BILL ANALYSIS
SB 31
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2009-2010 Regular Session
BILL NO: SB 31
AUTHOR: Pavley
AMENDED: As Introduced
FISCAL: Yes HEARING DATE: April 20, 2009
URGENCY: No CONSULTANT: Bruce Jennings
SUBJECT : CALIFORNIA GLOBAL WARMING SOLUTIONS ACT
OF 2006: REVENUE ALLOCATIONS
SUMMARY :
Existing law :
1) Requires the 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. ARB must adopt
rules and regulations to achieve GHG emission reductions
from sources or categories of sources, subject to specified
requirements, pursuant to the California Global Warming
Solutions Act (AB 32, Chapter 488, Statutes of 2006).
2) Authorizes ARB to adopt regulations, by January 1, 2011, to
establish a system of market-based declining annual
aggregate emissions limits for sources or categories of
sources of GHG emissions. Such regulations must ensure
that all market-based reductions are real, permanent,
quantifiable, verifiable, and enforceable by the state
(Section 38562 (d) (1) of the Health and Safety Code).
3) Requires ARB do all of the following before including a
market-based compliance mechanism in its regulations: (a)
Consider the potential for direct, indirect, and cumulative
emission impacts from these mechanisms, including localized
impacts in communities that are already adversely impacted
by air pollution; (b) Design any market-based compliance
mechanism to prevent any increase in the emissions of toxic
air contaminants or criteria air pollutants; and, (c)
Maximize additional environmental and economic benefits for
SB 31
Page 2
California, as appropriate, pursuant to Health and Safety
Code Section 38570(b).
This bill :
1) Authorizes ARB to collect revenues pursuant to "compliance
mechanisms" adopted by ARB as an alternative to fees
adopted by regulation which are consistent with Section
57001 of the Act.
2) Stipulates that funds collected pursuant to the fees or
compliance mechanisms authorized by this act shall include
listed activities (i.e., costs of administering the Act,
renewable energy and energy efficiency programs,
investments in technologies to reduce greenhouse gas
emissions, and green jobs development and training).
COMMENTS :
1) Purpose of Bill . According to the author's fact sheet,
this bill has two principal purposes: a) to give ARB
additional guidance regarding the use of revenues collected
pursuant to ARB's authority to collect fees through market
mechanisms (e.g., auctions); and, b) to ensure that revenue
collected pursuant to AB 32 will be invested in ways that
will reduce GHG emissions, protect the health and safety of
Californians, and put us on the path to a new green
economy.
2) A Note on Comments Section of this Analysis . It appears
that the author does not want to intrude on ARB's process
for adopting regulations, however, it needs to be noted
that the ARB's actions in implementing AB 32 have not been
without controversy and disagreement from the Legislature
(e.g., the Governor's firing of Dr. Sawyer during his
attempt to adopt regulatory actions to advance a path
favored by the Senate's leadership). Similarly, the
Legislative Analyst has more recently critiqued the ARB
scoping plan as providing an insufficient basis for guiding
state investments and program priorities. In this regard,
the comments that follow are intended to indicate
provisions of this bill and the policy area more generally
where the author may want to provide greater clarity and
SB 31
Page 3
guidance to the ARB.
3) The Collection of Revenues via "Compliance Mechanisms ."
The new language contained in SB 31 regarding the
collection of revenues "pursuant to compliance mechanisms
adopted by the state board" generates a number of
questions. First of all - what are these? The author's
background information suggests that this refers to such
things as auctions, including cap and dividend programs
that have been advanced by certain groups. The term,
however, has no specific meaning at present.
4) First Things First: What's the Source of Revenues? The
bill amends a section of AB 32 that currently provides for
the collection of revenues by sources of greenhouse gas
emissions.
As written, the amended language would appear to allow for ARB
to supplant "fees paid by the sources of greenhouse gas
emissions regulated pursuant to this division" with
"compliance mechanisms adopted by the state board." Does
the author intend to make such a distinction and allow ARB
to make an either/or decision on the use of fees versus
compliance mechanisms? If no such distinction is sought,
the bill should be amended and re-phrased accordingly.
5) Do "Compliance Mechanisms" Include Auctions and Does it
Matter? Well, in a word - yes. A continuing source of
controversy regarding the unregulated aspects of AB 32
concerns the extent to which ARB may be pursuing activities
that are insufficiently surrounded by provisions of law to
ensure that such activities are enforceable, transparent,
allow public participation, and do not place the state in
difficult financial straits.
In this regard, there is very little law regarding auctions
and how these might function in the context of existing
law. For example, would auctions grant property rights?
Existing emission trading credits, it should be noted,
convey no such right. If the state initiates a program of
auctions and finds these do not work and should be
terminated, has the state engaged in a regulatory takings?
Similarly, anticipated revenue generating mechanisms in
SB 31
Page 4
the absence of a robust legal architecture may experience
the same shortcomings that have affected many personal
portfolios when it was discovered that derivatives and
other such financial instruments were essentially
unregulated market mechanisms.
6) Programs & Revenue Sources: A Legitimate Nexus ? The bill
identifies several prospective areas for funding, such as
renewable energy and energy efficiency programs,
investments in technologies, and green jobs development and
training. While these programs may be noble, whether any
of these are appropriate for receiving funding depends on
the source of revenues. To this degree, defining
"compliance mechanisms" with greater precision may be
essential toward understanding whether one or more programs
have an appropriate nexus to the revenue source.
7) A Carbon Fee/Tax: Advantages over Auctions? The
blue-ribbon tax commission appointed by Gov. Arnold
Schwarzenegger (the Commission on the 21st Century Economy)
is finalizing its series of expert briefings on various tax
issues.
Commissioner Fred Keeley, the former Santa Cruz assemblyman,
has stated that one recommendation will likely include the
creation of a carbon tax or fee that would be levied at the
refinery level on gasoline, diesel and jet fuel. A tax or
fee based on the amount of tons of greenhouse gases that
fuels will emit when burned would generate an estimated $5
billion a year.
It could become the basis for tradeoffs for such items sought
by the business community as a reduction in capital gains
taxes and the elimination of sales taxes on manufacturing
equipment. If it's included in the commission's package,
the recommendation would be revenue-neutral -- which means
any revenue from it would simply be used to offset
reductions in other taxes.
Historically, the Legislature has instituted various
environmental fees which have a considerable record for
achieving its purposes in the context of robust law. If
carbon fees, as many economists argue, are more efficient
SB 31
Page 5
than auctions, should the Legislature not more fully
evaluate auctions or similar approaches in light of such
comparative advantages?
8) Prospective Federal Action? According to the Department of
Energy, under the proposed cap-and-trade program, all GHG
emission credits would be auctioned off, generating an
estimated $78.7 billion in additional revenue in FY 2012,
steadily increasing to $83 billion by FY 2019. According
to the White House website, the revenue will fund vital
investments in a clean energy future, and the balance of
the auction revenues "will be returned to the people,
especially vulnerable families, communities, and businesses
to help the transition to a clean energy economy."
In light of possible federal action, how does SB 31 comport
with a federal system of auctions?
9) Supporters' Statements . Supporters of SB 31 are especially
interested in the prospects that potential revenue streams
will have for addressing a variety of programs, as noted in
a letter submitted by the American Lung Association, "[I]n
keeping with the goals of AB 32, SB 31 will direct revenue
to be spent on activities that reduce GHG emissions while
protecting the health and safety of Californians. These
activities include: energy efficiency and renewable energy,
particularly for low-income consumers; research,
development, and deployment of low-carbon technologies,
especially those that will create co-benefits of reductions
of other harmful pollutants; and green jobs."
10)Opponents Statements . Concern has been expressed that the
"fees" contained in SB 31 are not valid Sinclair fees;
meaning in the words of Cal-Tax: "?fees may be imposed to
mitigate the past, present, or future adverse impact of the
fee payer's operations, at least where, as here, the
measure requires a causal connection or nexus between the
fee payers' operations, the harm imposed by greenhouse gas
emissions (ostensibly global warming), material remediation
of that harm, and the fee structure."
11)Double Referral to Energy, Utilities and Communications
Committee . If this measure is approved by this committee,
SB 31
Page 6
the do pass motion must include the action to re-refer the
bill to the Senate Energy, Utilities and Communications
Committee. Due to the time constraints, whatever
clarifications or other amendments are agreed to in this
Committee should be passed on to the Senate Energy and
Utilities Committee where this bill is next scheduled for
hearing, should that follow from a favorable motion to move
this bill.
SOURCE : Environmental Entrepreneurs and Natural
Resources Defense Council
SUPPORT : American Federation of State, County and
Municipal Employees (AFSCME), AFL-CIO, American
Lung Association, Coalition for Clean Air, Ella
Baker Center for Human Rights, Environment
California, Environmental Defense Fund, South
Coast Air Quality Management District, The
Trust for Public Land, Union of Concerned
Scientists
OPPOSE UNLESS AMENDED: California Communities Against Toxics
OPPOSITION : California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers & Technology Association
Southern California Edison
Western States Petroleum Association