BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1572 (Pavley) - California Global Warming Solutions Act of
2006: Greenhouse Gas Reduction Amount.
Amended: May 1, 2012 Policy Vote: EQ 5-2
Urgency: No Mandate: No
Hearing Date: May 21, 2012 Consultant: Marie Liu
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1572 would require that moneys collected as a
result of market-based compliance mechanisms to reduce
greenhouse gasses (GHG) be deposited in the newly created
"Greenhouse Gas Reduction Account." The Governor's office would
be required to submit to the Legislature a proposed plan for
expenditures from this account.
Fiscal Impact: Unknown, but likely in the tens to hundreds of
millions of dollars, from the Air Pollution Control Fund
(special) beginning in 2012-13 for the implementation of an
expenditure plan for cap-and-trade revenues
Background: Under the California Global Warming Solutions Act of
2006, the Air Resources Board (ARB) is required to adopt GHG
emission reduction measures to reduce statewide GHG emissions to
1990 levels. ARB is allowed to use market-based mechanisms to
comply with these regulations (i.e. a cap and trade program).
Recently the ARB released its cap-and-trade regulations that
became effective on January 1, 2012. These regulations impose a
cap on the aggregate GHG 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 are freely allocated, held in a reserve, or
auctioned.
The first auction of allowances is currently scheduled for
November 2012 of this year. Under existing law, ARB 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 FY 2012-13. The budget does not
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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 and
efficiency energy, low-carbon transportation, natural resource
protection, and sustainable infrastructure development. The
budget proposes that an expenditure plan for the revenues to be
jointly submitted to the Legislature by the Director of Finance
and ARB. The plan must allow the Legislature at least 30 days to
review the plan before any funds are allocated.
The Legislative Analyst's Office (LAO), in its February 16th
report on cap and trade revenue made several recommendations
including that the Legislature should direct the administration
to provide an expenditure plan outlining it suggested uses of
the revenues.
Proposed Law: This bill would require that revenues from
cap-and-trade auctions be deposited in the newly created
"Greenhouse Gas Reduction Account." The Governor's office would
be required to submit to the Legislature a proposed plan for
expenditures from this account and to establish criteria to be
used by state agencies to develop final expenditure plans.
Related Legislation: AB 1532 (P�rez), currently in Assembly
Appropriations, establishes the Greenhouse Gas Reduction Account
to receive all cap-and-trade revenues and specifies expenditures
of funds from the account; AB 1906 (Nestande), currently in Asm.
Natural Resources Committee, requires all IOU allowance revenues
be used to reduce utility rates; AB 2404 (Fuentes), currently in
Assembly Appropriations, establishes the Local Emission
Reduction Program to receive all cap-and-trade revenues where it
may be appropriated for local assistance grants to reduce GHG
emissions.
Staff Comments: Although this bill directs the Governor's office
to draft the expenditure plan, this duty will most likely fall
to the ARB. The plan's implementation costs are also likely to
be centered on ARB, but other agencies will probably be
responsible for some implementation. While the cost of
developing the expenditure plan is not likely to be substantial,
the implementation of such a plan is likely to be in the tens or
even hundreds of millions of dollars, depending on the auction
revenues.
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The LAO estimates that in 2012-13, auction revenues could range
from roughly $660 million to $3 billion. Auction revenues are
likely to increase significantly after the transportation sector
is added under the cap in 2015. For perspective on the magnitude
of the likely administrative costs, consider that recent,
voter-approved bond measures restricted administrative costs to
no more than 5% of bond proceeds. Five percent of the auction
revenues for 2012-13, as estimated by the LAO, would be between
$33 million and $150 million.
Staff notes that accounting necessary for cap-and-trade revenues
is expected to cost in the millions of dollars given the
revenues anticipated. However, it is unclear whether depositing
the revenues into a subaccount within the Air Pollution Control
Fund will cause a significant change to these accounting costs.