BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 31 - Pavley Hearing Date:
April 27, 2009 S
As Introduced: December 2, 2008 FISCAL B
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DESCRIPTION
Current law requires California Air Resources Board (CARB) to
reduce its greenhouse gas (GHG) emissions to 1990 levels by 2020
(aka AB 32). 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 specifies that the APCF funds can be spent on the cost
of administering the programs, 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.
Previous Hearing - This bill was heard and passed by the
Environmental Quality Committee. That committee approved the
bill on the condition that certain amendments would be made in
this committee. Those proposed amendments (attached), which add
some specificity and definitions, are considered in this
analysis.
BACKGROUND
Under the fee authority established in AB 32, CARB is in the
process of establishing a carbon fee to fund its operations.
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 - This month 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 - Some question whether this bill
raises new fees. 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
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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.
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. 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.
5. 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.
VOTES
Senate Environmental Quality Committee
(5-2)
POSITIONS
Sponsor:
Environmental Entrepreneurs
Natural Resources Defense Council
Support:
Union of Concerned Scientists
Oppose:
American Council of Engineering Companies - California
American Forest and paper Association
California Business Properties Association
California Chamber of Commerce
California Construction and Industrial Materials 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
Western Growers
Western Power Trading Forum
Western States Petroleum Association
Western Wood Preservers Institute
Randy Chinn
SB 31 Analysis
Hearing Date: April 27, 2009