BILL ANALYSIS �
SB 143
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: SB 143
AUTHOR: Rubio
AMENDED: March 22, 2011
FISCAL: Yes HEARING DATE: May 2, 2011
URGENCY: No CONSULTANT: Peter Cowan
SUBJECT : GLOBAL WARMING SOLUTIONS ACT, OFFSETS
SUMMARY :
Existing law , under the California Global Warming Solutions
Act of 2006 (CGWSA):
1) Requires the Air Resources Board (ARB) to determine the
1990 statewide level of greenhouse gas (GHG) emissions and
achieve a limit that is equivalent to that by 2020 and sets
several requirements to meet that requirement, (Health and
Safety Code �38000 et seq.).
2) Requires ARB in consultation with the Public Utilities
Commission (PUC) and the State Energy Resources
Conservation and Development Commission (CEC), in addition
to all state agencies with jurisdiction over GHG sources,
to develop a scoping plan for achieving the maximum
technologically feasible and cost-effective reductions in
GHG. The plan is required to identify and make
recommendations on direct emission reduction measures,
alternative compliance mechanisms, market-based compliance
mechanisms, and potential monetary and nonmonetary
incentives. The ARB must evaluate the total potential
costs and total potential economic and noneconomic benefits
of the plan for reducing GHGs to the state's economy and
public health, using the best economic models, emission
estimation techniques, and other scientific methods. The
plan must be updated at least once every five years.
(�38561).
3) Requires ARB to adopt GHG emission limits and emission
reduction measures by regulation on or before January 1,
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2011, and meet certain requirements in adopting the
regulations. ARB may include the use of market-based
mechanisms to comply with these regulations. (��38562,
38570).
This bill :
1) Requires ARB, by July 1, 2012, to adopt methodologies for
determining the quantity of GHG emissions reductions
resulting from implementation of voluntary energy
efficiency programs, distributed electricity generation
programs, and programs administered by the PUC or CEC that
may reduce GHG emissions. ARB must determine the cost
effectiveness in dollars per ton of GHG emissions reduced
for these programs and update those determinations from
time to time upon determining the need for update.
2) Provides that beginning July 1, 2012, for the purposes of
the market-based compliance mechanism, a person may invest
in a program for which an emission reduction methodology
has been developed.
3) Requires that by July 1, 2012, ARB adopt regulations
creating GHG emission reduction offsets that may be banked,
traded, or used for compliance with the market-based
compliance mechanism.
4) Requires that a person who invests in a program, as
described by #1 above, be credited a quantity of GHG
emission offsets based on the size of the investment and
the cost effectiveness of the program.
5) Authorizes ARB, upon appropriation by the Legislature and
in consultation with the PUC and CEC, to use any revenues
from any auction or other sale of GHG allowance to
establish and provide an incentive for private investment
in a program for which an emission reduction methodology,
as described above, has been developed. This incentive is
limited to 40% of the investment in the emission reduction
program, and the full amount of offset, calculated as above
including the investment and incentive, must be credited to
the person investing in the program. ARB may determine
after a public hearing that incentives must only be
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available for private investments implementing programs in
specific communities or geographic areas as determined by
ARB.
6) Requires that by July 1, 2012, the ARB adopt regulations
for the calculation and crediting of offsets as well as the
incentives for private investment.
7) Provides emergency regulatory authority for developing the
above regulations.
COMMENTS :
1) Purpose of Bill . According to the author, "SB 143 would
provide an additional option to businesses that must comply
with AB 32 and need to utilize the Cap and Trade program
established by the �ARB]. This new option would allow
businesses to earn carbon credits by investing in existing
California programs that reduce greenhouse gas emissions,
including distributed electricity generation programs. The
bill would allow �ARB] to create an incentive program to
encourage investment in certain programs or communities? SB
143 builds upon language in AB 32 which directs �ARB] to
consider the other benefits of regulations before them to
implement AB 32. Providing an 'in state' option provides
more robust benefits to our state than credits earned
through activities outside our borders. For example,
increased sales tax revenue, jobs, lower utility costs, and
improved air quality. Further, providing more options
within the Cap and Trade program ensures that credits are
less vulnerable to manipulation in the market."
2) Status of Cap and Trade . ARB on December 16, 2011, adopted
draft regulations for a proposed cap and trade market-based
compliance mechanism and is expected to produce a final
version of those regulations this fall.
On March 17, 2011, the California Superior Court found ARB
had not properly considered alternatives to cap and trade
and thus failed to comply with the California Environmental
Quality Act (CEQA) and enjoined the ARB from proceeding
with cap and trade until the court determines it has fully
complied with CEQA.
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3) Offsets . Offsets are GHG credits for technologies or
activities, that would not otherwise exist, that reduce
emissions of GHG or that remove GHG from the atmosphere.
ARB draft regulations on the market-based compliance
mechanism, or cap and trade, allow for such offsets.
According to proponents, offsets provide a safety valve on
the price of GHG allowances while providing incentives for
additional GHG emissions reducing activities or
technologies. Offset critics note that ensuring that
offsets are additive, meaning the GHG reduction would not
occur in the absence of the market incentive, presents
numerous challenges for verifying both the magnitude and
longevity of the GHG reduction resulting from the offset
activity or technology.
Establishing specific programs as emissions offsets under
CGWSA establishes a precedent for allowing other programs
or activities to receive offset credits without subjecting
them to the same protocol and project verification of
offsets described in draft regulation.
4) Offset efficiency . The CGWSA requires that in developing
the scoping plan the ARB ensure that adopted GHG reduction
activities are complementary, nonduplicative, and can be
implemented in an efficient and cost-effective manner.
Several of the programs targeted by SB 143 for emission
reduction investment already fall under the
non-market-based parts of the scoping plan and therefore is
inconsistent with the scoping plan.
Under SB 143, for example, an emitter entity regulated
under cap and trade could invest in a distributed
generation project at its own facility, reaping multiple
rewards. The entity would receive the benefit of the
project itself (e.g. reduced electricity costs), a state
incentive to undertake the project, and also a cap and
trade compliance offset. In this example any of these
objectives might be sufficient inducement to undertake the
project.
5) Cost estimates . Verification of offsets, particularly
ensuring that the activity or technology would not have
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happened without the offset credit or monetary incentive,
is difficult. This bill goes further and asks ARB to not
only estimate the carbon savings from specific programs,
but that ARB calculate the cost-efficiency of the offset, a
requirement that falls outside of the draft market-based
compliance mechanisms.
6) Incentives for credits . SB 143 allows the ARB to provide
incentives for private parties investing in certain
programs, subsidizing up to 40% of the offset cost.
According to the author, these incentives may be necessary
in cases where the cost per ton of reduced emissions of the
program is higher than the price of offsets or allowances
available under other market-based compliance alternative
compliance mechanisms.
However, these incentives increase the cost to the state
with no additional GHG emissions reduction, yet will not
reduce the cost of compliance with the market-based
compliance mechanism. If the bill is passed the committee
should consider eliminating these incentives so only
cost-effective programs are pursued.
7) Emergency regulation . The committee may wish to consider
whether emergency regulation authority is necessary for
this program. While such authority allows regulations to
be implemented more rapidly, it does not provide for public
input, the resulting regulations are only in place for 180
days, and the regulatory approval process must still be
completed.
8) Related legislation . SB 246 (De Le�n) defines "Compliance
offset" to mean a reduction in GHG, used for compliance
with an emissions limit, in a sector different from sectors
regulated by a GHG emission limit for which a market-based
compliance mechanism exists. This definition may conflict
with what "offsets" are used to mean in SB 143 as it
includes sectors for which market-based compliance
mechanisms exist. SB 246 will be heard by the Senate
Environmental Quality Committee May 2, 2011.
SOURCE : Senator Rubio
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SUPPORT : None on file
OPPOSITION : Breathe California, California Apollo Alliance,
California Rural Legal Assistance Foundation,
Center for Biological Diversity, Coalition for
Clean Air, Forests Forever, Natural Resources
Defense Council, Planning & Conservation
League, Sierra Club California , Union of
Concerned Scientists