BILL ANALYSIS �
AB 2563
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Date of Hearing: June 18, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 2563 (Smyth) - As Amended: June 6, 2012
SUBJECT : California Global Warming Solutions Act of 2006:
offsets
SUMMARY : Requires the Air Resources Board (ARB) to adopt a
process for the review and consideration of new offset protocols
and contains related findings.
EXISTING LAW :
1)Requires ARB 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.
3)Requires any direct regulation or market-based compliance
mechanism to achieve GHG reductions that are real, permanent,
quantifiable, verifiable, and enforceable by ARB.
4)Requires ARB, in adopting regulations, including market-based
compliance mechanisms, to design the regulations in a manner
that is equitable, seeks to minimize costs and maximize the
total benefits to California, and encourages early action to
reduce GHG emissions.
THIS BILL :
1)Contains extensive findings regarding the role of offsets in
ARB's cap-and-trade program.
2)Requires ARB, on or before January 1, 2013, to adopt a process
for review and consideration of new offset protocols.
Authorizes ARB to rely on an existing exemption from the
rulemaking requirements of the APA. Requires the process to
include:
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a) A published schedule for review and consideration of new
offset protocols submitted to ARB.
b) An online system to track the progress of new offset
protocols under review by ARB.
c) A point of contact at ARB for entities interested in the
review process.
d) An explanation of how the process will accommodate
public input and comments.
e) An explanation of the criteria used for consideration of
new offset protocols, including a description of the
standards for protocol approval, rejection, and delay, as
well as, to the extent feasible, a description of the
social, environmental, and financial impacts analysis used
in making offset protocol decisions and estimate of
potential supply and expected development costs.
3)Requires ARB to use this process to annually review and
consider new offset protocols.
4)Contains an urgency clause.
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.
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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 regulated
entities or other parties. In addition to allowances,
emissions reductions from sources that are outside the cap
coverage, called offsets, can be used to meet compliance
obligations. 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 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. 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 to ensure that all logistical and oversight aspects of
the program are fully operational prior to the launch of the
program.
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 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)The role of offsets in cap-and-trade. AB 32 makes no mention
of offsets, instead focusing on direct GHG emission reductions
and only permitting market-based mechanisms to the extent they
produce equivalent results. The use of offsets for compliance
with AB 32, as envisioned in the cap-and-trade program, has
been invented by ARB without any statutory guidance. While
ARB has justified the reliance on compliance offsets as an
opportunity for low-cost reductions from outside the cap,
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others have questioned how offsets, particularly from sources
outside the state, might meet AB 32's requirements or
otherwise produce benefits in California. This committee has
previously passed legislation (e.g., AB 1404 (De Leon) in
2009) to apply stringent limits to ARB's use of offsets for AB
32 compliance. AB 1404 also prioritized the use of compliance
offsets to favor local sources that resulted in local air
quality benefits. AB 1404 was vetoed by Governor
Schwarzenegger.
ARB's cap and trade regulation allows, but does not require,
the use of offsets to meet a limited portion of regulated
entities' compliance obligation. Each regulated entity may
meet up to 8 percent of their total compliance obligations
with offsets, which is equivalent to approximately 50 percent
of their GHG reduction obligation. ARB recognizes only
compliance offsets generated by sources that adhere to a
compliance offset protocol adopted by ARB. To date, ARB has
adopted protocols for the following four project types:
livestock manure management, ozone depleting substances, urban
forestry, and U.S. forestry.
According to the Western Climate Initiative (WCI) website:
The WCI Partners (California and four Canadian provinces)
will be reviewing offset protocols to support the WCI
cap-and-trade program. In a series of design documents
released over the last several years, WCI recommended the
creation of rigorous and consistent offset protocols, and
processes for reviewing and developing offset protocols in
an open and transparent way. WCI Partners will begin the
review and evaluation of the protocols listed below:
Avoided CH4 (methane) from Manure Management
(cows and pigs)
Ozone Depleting Substances
Coal Mine Methane
Small Landfills
WCI may also consider reviewing additional protocols
relating to municipal and industrial waste water treatment,
forests (all project types), fertilizer application N2O
(nitrous oxide) emission reductions, rice cultivation, and
enteric fermentation.
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ARB does not have a formal process for review of proposed
offset protocols, as proposed by this bill, but the board, in
Resolution 11-32 adopted October 20, 2011, directed the
Executive Officer "to develop implementation documents laying
out the process for review and consideration of new offset
protocols, including a description of how staff will evaluate
additionality."
1)Pending lawsuit challenges offsets in cap-and-trade. On March
27, 2012, Citizens Climate Lobby and Our Children's Earth
Foundation filed a lawsuit in San Francisco Superior Court
which challenges the validity of the offset provisions of the
cap-and-trade regulation and the four adopted offset
protocols. The plaintiffs' opening brief is due June 18, with
opposition briefs from ARB and intervenors due in August. A
hearing is scheduled for November.
2)Offset provisions in related legislation. In addition to AB
1404 from 2009, other recent legislation has expressed a
preference for direct emission reductions over offsets, and
for local offset sources over distant sources. For example,
SB 292 (Padilla), Chapter 353, Statutes of 2011, contained the
following provision:
Offset credits shall be employed by the applicant only
after feasible local emission reduction measures have been
implemented. The applicant shall, to the extent feasible,
place the highest priority on the purchase of offset
credits that produce emission reductions within the city or
the boundaries of the South Coast Air Quality Management
District.
SB 52 (Steinberg), pending in this committee, contains a
similar provision.
REGISTERED SUPPORT / OPPOSITION :
Support
SA Recycling (sponsor)
California Chamber of Commerce
California Grocers Association
California League of Food Processors
California Manufacturers and Technology Association
Environmental Defense Fund
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Western States Petroleum Association
Opposition
None on file
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092