BILL ANALYSIS �
AB 2404
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 2404 (Fuentes) - As Amended: April 11, 2012
SUBJECT : California Global Warming Solutions Act of 2006:
Local Emission Reduction Program
SUMMARY : Establishes the Local Emission Reduction Program
(LERP) within AB 32, to be administered by the Air Resources
Board (ARB) and funded by regulatory fee revenues derived from
the auction of GHG allowances pursuant to the cap and trade
program adopted by the ARB pursuant to AB 32.
EXISTING LAW :
1)Requires ARB, pursuant to AB 32, to adopt a statewide
greenhouse gas (GHG) emissions limit equivalent to 1990 levels
by 2020 and adopt regulations to achieve maximum
technologically feasible and cost-effective GHG emission
reductions.
2)Authorizes ARB to permit the use of market-based compliance
mechanisms to comply with GHG reduction regulations, to be
adopted by 2011 and operative by 2012, under limited
circumstances once specified conditions are met.
THIS BILL :
1)Creates LERP and provides that funds, excluding penalties and
fines, collected pursuant to the "Market-Based Compliance
Mechanism" part of AB 32 (i.e. cap and trade) are available,
upon appropriation, for purposes of carrying out AB 32.
2)Requires ARB to award funds appropriated for LERP to local and
regional government entities (cities, counties, metropolitan
planning organizations, special districts, and joint powers
authorities) for "measures and programs" consistent with a
locally-adopted GHG emission reduction plan.
3)The local GHG plan must:
a) Include and maximize viable partnership with other
local governments, Native American tribes, not-for-profit
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entities, regional bodies, California Conservation Corps,
state-certified local conservation corps, and local Youth
Build programs.
b) Identify and maximize all of the following GHG
emission reduction opportunities:
i. Micro-, small-, community-, and
regional-scale GHG emissions, including
sequestration.
ii. Change or update existing local and
regional plans, policies, or programs.
iii. Increase adaptability or resiliency to
extreme weather events.
iv. Create local job training and job
creation benefits.
v. Decrease air or water pollution.
vi. Reduce the consumption of natural
resources or energy.
vii. Increase localized energy resources.
viii. Increase the reliability of local water
supplies.
ix. Reduce or avoid vehicle miles traveled.
x. Coordinate and aggregate GHG emission
reduction projects or programs.
xi. Reduce or avoid costs to the state or
local governments.
4)Requires these local GHG plans to provide for notice and at
least one opportunity for public input.
5)Requires ARB, in coordination with other state agencies, to
develop standards and guidelines to ensure funded projects
maximize funds, provide environmental and economic benefits,
and do not conflict with AB 32.
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6)Requires ARB to approve funding only after determining that
the use of funds is consistent with the requirements of
Sinclair Paint Co. v. State Bd. of Equalization (1997) 15
Cal.4th 866 (Sinclair).
FISCAL EFFECT : Unknown
COMMENTS :
1)Background on cap and trade. The AB 32 Scoping Plan is a
description of the specific measures ARB and others must take
to meet the objective of AB 32: Reduce statewide GHG
emissions to 1990 levels by 2020. The reduction measures
identified in the Scoping Plan must be proposed, reviewed, and
adopted as individual regulations by January 1, 2011, to
become operative beginning on January 1, 2012.
According to ARB, a total reduction of 80 million metric tons
(MMT), or 16 percent compared to business as usual, is
necessary to achieve the 2020 limit. Approximately 78 percent
of the reductions will be achieved through identified
"regulatory" measures. ARB proposes to achieve the balance of
reductions necessary to meet the 2020 limit (approximately 18
MMT) through a cap and trade program.
In a cap and trade program, a limit, or cap is put on the
amount of pollutants (GHGs) that can be emitted. Each
allowance equals one metric ton of carbon dioxide equivalent.
The total number of allowances created is equal to the cap set
for cumulative emissions from all the covered sectors. These
allowances may be auctioned and/or freely given to companies
or other groups. In addition to allowances, emissions
reductions from sources that are outside the cap coverage,
called offsets, could be authorized. This would allow
emissions in the capped sectors to exceed the allowances
issued. After initial distribution of allowances-or in the
use of offsets-compliance instruments may be traded among
entities. At the end of each compliance period, covered
entities are required to turn in, or surrender, enough
compliance instruments to match their emissions during this
time period.
ARB has adopted a cap and trade program that applies to an
estimated 600 regulated entities engaged in stationary
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combustion, cement manufacturing, cogeneration, petroleum
refining, hydrogen production, aluminum production, facility
operators calcining carbonates, CO2 supplier or transfer
recipient, electricity generation, glass production, iron and
steel production, lime production, natural gas transmission
and distribution, nitric acid production, oil and gas
extraction field operation, production of industrial gases,
pulp and paper production, soda ash production, electricity
deliverers, transportation fuel deliverers, and natural gas
deliverers.
According to ARB, the first auction of allowances will take
place on November 14, 2012 and the auctions will be held
quarterly thereafter. Following the first auction, revenues
will be deposited in the Air Pollution Control Fund. ARB has
decided to hold a practice auction in August prior to the
November auction to ensure that all logistical and oversight
aspects of the program are fully operational prior to the
launch of the program. Allowing more time to launch and test
the allowance tracking system as well as the auction platform
will be beneficial to stakeholders, giving them more time to
be prepared, and ARB plans to hold workshops and stakeholder
training during this time to ensure everyone is ready and
familiar with both systems prior to the first auction.
Governor Brown's proposed 2012-13 budget assumes ARB will
raise $1 billion from the auctions for the budget year. The
budget proposes the creation of a new Greenhouse Gas Reduction
Account within the Air Pollution Control Fund. Five hundred
million dollars would be used to pay for unspecified GHG
mitigation activities previously funded by the General Fund.
The remaining $500 million would be devoted to investments in
"(1) clean and efficient energy, (2) low-carbon
transportation, (3) natural resource protection, and (4)
sustainable infrastructure development." After the first
auction, the Governor would submit an expenditure plan to the
Assembly Committee on Appropriations, the Senate Committee on
Appropriations, and the Joint Legislative Budget Committee no
fewer than 30 days prior to allocating any moneys. The
legislature would not be asked to approve the plan. ARB would
then begin allocating funds based upon the plan.
In addition, electric utilities are given free allowances by
ARB in order to lessen impacts of AB 32 implementation on
electricity ratepayers. ARB requires investor-owned utilities
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to offer their freely allocated allowances for auction each
year while publicly-owned utilities are permitted, but not
required, to offer their allowances for auction. Revenue from
the sale of utility allowances is to be used for the benefit
of their ratepayers. The Public Utilities Commission has an
ongoing proceeding that is examining the potential uses of the
funds.
2)Background on Sinclair. In July 1997, the California Supreme
Court held in Sinclair that the Childhood Lead Poisoning
Prevention Act of 1991 imposed bona fide regulatory fees and
not taxes requiring a two-thirds vote of the Legislature under
Proposition 13. In summary, the Court found that while the
Act did not directly regulate by conferring a specific benefit
on, or granting a privilege to, those who pay the fee, it
nevertheless imposed regulatory fees under the police power by
requiring manufacturers and others whose products have exposed
children to lead contamination to bear a fair share of the
cost of mitigating those products' adverse health effects.
The Sinclair decision ratified the use of fees approved by a
majority of the Legislature to address health or other social
problems created by the use or production of a particular
product. In order to pass judicial scrutiny, the Court
suggests that: (1) a fee must not exceed the cost of providing
services related to the remediation of the problem created by
a particular product; and (2) a reasonable connection must
exist between the social problems remedied by a fee and the
payer of the fee.
3)Author's statement :
AB 2404 would ensure that investments are made at the
community level, enhancing the environment and economy of
local and regional places through multi-benefit projects.
Local greenhouse gas emission reduction projects are likely
to be overlooked by statewide or regulated entities for a
variety of reasons, including but not limited to: small
scale, administration difficulty, ignorance of local
greenhouse gas emission reduction opportunities, and lack
of incentive. Most local governments do not have funds to
engage in multi-benefit greenhouse gas emission reduction
projects, though they would like to. Many do not have an
incentive to engage in these types of projects.
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Local and regional governments that partner with
not-for-profit entities and community groups can identify,
plan, and implement innovative initiatives and projects
that best recognize the particular emission reduction
opportunities at the local level. Partnerships help
facilitate coordination and aggregation of projects across
regional landscapes.
AB 2404 will provide California communities the opportunity
to reduce greenhouse gas emissions in ways that meet unique
local needs. Investments can advance clean and efficient
energy, expand low-carbon and public transportation,
protect natural resources, promote sustainable
infrastructure development, create local jobs, increase the
reliability of local water supplies, improve
infrastructure, reduce local costs, and achieve many other
local, and state, priorities.
In addition, investing revenue in ways that incentivize
local governments to plan and implement their own
greenhouse gas emission reduction efforts will assist
California to reach its emission reduction targets, while
promoting local communities.
4)Suggested amendments :
a) Clarify that funding recipients, as well as the
"measures and programs" that will be funded, are located
in California.
b) Provide that ARB is authorized, but not required, to
award funds - strike out "shall" and insert "may" on page
3, line 16 and page 4, line 20.
c) Add air pollution control and air quality management
districts to the list of local and regional government
entities eligible for funds (on page 3, line 19).
d) Clarify that, when adoption of a local GHG plan is
subject to CEQA (e.g. adoption of a climate element of a
general plan) or SB 375 (e.g. adoption of a regional
sustainable communities strategy for land use), the
procedural requirements of CEQA or SB 375 apply.
REGISTERED SUPPORT / OPPOSITION :
AB 2404
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Support
Sonoma County Water Agency (sponsor)
Audubon California
Big Sur Land Trust
Bolsa Chica Land Trust
California Association of Local Conservation Corps
California ReLeaf
California Urban Forests Council
Environmental Defense Fund
LA Conservation Corps
Land Trust of Santa Cruz County
Marin Agricultural Land Trust
Peninsula Open Space Trust
Sonoma County Agricultural Preservation and Open Space District
Trust for Public Land
Opposition
American Council of Engineering Companies of California
California Chamber of Commerce
California Grocers Association
California Manufacturers & Technology Association
California Metals Coalition
California Taxpayers Association
Can Manufacturers Institute
Chemical Industry Council of California
Western States Petroleum Association
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092