BILL ANALYSIS �
SB 1572
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
SB 1572 (Pavley) - As Amended: June 25, 2012
SENATE VOTE : 23-13 (prior version)
SUBJECT : California Global Warming Solutions Act of 2006: AB
32 Investment Fund
SUMMARY : Specifies expenditures of up to $250 million in the
2012-13 fiscal year derived from the auction of greenhouse gas
(GHG) allowances pursuant to the cap-and-trade program adopted
by ARB pursuant to AB 32.
EXISTING LAW :
1)Requires ARB, pursuant to AB 32, to adopt a statewide 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)Creates the Greenhouse Gas Reduction Fund and requires all
moneys, except for fines and penalties, collected by ARB from
the auction or sale of allowances pursuant to a market-based
compliance mechanism to be deposited in the Fund and available
for appropriation by the Legislature.
4)Requires the Department of Finance (DOF) to submit proposed
legislation, on or before January 10, 2013, that provides a
detailed spending plan for moneys in the Fund, unless the
Legislature passes a bill on or before August 31, 2012 that
establishes a long-term spending strategy for moneys in the
Fund. Requires any state agency, prior to expending any
moneys appropriated from the Fund, to prepare a specified
record.
5)Authorizes the DOF to allocate or otherwise use an amount of
at least $500 million from moneys deposited in the Fund, and
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make commensurate reductions to General Fund expenditure
authority, to support the regulatory purposes of AB 32.
Requires ARB and DOF, at least 60 days prior to allocating any
funds to submit a plan for the expenditure or use of the funds
to the chairpersons of the Senate and Assembly Appropriations
Committees and the Chairperson of the Joint Legislative Budget
Committee. Prohibits the use of funds for the purpose of
developing a high-speed rail system for at least two years.
THIS BILL :
1)Creates the Greenhouse Gas Reduction Account and requires all
revenues, except for fines and penalties, collected by ARB
from the auction or sale of allowances pursuant to a
market-based compliance mechanism to be deposited in the
Account and available, upon appropriation by the Legislature,
for the purposes of this bill.
2)Requires, notwithstanding any other law, 50 percent of auction
revenues collected in the 2012-13 fiscal year, or $250
million, whichever is less, that are not used by DOF to offset
General Fund expenditures pursuant to the Budget Act, to be
available for priority projects listed in this bill.
3)Provides that any funds appropriated, but not allocated by the
administering agency by the end of the 2012-13 fiscal year,
revert back to the Account to be expended according to a
long-term expenditure plan in accordance with subsequent
legislation.
4)Provides that no funds will be expended pursuant to this bill
if the total auction revenues in the 2012-13 fiscal year are
less than $550 million.
5)Requires projects funded by the bill to comply with the
following criteria:
a) Achieve greenhouse gas emissions reductions at a
reasonable cost.
b) Rapidly achieve budgetary savings for families, small
businesses, schools, universities, companies regulated
under the cap-and-trade program, community institutions,
and state, local, and regional governments.
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c) Advance the purposes of the cap-and-trade program, in
particular the purpose of the auction to reduce the risk of
market manipulation and windfall profits.
d) Protect existing jobs in the state by minimizing
leakage.
e) Benefit the most adversely impacted and disadvantaged
communities to the maximum extent feasible.
f) Provide opportunities, where appropriate, for small
businesses, schools, local governments, not-for-profit
entities, state and local certified conservation corps,
state conservancies, and other community institutions to
participate in and benefit from statewide and regional
efforts to reduce greenhouse gas emissions.
6)Requires allocation of funds according to the following
categories:
a) K-12 energy projects - The greater of 35.6 percent or
$89 million to the Public School Energy Savings Account.
i) 56.25 percent shall be available as loans to public
schools at a 2 percent interest rate and a 20-year term.
ii) 18.75 percent shall be available as loans at a 1
percent interest rate and a 20-year term to public
schools with 35 percent or greater proportion of students
with free and reduced lunches.
iii) 25 percent shall be available as grants to
qualifying public schools, using an existing program
within the jurisdiction of the California Energy
Commission (CEC), including the Bright Schools Program,
or in collaboration with the Office of Public School
Construction, through either the new construction or
modernization programs of the School Facility Program.
b) Public university projects - The greater of 8 percent or
$20 million to the Higher Education Climate Solutions Fund
for allocation to public university governing boards for
GHG reduction projects and activities at public
universities regulated under the cap-and-trade program,
including, but not limited to, the following projects and
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activities:
i) Energy efficiency upgrades that reduce electricity
and natural gas consumption at university-controlled
facilities.
ii) Procurement of biomethane or biogas that displaces
natural gas usage at university facilities.
iii) Procurement of carbon-neutral electricity that
displaces conventional electricity generation at
university facilities.
iv) Administrative costs not to exceed 1 percent.
In order to be eligible for funds from the Higher Education
Climate Solutions Fund, a public university shall:
i) Agree to make an additional investment in GHG
abatement projects and activities, equal in value to 25
percent of the funds it receives.
ii) Submit to the Legislature a five-year investment
plan detailing the projects and activities to be funded
with an anticipated allocation.
iii) Submit an annual report to the Legislature
describing the disposition of funds received in the
previous calendar year and the planned expenditures for
allowance revenue in the coming calendar year.
c) Rapid transition assistance for industrial facilities -
The greater of 12 percent, or $30 million to the Public
Utilities Commission (PUC) to carry out the self-generation
incentive program, subject to the following limitations:
i) Incentives shall only be available to covered
entities under the cap-and-trade program.
ii) The PUC shall not award incentives for emissions
reduction measures that are otherwise specifically
required by statute, regulation, or court order.
d) Residential energy efficiency - The greater of 4 percent
or $10 million to the Department of Community Services and
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Development for expenditure pursuant to the Weatherization
Assistance Program. The Department shall expend at least
50 percent within multi-family rental housing developments
subject to specified affordability restrictions.
e) Energy in agriculture priority projects - The greater of
1.6 percent or $4 million to the CEC for expenditure in
accordance with the Agricultural Industry Energy Program,
including the adoption of renewable energy and
energy-efficient technologies and management practices that
reduce GHG emissions, energy and water use, production
costs, and minimize negative environmental impacts while
improving economic sustainability.
f) Sustainable land use and transportation - The greater of
20 percent or $30 million to the Strategic Growth Council
(SGC) for allocation to metropolitan planning
organizations, or, within the Southern California
Association of Governments region, to a county
transportation commission, or to other local governmental
entities in regions not within a metropolitan planning
organization, that further the purposes of specified
regional planning processes.
i) Project funding determinations shall be made at the
regional level in accordance with statewide criteria
developed by the SGC that prioritize investments in
projects that:
(1) Cost-effectively reduce GHG emissions and
provide other co-benefits.
(2) Integrate transportation, land use, and water
and other resource conservation strategies.
(3) Occur in regions with sustainable community
strategies that meet GHG emission reduction targets,
or in other regions, for equivalent blueprint plans or
other regional plans.
ii) Funds allocated by the SGC may be used for
integrated infrastructure development, design,
construction, or planning, including modeling and
verification systems that impose GHG emission reduction
performance measurement tools for local and regional
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actions, and operation and maintenance of transportation
infrastructure, provided that the integrated
infrastructure development, design, construction, or
planning or operation and maintenance measures are part
of a comprehensive regional or local plan that directly
results in overall GHG emission reduction and
co-benefits.
iii) Of funds available to the SGC, 40 percent shall be
available to the Department of Housing and Community
Development to be expended for loans for specified
affordable transit-oriented housing.
g) Goods movement - The greater of 4.8 percent or $12
million to ARB for goods movement consistent with the goods
movement efficiency measures included in the AB 32 Scoping
Plan.
h) Lower-Emission School Bus Program - The greater of 2
percent or $5 million to ARB for the Lower-Emission School
Bus Program.
i) Clean Vehicle Rebate Project - The greater of 12 percent
or $30 million dollars to ARB for the Clean Vehicle Rebate
Project. Rebates shall only be available to households
with a combined gross annual income of less than $80,000
per year, and only one rebate shall be available per
qualifying household.
7)Requires agencies awarding funds to find that the project or
activity reduces GHG emissions in furtherance of AB 32 and to
submit quarterly reports to the Legislature with specified
information about funded projects and activities.
8)Provides that the provisions of the bill are severable.
9)Establishes related findings regarding ARB's cap-and-trade
program.
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
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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 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.
The cap-and-trade program adopted by ARB 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.
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 (IOU) 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, although the recently-enacted Resources Trailer Bill
(SB 1018) requires the revenues to be credited directly to
residential, small business, and emissions-intensive
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trade-exposed IOU customers, except for 15 percent that may be
allocated for IOU-administered clean energy and energy
efficiency projects.
1)Related budget actions and pending legislation. As noted
above, the 2012-13 Budget Act (AB 1464) authorizes DOF to
allocate at least $500 million from cap-and-trade revenue, and
make commensurate reductions to General Fund expenditure
authority, to support the regulatory purposes of AB 32.
The Resources Budget Trailer Bill (SB 1018) creates the
Greenhouse Gas Reduction Fund for cap-and-trade auction
revenues and requires DOF to submit proposed legislation, on
or before January 10, 2013, that provides a detailed spending
plan for moneys in the Fund, unless the Legislature passes a
bill on or before August 31, 2012 that establishes a long-term
spending strategy for moneys in the Fund.
Finally, AB 1532 (John A. P�rez) creates the Greenhouse Gas
Reduction Account for cap-and-trade auction revenues and
establishes procedures for deposit and expenditure of funds
pursuant to an investment plan. This bill conflicts with the
budget actions and AB 1532 in that it creates a duplicative
"Greenhouse Gas Reduction Account" which captures all
cap-and-trade revenues for the purposes of the bill.
The author and the committee may wish to consider amending
this bill to create a different account for the limited,
short-term purposes of the bill.
2)Allocation funds may leave some priorities out. Though the
very specific allocations in this bill suggest great
precision, it is unclear how well the priorities embodied in
this bill align with short-term GHG reductions, funding need,
and the ability to spend the money effectively.
The feedback received by the committee in the short time the
bill has been in print suggests there are many other programs
to consider for funding. It is evident that a significant
category in the discussion surrounding the budget and AB 1532,
natural resource protection, has been left out entirely.
There are also programs of questionable need and /or merit
that are included in the bill. For example, the PUC's
self-generation incentive program is adequately funded by
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utility ratepayers, has a specific statutory funding cap and
sunset, and does not have a record of producing verifiable GHG
reductions.
The author and the committee may wish to consider whether the
specific allocations in the bill are justified and whether
there are other categories and programs that should be
included.
REGISTERED SUPPORT / OPPOSITION :
Support
American Lung Association
California Energy Efficiency Industry Council
Coalition for Adequate School Housing
County School Facilities Consortium
Santa Clara County Open Space Authority
School Energy Coalition
University of California
Opposition
American Council of Engineering Companies
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 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 Exchanges
Marin Builders' Association
National Federation of Independent Business
United Contractors
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Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092