BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1532 (J. Perez) - Greenhouse Gas Reduction Account.
Amended: August 24, 2012 Policy Vote: EQ 4-1
Urgency: No Mandate: No
Hearing Date: August 30, 2012
Consultant: Brendan McCarthy
This bill meets the criteria for referral to the Suspense File.
This bill was referred to this committee pursuant to Senate Rule
29.10. Under that rule, this committee can only return the bill
to the Senate Floor or vote to hold it in committee. The bill
cannot be sent to the Suspense File.
Bill Summary: AB 1532 would establish the eligible uses of
revenues generated from the auction of emissions allowances
authorized under AB 32 (Nunez, Chapter 488, Statutes of 2006)
and the processes for spending those revenues.
Fiscal Impact:
Based on information developed by the Air Resources Board,
near-term administrative costs to adopt spending guidelines
and develop investment plans, pursuant to AB 1532, would
likely be about $6 million per year (Greenhouse Gas
Reduction Fund) for several years (across all state
agencies).
Based on projected cap and trade auction revenues, annual
spending for projects that would benefit priority
communities would likely be between $500 million and $3
billion per year. Of those funds, between $200 million and
$1.2 billion would be used for projects in those communities
(Greenhouse Gas Reduction Fund).
Background: Under the California Global Warming Solutions Act of
2006, the Air Resources Board is required to adopt greenhouse
gas emission reduction measures to reduce statewide greenhouse
gas emissions to 1990 levels. The Air Resources Board is allowed
to use market-based mechanisms to comply with these regulations
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(e.g. a cap and trade program).
The Air Resources Board has released its cap-and-trade
regulations that became effective on January 1, 2012. These
regulations impose a cap on the aggregate greenhouse gas
emissions allowed from "capped sectors." Each year the cap
declines. To comply with the cap, a covered entity must
surrender an "allowance" (allowances are created by the state in
an amount equal to the cap) or an "offset" which are emission
reductions achieved in an uncapped sector. Allowances will be
freely allocated, held in a reserve, or auctioned.
The first auction of allowances is currently scheduled for
November 2012. Under existing law, the Air Resources Board has
the authority to deposit auction revenues into the Air Pollution
Control Fund. The Governor's January budget proposal estimates
$1 billion auction revenues in 2012-13. The budget does not
contain a specific plan for expenditure of the revenue. Instead
the budget proposes a General Fund offset of $500 million, and
identifies general categories of spending including clean energy
and efficiency energy, low-carbon transportation, natural
resource protection, and sustainable infrastructure development.
The budget proposes that an expenditure plan for the revenues be
jointly submitted to the Legislature by the Director of Finance
and the Air Resources Board. The Legislature would have at least
30 days to review the plan before any funds are allocated.
Proposed Law: AB 1532 would establish the eligible uses of
revenues generated from the auction of emissions allowances
authorized under AB 32 (Nunez, Chapter 488, Statutes of 2006)
and the processes for spending those revenues.
Specifically, the bill would:
Create a new Greenhouse Gas Reduction Account in the
Greenhouse Reduction Fund.
Direct that cap and trade auction revenues be spent to
achieve feasible and cost-effective reductions in greenhouse
gas emissions, while meeting specific goals outlined in the
bill.
Specify the types of projects or programs that can be
provided with financial support.
Require the Air Resources Board to adopt guidelines for
expenditure of funds.
Require the Air Resources Board to develop three investment
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plans, for expenditures through 2020.
Require the California Environmental Protection Agency to
identify priority communities for investment
Require the Air Resources Board to develop guidelines for
allocating funds to priority communities
Require that 25 percent of expenditures go towards projects
that would benefit priority communities
Require that 10 percent of expenditures be spent in
priority communities.
Related Legislation:
AB 237 (Wolk) would have established a program to use cap
and trade auction revenues for the support of the
agricultural industry. That bill was held on this
committee's Suspense File.
SB 535 (De Leon) would require ten percent of cap and trade
auction revenues to be expended for programs to mitigate
climate change impacts in disadvantaged communities. That
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. That bill is in the Assembly
Appropriations Committee.
AB 1186 (Skinner) would require the Public Utilities
Commission to require investor owned utilities to use at
least ten percent of the revenues that they receive from
auctioning their free emissions allowances for public school
energy efficiency projects. That bill is on the Senate
Floor.
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. That bill is in the
Assembly Appropriations Committee.
Staff Comments: 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
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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 AB 1532 -
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.
In the 2007 "Sinclair Paint" case, the California Supreme Court
ruled that fees assessed on an industry that are used to
mitigate or remediate harms caused by the industry, as a whole,
are not general taxes (subject to a 2/3 vote of the legislature)
but are fees (subject to majority vote). Such regulatory fees,
when enacted by a majority vote, must be spent in a manner with
a logical nexus to the harms caused by an industry. The Office
of Legislative Counsel has opined that cap and trade auction
revenues are regulatory fees and can be used to mitigate the
impacts of greenhouse gas emission, provided there is a logical
nexus to greenhouse gas emissions.
Proposition 26 of 2010 amended the Constitution to overrule the
Sinclair Paint ruling. However, Proposition 26 does not apply to
fees enacted before 2010.
Proposed author's amendments. The author is considering
amendments to make a variety of changes to the bill. Amendments
will not be taken in this committee, but may be taken subsequent
to this hearing.
The proposed amendments would authorize the expenditure of funds
for emissions reductions in the energy sector, goods movement,
water use and land conservation, infrastructure development,
reducing municipal waste, local programs to reduce emissions,
and research and development. The amendments require certain
amounts of funding to be used in disadvantaged communities (as
defined), to be identified by CalEPA, rather than priority
communities as defined in the bill currently. The proposed
amendments also redraft many other provisions of the bill,
including the processes for planning and reporting on
expenditures.
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