BILL ANALYSIS Ó
AB 1532
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 1532
AUTHOR: Pérez, John A.
AMENDED: June 18, 2012
FISCAL: Yes HEARING DATE: July 2, 2012
URGENCY: No CONSULTANT: Peter Cowan
SUBJECT : CALIFORNIA GLOBAL WARMING SOLUTIONS ACT:
GREENHOUSE GAS REDUCTION ACCOUNT
SUMMARY :
Existing law , under the California Global Warming Solutions
Act of 2006 (CGWSA):
1) Requires the California 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, and to
adopt GHG emission reduction measures by regulation, and
sets certain requirements in adopting the regulations. ARB
may include the use of market-based mechanisms to comply
with these regulations. (Health and Safety Code §38500 et
seq.).
2) Requires ARB to prepare and approve a scoping plan by
January 1, 2009, for achieving the maximum technologically
feasible and cost-effective reductions in GHG emissions
from sources or categories of sources of GHGs by 2020. ARB
must evaluate the total potential costs and total potential
economic and noneconomic benefits of the plan for reducing
GHGs to the state's economy and public health, using the
best economic models, emission estimation techniques, and
other scientific methods. The plan must be updated at least
once every five years. (§38561).
3) Authorizes ARB to adopt a schedule of fees to be paid by
GHG emission sources regulated under CGWSA, to be deposited
into the Air Pollution Control Fund and available upon
appropriation by the Legislature for carrying out the
AB 1532
Page 2
CGWSA. (§38597).
This bill :
1) Establishes the Greenhouse Gas Reduction Account (the
account) within the Air Pollution Control Fund and requires
that all moneys excluding penalties and fines collected
pursuant to the CGWSA be deposited in the account and
available upon appropriation by the Legislature for the
purposes of carrying out the CGWSA.
2) Requires no measure or programs be approved using money
appropriated from the account unless it is determined that
the use is consistent with the requirement of the use of
moneys derived from valid regulatory fees, as established
by the California Supreme Court in Sinclair Paint Co. v.
State Bd. of Equalization (1997).
3) Requires that moneys must be used to facilitate the
achievement of feasible and cost-effective reductions of
greenhouse gas emissions in this state and the following
complementary goals:
a) Maximize economic, environmental, and public health
benefits to the state.
b) Foster job creation by promoting in-state GHG
emission reduction projects carried out by California
workers and businesses.
c) Complement efforts to improve air quality.
d) Direct investment toward the most disadvantaged
communities and households in the state.
e) Provide opportunities for small businesses, schools,
affordable housing developers, water agencies, local
governments, and other community institutions to
participate in and benefit from statewide efforts to
reduce GHG emissions.
4) Provides that funds appropriated from the account may be
allocated for the purpose of reducing greenhouse gas
AB 1532
Page 3
emissions in this state through investments that include,
but are not limited to, investments in:
a) Clean and efficient energy including:
i) Industrial and manufacturing investment in
energy efficiency, energy storage, and clean and
renewable energy project.
ii) Public universities, schools, water agencies,
and other public facilities and fleets to reduce
GHG emissions by investment in energy and water use
efficiency, energy storage, and clean and renewable
energy and fuel projects.
iii) Single-family and multifamily residential and
commercial distributed generation and energy
efficiency programs.
iv) Waste reduction and low-carbon
recycled-content processing and manufacturing,
including market development activities.
b) Low-carbon transportation and infrastructure,
including:
i) Public transportation and sustainable
transportation and infrastructure development.
ii) Programs for clean vehicles and the
advancement of transportation technologies.
iii) Advanced transportation and fueling
infrastructure.
iv) Local and regional sustainable development
efforts that are, to the extent applicable,
consistent with the sustainable communities
strategies or alternative planning strategies.
v) Low-carbon goods movement and freight vehicle
technologies and infrastructure, including, but not
limited to, locomotives and heavy-duty trucks.
AB 1532
Page 4
c) Natural resource protection, including:
i) Natural resource management programs and
projects.
ii) Land conservation and restoration.
iii) Development and implementation of sustainable
agriculture, forestry, and related water, land, and
resource management practices.
d) Research, development, and deployment of innovative
technologies, measures, and practices related to
programs and projects funded pursuant to this part; and
specified categories for each of these investment areas.
5) Specifies ARB and any other state agency identified by the
Legislature are the administering agencies and are required
to carry out programs to allocate moneys appropriated by
the Legislature using financial mechanisms, such as
competitive grants, loans, or other specified mechanisms.
6) Requires ARB to adopt guidelines, pursuant to the
Administrative Procedure Act, to provide state agencies,
potential funding applicants and the public guidance
regarding the allocation and allowable uses of moneys. The
guidelines must, at a minimum, do all of the following:
a) Establish minimum criteria for receiving funding and
additional criteria, as specified, that the state
agencies shall take into account in establishing
preferences for awarding moneys.
b) Provide a process to verify the qualifications of
recipients.
c) Provide for the monitoring and, as deemed necessary,
the audit of expenditures and outcomes.
7) Requires any state agency that allocates moneys as
described above adopt guidelines that meet the requirements
of #6.
AB 1532
Page 5
8) Requires ARB to develop and adopt, beginning April 1, 2013,
three investment plans for the time periods: 2013 to 2014,
2015 to 2017, and 2018 to 2020. Requires that each
investment plan identify, for the specified time period,
the anticipated expenditures of moneys appropriated from
the account. Each investment plan must establish
priorities for the allocation of moneys, identify specific
categories of programs and projects, identify proposed
levels of expenditures for each category, and identify the
state agencies best qualified to implement the programs.
9) Requires the Public Utilities Commission (PUC) to develop
and send to ARB an investment plan to be included in each
investment plan adopted by ARB. The plan must include its
requirements on how investor-owned utilities (IOUs) may use
moneys they might collect from allowance auctions pursuant
to cap-and-trade.
10)Requires ARB, prior to adopting each investment plan, to
consult with the PUC to ensure the investment plan is
coordinated with, and does not conflict with or unduly
overlap with, any expenditure plan PUC might adopt.
11)Requires ARB receive input from an advisory body that
includes the secretaries for the Natural Resources Agency,
the California Environmental Protection Agency, the
Department of Food and Agriculture, and the Business,
Transportation and Housing Agency; and to hold at least two
public workshops in different regions of the state and one
public hearing prior to adopting any investment plan. The
advisory body must participate in each public workshop on
an investment plan and provide testimony to the ARB on each
investment plan.
12)Requires ARB to submit to the budget committees of both
houses each of the following 30 days prior to adoption,
each proposed investment plan; any amendment to an adopted
investment plan that would, in the aggregate, modify the
adopted investment plan by $5 million or more; or any
significant amendment to an adopted investment plan that
would augment or reduce an allocation specified in the
adopted investment plan by 50% or by at least $2 million.
Any minor or technical amendment to an adopted investment
AB 1532
Page 6
must be submitted 90 days prior to adoption.
13)Exempts an investment plan adopted pursuant to the above
provisions from the California Environmental Quality Act
(CEQA), and specifies that individual projects funded
consistent with the investment plan are not exempt.
14)Requires ARB to provide to the Governor a plan consistent
with the relevant investment plan detailing proposed
appropriations from the Account and that the Governor
include proposed appropriations as part of the annual
January budget proposal.
15)Requires ARB to submit an annual report no later than
December to the appropriate committees of the Legislature
on the status of projects and their outcomes and any
changes ARB recommends to the investment plan and declares
legislative intent that the appropriations required for
implementation of these changes be included in the annual
Budget Act for the subsequent fiscal year.
COMMENTS :
1) Purpose of Bill . According to the author, "there is no
current statutory direction as to the expenditure of the
revenue from Ýcap-and-trade allowance] auctions, whether
for eligible investments or criteria to use to
differentiate between potential projects, a process the
State should use to develop plans and programs for
investment or direction on how to ensure legislative
oversight on the use of the funds? AB 1532 addresses the
above issues by creating the Greenhouse Gas Reduction
Account, establishing the criteria and requirements for use
of the auction revenue, establishing the program categories
eligible for funding and defining a process that the ARB
shall use to develop an investment plan and the role of the
legislature in reviewing it."
2) Brief background on cap-and-trade . The adopted
cap-and-trade regulation imposes a cap on the aggregate GHG
emissions allowed from "capped sectors." The entities
covered within these sectors constitute approximately 85%
of all statewide GHG emissions. Each year the cap
AB 1532
Page 7
declines, thus resulting in a reduction in GHG emissions
over time. To comply with the cap, covered entities must
surrender to the state a number of "compliance instruments"
equal to the amount of their GHG emissions, as expressed in
the equivalent metric tons of CO2. The regulations
describe two types of compliance instruments: a) an
"allowance" to emit GHGs, all of which are generated by the
state in an amount equal to the cap and; b) an "offset"
resulting from an emissions reduction achieved in an
uncapped sector and generated by third party pursuant to a
protocol adopted by ARB.
Under the cap-and-trade regulation many of the allowances
are freely allocated to the covered entities, some are held
in a price containment reserve, and the remainder
auctioned. Allowances received or purchased can be traded,
thus creating an emissions market which according to ARB
minimizes compliance costs and encourages businesses to
invest in GHG emissions reductions. ARB plans to hold
auctions quarterly starting in November 2012, and moneys
collected for allowances sold at auction are deposited into
the Air Pollution Control fund, with the exception of
allowances sold on behalf of Investor Owned Utilities
(IOUs).
In fiscal year 2012-2013 ARB plans to auction over 60
million tons of allowances at a floor price of $10 per ton.
The amount of allowances auctioned declines in fiscal year
2013-2014, before expanding as transportation fuels and
natural gas are brought into the cap-and-trade program.
Barring a change in the regulation as many as 230 million
tons of allowances will be auctioned in fiscal year
2015-2016 which will decline in subsequent years as the
state approaches its 2020 limit.
IOUs and publicly owned utilities (POUs) are allocated free
allowances to cover the majority of their emissions in
order to lessen impacts of CGWSA implementation on
electricity ratepayers. ARB requires IOUs to auction them
all; POUs are permitted, but not required, to offer their
allowances auction. The revenues from these auctions are
then returned to the IOUs to be used for ratepayer benefit
in accordance with an ongoing rulemaking at the PUC.
AB 1532
Page 8
3) Cap-and-trade revenues in the budget . The Governor's
budget proposal estimated that fee revenues from the first
set of auctions will be $1 billion in the 2012-13 Budget,
with auctions planned for November 2012, February 2013, and
May 2013. Actual revenues cannot be known until the
auctions have been completed. The proposal does not contain
a specific plan for expenditure of the revenue, rather it
includes a General Fund offset of $500 million, and
identifies general categories of spending, including: a)
clean and efficient energy, b) low-carbon transportation,
c) natural resource protection, and d) sustainable
infrastructure development.
The natural resources budget trailer bill establishes the
Greenhouse Gas Reduction Fund as a special fund in the
State Treasury to receive all funds resulting from
cap-and-trade auctions. It also specifies that the fund be
appropriated in the annual Budget Act and requires the
Department of Finance to submit to the Legislature a
proposal for expenditure of the fund, unless the
Legislature passes a bill before August 31, 2012,
specifying a process for establishing a long-term spending
plan that includes: a) criteria and requirements for the
use of the auction proceeds, b) establishment of program
categories eligible for funding, and c) the specification
of the process that ARB use to develop the strategy. The
trailer bill further requires agencies expending moneys
from the fund to prepare a record describing the uses of
the funds, how they further the goals of the CGWSA,
including attainment of the 2020 limit, how non-GHG
emissions objectives of the CGSWA were considered, and a
description of how the agency will document the results of
the expenditure.
The trailer bill also allows the PUC to allocate up to 15%
of proceeds from the auction of allowance distributed to
IOUs for clean energy and energy efficiency projects
established by statute and administered by the IOUs. The
remainder of the IOU allowance allocation proceeds must be
credited directly to residential, small business, and
emissions-intensive trade-exposed retail ratepayers.
AB 1532
Page 9
4) Sinclair Paint nexus test . The Childhood Lead Poisoning
Prevention Act of 1991 required the Department of Health
Services to establish a regulatory fee on businesses that
are or were sources of lead contamination to implement
various lead poisoning programs. Sinclair Paint Company
argued that this regulatory fee was a tax because: a) the
program provides a broad public benefit, not a benefit to
the regulated business, and b) the companies that pay the
fee have no duties regarding the lead poisoning program
other than payment of the fee. The California Supreme Court
upheld the fee, as a "mitigation fee," ruling that the
state may impose fees on companies that make contaminating
products and use those proceeds to mitigate the adverse
effects resulting from those products.
According to an opinion received by the Legislative
Analyst's Office (LAO) from Legislative Counsel, revenues
resulting from ARB's cap-and-trade auctions would
constitute "mitigation fee" revenue, and be subject to the
limitations of the Sinclair nexus. Thus the revenues must
only be used to mitigate GHG emissions or the adverse
effects caused by them. AB 1532 requires that no funding be
approved unless it is determined to meet the limitations of
the Sinclair nexus.
5) Planning the investments . AB 1532 establishes the
Greenhouse Gas Reduction Account within the Air Pollution
Control Fund, a fund controlled by ARB, which is further
charged with developing eligibility guidelines and, with
input from specified agency secretaries, the investment
plan development.
AB 1532 establishes the reduction of GHG emissions as the
priority for the expenditure of cap-and-trade and
identifies several other complementary goals. The bill
further identifies several categories to be considered for
investment. These categories include emission sources
that, under the cap-and-trade program, are capped sources
as well as non-capped sources which may include emission
sources for which ARB has adopted GHG emission offset
protocols. Investment in GHG reductions from each of these
sources has different pros and cons. Investments in
non-capped sectors would provide incentives for the
AB 1532
Page 10
reductions of GHG emissions from sources for which
insufficient incentives exist and may result in highly
cost-effective GHG emissions reductions that would not
otherwise have occurred. Investments in capped sectors add
an additional incentive, above the cap-and-trade program,
for GHG emission reductions and may reduce cap-and-trade
compliance costs.
The state currently has several programs and mandates
designed to reduce GHG emissions, or designed for other
purposes that may have the ancillary benefit of GHG
reductions. To increase investment effectiveness the
investment plan should identify these existing programs,
evaluate success rates, and identify opportunities for
augmentation or investment gaps.
6) Support and opposition concerns . According to supporters
of AB 1532, this bill advances the goals of CGWSA by
creating a clear and open framework for developing the
investment plan and the adoption of funding criteria.
Supporters also endorse application of Sinclair tests in
funding determinations.
Opponents state that AB 1532 prematurely anticipates
proceeds resulting from the allowance auctions that ARB may
not have the necessary authority to conduct. Opponents
also contend that not all priorities indicated in AB 1532
are consistent with the Sinclair decision.
7) Outstanding issues . Amendments are necessary to:
a) Strike the provision exempting investment plans from
CEQA.
b) Require the investment plans include an analysis of
existing programs and requirements for GHG emission
reductions and that the plans identify and address gaps
(see last paragraph comment #5).
c) Clarify that the guidelines developed by ARB
regarding the minimum criteria and qualifications for
receiving funding (#6, p. 4) should include criteria for
assessing outcomes.
AB 1532
Page 11
d) Clarify that guidelines developed by agencies
regarding the minimum criteria and qualifications for
receiving funding (#7, p. 4) must be consistent with ARB
regulations developed for those purposes (#6, p. 4).
e) Establish Greenhouse Gas Reduction Account as a
separate account in the State Treasury rather than in
the Air Pollution Control Fund, this is consistent with
the natural resources budget trailer bill.
f) Specify that the investment plans and all changes,
regardless of nature, to the investment plan are
submitted to the budget committees 30 days prior to
adoption.
g) Specify the annual report be summited by December 1
each year, to ensure adequate time for review prior to
the January Budget proposal.
8) Related legislation . SB 237 (Wolk) would have established
the California Agricultural Climate Benefits Advisory
Committee and established eligible uses in the agricultural
sector for revenues generated from the cap-and-trade
program and died in the Senate Appropriations Committee.
SB 535 (De León) establishes the California Communities
Healthy Air Revitalization Trust in the State Treasury and
requires it be funded with a minimum of 10% of the revenue
generated by the cap-and-trade program to reduce greenhouse
gas emissions, mitigate the direct health impacts of
climate change, and finance training for green collar
employment opportunities in the most impacted and
disadvantaged communities in California. SB 535 is
currently in the Assembly Appropriations Committee.
SB 1572 (Pavley) establishes the Greenhouse Gas Reduction
Fund within the Air Pollution Control Fund and requires
that all moneys collected pursuant to the market-based
compliance mechanism be deposited in the Fund and specifies
the lesser of half of the money in the Fund for 2013-14 or
$250 million would be available for appropriation by the
Legislature, to administering agencies to fund prescribed
AB 1532
Page 12
projects that meet certain goals relating to GHG emissions
reductions. The bill would require administering agencies
to prepare and submit to the Legislature quarterly reports
on funded projects and activities. SB 1572 is set for
hearing in Assembly Natural Resources Committee July 2,
2012.
AB 1186 (Skinner) would prohibit the PUC from approving an
expenditure plan for proceeds resulting from the auction of
allowances allocated to IOUs unless the expenditure plan
included a minimum of 10% of the proceeds going to K-12
energy efficiency grants. AB 1186 will be heard by the
Senate Environmental Quality Committee July 2, 2012.
AB 2404 (Fuentes) requires cap-and-trade revenues to be
deposited in a newly created 'Local Emission Reduction
Fund' where they are available to fund locally adopted
greenhouse gas reduction plans that emphasize specified
co-benefits. All reduction plans must be adopted by a
local government in furtherance of CGWSA goals. AB 2404 is
currently in the Assembly Appropriations Committee.
SOURCE : Speaker Pérez
SUPPORT : American Federation of State, County and
Municipal
Employees, AFL-CIO
American Lung Association
American Society of Landscape Architects -
California
Asian Pacific Environmental Network
Audubon California
Big Sur Land Trust
Bolsa Chica Land Trust
Breathe California
California Association of Local Conservation
Corps
California Biomass Energy Alliance
California Clean DG Coalition
California Climate and Agriculture Network
California Housing Partnership Corporation
California Infill Builders Federation
California Interfaith Power & Light
AB 1532
Page 13
California ReLeaf
California State Association of Counties
California Transit Association
California Urban Forests Council
California Watershed Coalition
California Watershed Network
Californians Against Waste
CALSTART
Coalition for Clean Air
Electrification Leadership Council
Ella Baker Center, Green Collar Jobs Campaign
Energy Independence Now
Environmental Defense Center
Environmental Defense Fund
Friends of Harbors, Beaches and Parks
Golden Gate Audubon Society
Greenlining Institute
Honda North America
Intelligent Transportation Society of
California
Land Trust of Santa Cruz County
Los Angeles County Metropolitan Transportation
Authority
Marin Agricultural Land Trust
Natural Resources Defense Council
Non-Profit Housing Association of Northern
California
Open Space District
Pacific Forest Trust
Peninsula Open Space Trust
Santa Clara County Open Space Authority
Sensys Networks
Silicon Valley Leadership Group
Sonoma County Agricultural Preservation and Open
Space
District
State Building and Construction Trades Council
of California
Sunrun
The Nature Conservancy
The Wilderness Society
Trust for Public Land
Union of Concerned Scientists
AB 1532
Page 14
Waste Management
Water Replenishment District of Southern
California
OPPOSITION : American Council of Engineering Companies of
California
California Asian Pacific Chamber of Commerce
California Business Properties Association
California Chamber of Commerce
California Chapter of the American Fence
Association
California Fence Contractors' Association
California Framing Contractors Association
California Grocers Association
California Independent Oil Marketers
Association
California League of Food Processors
California Manufacturers & Technology
Association
California Metals Coalition
California Retailers Association
California Taxpayers Association
Cal Tax
Can Manufacturers Institute
Chemical Industry Council of California
Engineering Contractors' Association
Flasher/Barricade Association
Golden State Builders Exchange
Marin Builders' Association
National Federation of Independent Business
United Contractors
Western State Petroleum Association