BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1532|
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THIRD READING
Bill No: AB 1532
Author: John A. Pérez (D), et al.
Amended: 8/21/12 in Senate
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE : 5-2, 7/2/12
AYES: Simitian, Hancock, Kehoe, Lowenthal, Pavley
NOES: Strickland, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/16/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 49-27, 5/29/12 - See last page for vote
SUBJECT : Greenhouse gas emissions
SOURCE : Author
DIGEST : This bill (1) requires moneys in the Greenhouse
Gas Reduction Fund to facilitate the achievement of
feasible and cost-effective reductions of greenhouse gas
(GHG) emissions in the state; (2) requires administering
agencies, including the ARB and any other state agency
identified by the Legislature, to allocate those moneys to
measures and programs that meet specified criteria; (3)
requires the Air Resources Board (ARB) to develop, as
specified, three investment plans that identify the
anticipated expenditures of moneys appropriated from the
Fund, to submit each plan to the Budget Committees of each
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house of the Legislature, as specified, and to adopt each
investment plan, as specified; (4) requires the Governor to
submit a budget to the Legislature that includes specified
appropriations consistent with each investment plan and
requires the Legislature to consider these appropriations
when adopting the Budget Act; and (5) requires the ARB to
annually submit a report no later than December of each
year to the appropriate committees of the Legislature on
the status of projects and their outcomes and any changes
the ARB recommends need to be made to the investment plan.
ANALYSIS : The California Global Warming Solutions Act of
2006 (CGWSA) designates the ARB as the state agency charged
with monitoring and regulating sources of emissions of
GHGs. The ARB is required to adopt a statewide GHG
emissions limit equivalent to the statewide GHG emissions
level in 1990 to be achieved by 2020, and to adopt rules
and regulations in an open public process to achieve the
maximum, technologically feasible, and cost-effective GHG
emissions reductions. The CGWSA authorizes the ARB to
include use of market-based compliance mechanisms. The
CGWSA authorizes the ARB to adopt a schedule of fees to be
paid by the sources of GHG emissions regulated pursuant to
the act, and requires the revenues collected pursuant to
that fee schedule be deposited into the Air Pollution
Control Fund and be available, upon appropriation by the
Legislature, for the purposes of carrying out the CGWSA.
This bill:
1. Requires no measure or programs be approved using money
appropriated from the Greenhouse Gas Reduction Fund
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).
2. Requires that moneys must be used to facilitate the
achievement of feasible and cost-effective reductions of
GHG emissions in this state and the following
complementary goals:
A. Maximize economic, environmental, and public
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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.
F. Mitigate the impacts and effects of climate change
on the state's communities, economy, and environment.
3. Provides that moneys appropriated from the fund may be
allocated for the purpose of reducing GHG emissions in
this state through investments that include, but are not
limited to, investments in:
A. Clean and efficient energy including:
(1) Industrial and manufacturing investment in
energy efficiency, energy storage, and clean and
renewable energy project.
(2) Public universities, schools, water
agencies, and other public facilities and fleets
and their energy suppliers to reduce GHG emissions
by investment in energy and water use efficiency,
energy storage, and clean and renewable energy and
fuel projects.
(3) Single-family and multifamily residential
and commercial distributed generation and energy
efficiency programs.
(4) Waste reduction and low-carbon
recycled-content processing and manufacturing,
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including market development activities.
B. Low-carbon transportation, sustainable
development, and infrastructure, including:
(1) Public transportation and sustainable
transportation and infrastructure development,
including, but not limited to, transportation,
bicycle, and pedestrian facilities.
(2) Programs for clean vehicles and the
advancement of transportation technologies.
(3) Advanced transportation and fueling
infrastructure.
(4) Local and regional sustainable development
efforts.
(5) Low-carbon goods movement and freight
vehicle technologies and infrastructure,
including, but not limited to, locomotives and
heavy-duty fleets.
C. Natural resource protection, including:
(1) Natural resource management programs and
projects.
(2) Land conservation and restoration,
including, but not limited to, watershed projects
with cobenefits of water quality, flood
protection, and coastal and ocean protection.
(3) 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.
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E. Investments in community climate innovation
programs.
4. Requires the California Environmental Protection Agency
to develop a methodology that identifies priority
community areas for investment opportunities related to
this bill. These priority community investment areas
shall be identified and updated no less than every two
years, based on geographic, socioeconomic, and
environmental hazard criteria, which may include, but
not limited to, any of the following:
A. Areas disproportionately adversely affected by
environmental pollution and hazards.
B. Areas that contain or produce material that,
because of its quantity, concentration, or physical
or chemical characteristics, pose a significant
hazard to human health and safety.
C. Areas with concentrations of people that are of
low income, high unemployment, low levels of
homeownership, high rent burden, and low levels of
educational attainment.
5. Requires ARB to develop guidelines for administering
agencies for purposes of allocating moneys to projects
that maximize benefits for priority community areas.
6. Requires administering agencies to have the authority to
set aside a percentage of their appropriated moneys from
the fund for projects that maximize benefits to priority
community investment areas.
7. Requires, in implementing #4, #5, and #6 above,
administrative agencies to ensure the investments
maximize the benefits for investments to priority co
munity investment areas through activities that include,
but are not limited to, any of the following:
A. Participatory program guideline development.
B. Targeted solicitation outreach.
C. Education and training efforts.
D. Solicitation scoring criteria priority.
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8. 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.
9. Requires ARB to adopt guidelines, after one or more
public hearings, 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.
10.Requires any state agency that allocates moneys, as
described above, adopt guidelines that meet the
requirements of #9 above.
11.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, identify the state agencies best qualified to
implement the programs, maximize benefits to priority
community investment areas, list and describe the key
measures and strategies that the state is relying on to
achieve GHG emissions, reduction targets by sectors,
analyze gaps, where applicable, in current state
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strategies to meeting the state's GHG emissions
reduction goals by sector, and identify programmatic
investments of moneys appropriated from the fund that
will facilitate the achievement of feasible and
cost-effective GHG emissions reductions toward
achievement of reduction targets by sector.
12.Requires the Public Utilities Commission (PUC) to
develop and send to ARB a report to be included in each
investment plan adopted by ARB. The report must include
its requirements on how investor-owned utilities (IOUs)
may use moneys they might collect from allowance
auctions pursuant to cap-and-trade.
13.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, activities under the oversight or
administration of the PUC that facilitate GHG emissions
reductions consistent with the law.
14.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, the Labor and
Workforce Development Agency, 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.
15.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.
16.Provides that if the ARB finds in its report to the
Legislature, pursuant to this bill, that an investment
plan did not allocate at least 25% of the available
moneys from the prior fiscal year to projects that
provide benefits described in the bill to priority
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community investment areas, then the Governor shall
include as part of the Governor's annual budget
submission to the Legislature, allocations to
administering agencies to make investments in eligible
projects in priority community investment areas in an
amount equal to the difference between the total
investments in the prior fiscal year that benefited
priority community investment areas and an amount equal
to 25% of the total allocations from the prior fiscal
year. This allocation shall not be considered part of
the next fiscal year's priority community investment
area considerations for purposes of this part and shall
be separately identified in the Governor's annual budget
submission to the Legislature to provide transparency to
the investment.
17.Requires ARB to provide to the Governor a plan
consistent with the relevant investment plan detailing
proposed appropriations from the Fund and that the
Governor include proposed appropriations as part of the
annual January budget proposal.
18.Requires ARB to submit a report, on or before December
of each year, 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,
and a description of how agencies have maximized the
benefits of the investments to priority community
investment areas, including, but not limited to, the
percentage of funds allocated to date and in the prior
fiscal year that have been invested in projects in
priority community investment areas and that have
provided benefits to priority community investment
areas.
Background
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
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emissions. Each year the cap 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 2012-13, 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 2015-16
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.
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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
(1) clean and efficient energy, (2) low-carbon
transportation, (3) natural resource protection, and (4)
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 (1) criteria and requirements for the
use of the auction proceeds, (2) establishment of program
categories eligible for funding, and (3) 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.
Sinclair Paint nexus test . The Childhood Lead Poisoning
Prevention Act of 1991 required the Department of Health
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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 (1) the
program provides a broad public benefit, not a benefit to
the regulated business, and (2) 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. This bill requires that no funding
be approved unless it is determined to meet the limitations
of the Sinclair nexus.
Related Legislation
AB 237 (Wolk) establishes a program to use cap and trade
auction revenues for the support of the agricultural
industry. The bill was held on this committee's Suspense
File.
SB 535 (De Leon) requires 10% of cap and trade auction
revenues to be expended for programs to mitigate climate
change impacts in disadvantaged communities. The bill is
in the Assembly Appropriations Committee.
SB 1572 (Pavley) establishes a fund for the deposit of cap
and trade auction revenues and requires that the lesser of
half of cap and trade auction revenues in 2012-13 or $250
million would be available, upon appropriation, for
specified purposes. The bill is in the Assembly
Appropriations Committee.
AB 1186 (Skinner) requires the Public Utilities Commission
to require investor owned utilities to use at least ten
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percent of the revenues that they receive from auctioning
their free emissions allowances for public school energy
efficiency projects. The bill is on Senate Third Reading.
AB 2404 (Fuentes) requires cap and trade auction revenues
to be deposited in a specified fund, to be used to fund
local greenhouse gas emission programs. The bill is in the
Assembly Appropriations Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, based on
information developed by the ARB, near-term administrative
costs to adopt spending guidelines and develop investment
plans, pursuant to this bill, would likely be about $6
million per year (Greenhouse Gas Reduction Fund) for
several years (across all state agencies).
The Legislative Analyst's Office has projected that
long-term revenues from cap and trade auction proceeds will
be between $2 billion and $12 billion per year. Based on
state's recent history of expending bond funds,
administrative costs to plan for, expend, and monitor
expenditures of those funds would likely range from $40
million per year to as high as $600 million per year.
However, it is important to note that those revenues will
be generated, and can be appropriated by the Legislature,
under the existing authority of AB 32.
The costs described above reflect an estimate of the
administrative costs directly attributable to this bill -
primarily the development of guidelines and the preparation
of investment plans. The long-term costs to the state to
oversee the expenditure of cap and trade auction revenues,
while very significant, will occur whether or not this bill
is enacted.
SUPPORT : (Verified 8/22/12)
American Federation of State, County and Municipal
Employees, AFL-CIO
American Lung Association
American Society of Landscape Architects -California
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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
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
Global Green
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
Nature Conservancy
Natural Resources Defense Council
Non-Profit Housing Association of Northern California
Open Space District
Pacific Forest Trust
Peninsula Open Space Trust
San Francisco Bay Area Rapid Transit District
Santa Clara County Open Space Authority
Sensys Networks
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Silicon Valley Leadership Group
Sonoma County Agricultural Preservation and Open Space
District
State Building and Construction Trades Council of
California
Sunrun
Trust for Public Land
Union of Concerned Scientists
Waste Management
Water Replenishment District of Southern California
Wilderness Society
OPPOSITION : (Verified 8/20/12)
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
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
ARGUMENTS IN SUPPORT : According to the author, "there is
no current statutory direction as to the expenditure of the
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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 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." According to
supporters, 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.
ARGUMENTS IN OPPOSITION : Opponents state that this bill
prematurely anticipates proceeds resulting from the
allowance auctions that the 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.
ASSEMBLY FLOOR : 49-27, 5/29/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hayashi, Roger Hernández, Hill, Huber,
Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mitchell,
Monning, Pan, Perea, V. Manuel Pérez, Portantino,
Skinner, Solorio, Swanson, Torres, Wieckowski, Williams,
Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Fletcher, Hall, Mendoza
DLW:m 8/22/12 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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