 6, 2008;
Energy and Environmental Economics, Inc. powerpoint
presentation, p. 63.
AB 32 authorized CARB to implement market-based compliance
mechanisms (Section 38570). AB 32 also authorized CARB to
"adopt by regulation, after a public workshop, a schedule
of fees to be paid by the sources of greenhouse gas
emission regulated pursuant to this division, consistent
with Section 57001." (Section 38597) While this committee
is not expert in fiscal matters, it appears that broad fee
authority, including fees associated with market-based
mechanisms, are authorized in current law. And while there
may be other correspondence indicating that the author of
AB 32 intended that the authorized fees only pay for the
cost of administering the program, that correspondence is
simply an indicator of that author's intent and has no
legal weight. This bill does not revise the sentence in
Section 38597 authorizing fees, so it appears not to
authorize new fees. But the bill does revise current law
on how to spend whatever funds are raised by adding some
specific purposes. Actually spending any funds will still
require an appropriation, which this bill does not do.
3. What Are You? - How these funds are spent will be
constrained by how these funds are raised. Funds from fees
are restricted, funds from taxes are not. But what is the
character of funds raised from selling or auctioning GHG
emission allowances? Are they fees, taxes, or of some
other character similar to the proceeds the state receives
when it sells property? A careful evaluation of the nature
of the funds raised is advisable to ensure that the funds
are raised lawfully and spent consistent with all the legal
constraints.
4. Worse if You're Poor - A number of reports provided by
the author indicate that low-income communities will be
disproportionately affected by climate change. For
example, a March 2009 draft paper sponsored by the
California Air Resources Board and the California
Environmental Protection Agency notes that "climate change
will likely reinforce and amplify current as well as future
socioeconomic disparities, leaving low-income, minority,
and politically marginalized groups with fewer economic
opportunities and more environmental and health burdens.<2>
5. More of the Same? - California has long supported a
comprehensive energy efficiency program. The most recent
CPUC action provides for a $3.7 billion energy efficiency
program in 2009-2011, following a $2 billion program in
2006-2008. Similarly, California has long supported
several programs in support of renewable energy, including
the California Solar Initiative and a Renewable Portfolio
Standard. Also, California recently passed legislation
establishing and funding a program supporting
alternative-fueled vehicles. It's safe to say that
California has already picked off the low-hanging
GHG-reduction fruit. The question of where to spend
additional funds to reduce GHG emissions can be best
answered after a comprehensive analysis which considers
existing programs and relative GHG reduction benefits. And
one alternative could simply be to return the funds back to
customers, as proposed in various cap-and-dividend
programs, making a cap-and-trade system revenue neutral.
6. Potential Federal Preemption - A regional program where
California allocates its own allowances will result in
California revenues. The Obama Administration has proposed
a federal cap-and-trade system which may well preempt
California's program. Its initial estimate is that if all
the allowances were auctioned it would raise $646 billion
from 2012 to 2019, though these funds would be controlled
by the federal government, not the state.
7. Related Legislation - Earlier this year the committee
considered SB 31 (Pavley), a substantially similar bill
which required CARB to spend all of its revenues for
renewable energy and energy efficiency programs,
investments in technologies to reduce GHG emissions,
included RD&D, and green jobs development and training that
will reduce GHG emissions. That bill passed this committee
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<2> Environmental Health and Equity Impacts from Climate Change
and Mitigation Policies in California: A Review of the
Literature, by Seth B. Shonkoff, Rachel Morello-Frosch, Manuel
Pastor and James Sadd; March 2009. CEC-500-2009-038-D. The
paper includes a disclaimer that it does not necessarily
represent the views of the CEC, CARB, or CalEPA.
6-3 but was not approved by the full Senate.
8. Double Referral - This bill has been double referred to
the Senate Committee on Environmental Quality. Due to time
constraints, if amendments are proposed in Committee these
amendments must be taken in the second Committee.
ASSEMBLY VOTES
Assembly Floor (45-30)
Assembly Appropriations Committee (12-5)
Assembly Natural Resources Committee
(6-3)
POSITIONS
Sponsor:
Center on Race, Poverty and the Environment
Coalition for Clean Air
Greenlining
National Association for the Advancement of Colored People
Support:
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|American Lung Association of | |
|California | |
|Amigos de los Rios | |
|California ReLeaf | |
|California Urban Forests Council | |
|Community Action to Fight Asthma | |
|Ella Baker Center for Human Rights | |
|Environmental Defense Fund | |
|Latino Coalition for a Healthy | |
|California | |
|Latino Health Alliance | |
|Mountains Recreation and Conservation | |
|Authority | |
|The Trust for Public Land | |
|Tree People | |
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Oppose:
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|American Council of Engineering | |
|American Forest and Paper Association | |
|BOMA California | |
|California Business Properties Association | |
|California Chamber of Commerce | |
|California Coalition for Environmental & | |
|Economic Balance | |
|California Construction & Industrial | |
|Materials Association | |
|California Grocers Association | |
|California Independent Oil Marketers | |
|Association | |
|California Independent Petroleum Association | |
|California League of Food Processors | |
|California Manufacturers & Technology | |
|Association | |
|California Retailers Association | |
|California Taxpayers' Association | |
|Chemical Industry Council of California | |
|Companies of California | |
|Industrial Environmental Association | |
|International Council of Shopping Centers | |
|NAIOP of California | |
|National Federal of Independent Business | |
|Santa Barbara Technology & Industry | |
|Association | |
|Southern California Edison | |
|Stop Hidden Taxes Coalition | |
|Western Growers | |
|Western Power Trading Forum | |
|Western States Petroleum Association | |
|Western Wood Preservers Institute | |
| | |
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Randy Chinn
AB 1405 Analysis
Hearing Date: July 7, 2009