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: 8/24/12 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
SENATE ENVIRONMENTAL QUALITY COMMITTEE : 4-1, 8/29/12
(pursuant to Senate Rule 29.10)
AYES: Simitian, Hancock, Kehoe, Lowenthal
NOES: Blakeslee
NO VOTE RECORDED: Strickland, Pavley
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/30/12 (pursuant to
Senate Rule 29.10)
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
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DIGEST : This bill enacts the Greenhouse Gas Reduction
Fund Investment Plan and Community Revitalization Act which
requires the Department of Finance, on behalf of the
Governor and in consultation with the Air Resources Board
(ARB) or any other relevant state agency, to submit to the
Legislature at the time of the department's adjustments to
the proposed 2013-14 fiscal year budget, a three-year
investment plan, as specified. This bill does not become
operative unless SB 535 is enacted.
ANALYSIS : The 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 that moneys must be used to facilitate the
achievement of reductions of GHG 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.
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E. Provide opportunities for businesses, public
agencies, nonprofits, and other community
institutions to participate in and benefit from
statewide efforts to reduce GHG emissions.
2. 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, any of the following:
A. Funding to reduce GHG emissions through energy
efficiency, clean and renewable energy generation,
distributed renewable energy generation, transmission
and storage, and other related actions, including,
but not limited to, at public universities, state and
local public buildings, and industrial and
manufacturing facilities.
B. Funding to reduce GHG emissions through the
development of state-of-the-art systems to move goods
and freight, advanced technology vehicles and vehicle
infrastructure, advanced biofuels, and low-carbon and
efficient public transportation.
C. Funding to reduce GHG emissions associated with
water use and supply, land and natural resource
conservation and management, forestry, and
sustainable agriculture.
D. Funding to reduce GHG emissions through strategic
planning and development of sustainable
infrastructure projects, including, but not limited
to, transportation and housing.
E. Funding to reduce GHG emissions through increased
in-state diversion of municipal solid waste from
disposal through waste reduction, diversion, and
reuse.
3. Requires the Department of Finance (DOF), on behalf of
the Governor, and in consultation with ARB and any other
relevant state entity, to develop, beginning April 1,
2013, three investment plans for the time periods: 2013
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to 2014, 2015 to 2017, and 2018 to 2020.
4. Requires the ARB to, prior to the submission of each
investment plan, 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 or other
activities under the oversight or administration of the
PUC that facilitate GHG emissions reductions consistent
with this division. The investment plan shall include a
description of the use of any moneys generated by the
sale of allowances received at no cost by the
investor-owned utilities pursuant to a market-based
compliance mechanism.
5. Requires the Climate Action Team, established under
Executive Order S-3-05, to provide information to the
DOF and the state board to assist in the development of
each investment plan. The Climate Action Team shall
participate in each public workshop held on an
investment plan and provide testimony to the state board
on each investment plan. For purposes of this section,
the Secretary of Labor and Workforce Development shall
assist the Climate Action Team in its efforts.
6. Specifies that moneys in the fund shall be appropriated
through the annual Budget Act consistent with the
investment plan that is developed and submitted pursuant
to this bill. Upon appropriation, moneys in the
Greenhouse Gas Reduction Fund shall be available to the
state board and to administering agencies for
administrative purposes in carrying out this chapter.
Any repayment of loans, including interest payments and
all interest earnings on or accruing to any money,
resulting from implementation of this bill shall be
deposited in the Greenhouse Gas Reduction Fund for the
purposes of this bill.
7. Requires ARB to hold at least two public workshops in
different regions of the state and one public hearing
prior to the DOF submitting 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.
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8. Requires DOF to submit a report, on or before March 1,
2014, and annual thereafter, to the appropriate
committees of the Legislature on the status of projects
and their outcomes.
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
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
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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.
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
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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
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
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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
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 -
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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 8/30/12)
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
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
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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
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
Waste Management
Water Replenishment District of Southern California
Wilderness Society
OPPOSITION : (Verified 8/24/12)
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
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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
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,
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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 8/31/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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