Amended in Senate August 4, 2014

Amended in Senate July 3, 2014

Amended in Senate August 12, 2013

Amended in Assembly May 24, 2013

Amended in Assembly April 4, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 985

Introduced by Assembly Member Cooley

February 22, 2013

An act to add Section 38575 to the Health and Safety Code, relating to greenhouse gases begin insert , and declaring the urgency thereof, to take effect immediately end insert .

LEGISLATIVE COUNSEL’S DIGEST

AB 985, as amended, Cooley. California Global Warming Solutions Act of 2006: market-based compliance mechanisms.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020, and to adopt rules and regulations in an open public process to achieve the maximum, technologically feasible, and cost-effective greenhouse gas emissions reductions. The act authorizes the state board to include the use of market-based compliance mechanisms.

This bill would require the state board, for any market-based compliance mechanism that the state board might adopt, to allow participating entities to freely sell or transfer greenhouse gas emissions allowances held in a holding account, as defined, or compliance account, as defined, except for allowances that have been expressly retired to meet a compliance obligation, as defined. The bill also would require the state board to require those participating entities to disclose only corporate associations, direct corporate associations, and indirect corporate associations with entities registered with the state board as part of a market-based compliance mechanism and to exclude legal services, as specified, obtained by a participating entity from being disclosed to the state board. The bill would exempt from the Administrative Procedure Act and the California Environmental Quality Act a regulation adopted by the state board pursuant to this act.

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This bill would declare that it is to take effect immediately as an urgency statute.

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Vote:  begin delete majority end delete begin insert ²⁄₃ end insert . Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) The California Global Warming Solutions Act of 2006
(Division 25.5 (commencing with Section 38500) of the Health
and Safety Code) was adopted to create limitations on the carbon
emissions associated with the state’s economy. Section 38560 of
the Health and Safety Code charges the State Air Resources Board
with the duty of adopting rules and regulations “to achieve the
maximum technologically feasible and cost-effective greenhouse
gas emissions reductions from sources or categories of sources.”

(b) One measure that the state board has implemented in
furtherance of the act is a market-based compliance mechanism.

(c) For a market-based compliance mechanism to operate
effectively and allow entities begin delete covered by end delete begin insert participating in end insert the
market-based compliance mechanism the efficiency and flexibility
to achieve emissions reductions at the lowest possible cost, the
market for emissions allowances must promote liquidity while
also preventing market manipulation.

(d) As part of the market-based compliance mechanism, the
state board has adopted a holding limit, placing a limitation on the
total number of allowances that any entity participating in the
program can hold at one time, subject to certain exceptions. The
current holding limit could adversely affect the liquidity and
efficiency of the emissions allowance market in that the holding
limit functions to require some entities begin delete covered by end delete begin insert participating
in end insert the market-based compliance mechanism to surrender
instruments for compliance prior to established regulatory
compliance deadlines, creating artificial scarcity in the market.

(e) Revising the holding limit to permit entities begin delete covered by end delete
begin insert participating in end insert the market-based compliance mechanism to freely
transfer allowances from a compliance and holding account to
meet their obligations under the market-based compliance
mechanism will promote market efficiency and fairness while
maintaining the state board’s ability to preserve market integrity
and prevent market manipulation.

(f) The state board also requires disclosure of a participating
entity’s affiliation with other entities. As currently structured, the
state board requires that participating entities to disclose all of
their corporate associates, as defined by the state board, regardless
of whether those corporate associates are enrolled in the
market-based compliance mechanism. The Legislature finds that
this expanded requirement is overly broad, unduly burdensome,
and not reasonably necessary to ensure the integrity of the market
for emissions allowances.

(g) The state board also requires disclosure of consultants or
advisors, as defined by the state board. The Legislature finds that
all entities in the state have a right to consult outside legal counsel
confidentially, and any requirements to disclose this consultation
may put the confidentiality of that consultation at risk and will not
promote the purpose of the begin delete act end delete begin insert California Global Warming
Solutions Act of 2006 (Division 25.5 (commencing with Section
38500) of the Health and Safety Code) end insert or the market-based
compliance mechanism.

SEC. 2.  

Section 38575 is added to the Health and Safety Code,
to read:

38575.  

(a) Any market-based compliance mechanism that the
state board might adopt pursuant to this part shall provide for all
of the following:

(1) (A) Participating entities may freely sell or transfer
greenhouse gas emissions allowances held in a holding account
or compliance account, except for allowances that have been
expressly retired to meet a compliance obligation. This paragraph
also applies to allowances held jointly by a group of entities with
a direct corporate association.

(B) For purposes of this paragraph, the following terms have
the following meanings:

(i) “Compliance account” means an account created by the state
board for an entity participating in a market-based compliance
mechanism and that has a compliance begin delete obligation, end delete begin insert obligation end insert to
which the entity transfers allowances and offsets to meet its
compliance obligations.

(ii) “Compliance obligation” means the quantity of verified
reported greenhouse gas emissions or assigned greenhouse gas
emissions for which an entity participating in a market-based
compliance mechanism is required to submit compliance
instruments to the state board.

(iii) “Holding account” means an account created for each entity
participating in a market-based compliance mechanism, or a
voluntarily associated entity, to hold allowances or offsets.

(iv) “Offset” means a greenhouse gas emissions reduction or
greenhouse gas emissions removal enhancement verified by the
state board that may be used by an entity participating in a
market-based compliance mechanism to satisfy a compliance
obligation.

(2) Participating entities shall disclose only corporate
associations, direct corporate associations, and indirect corporate
associations with entities registered with the state board as part of
a market-based compliance mechanism.

(3) Participating entities shall not disclose legal services, or the
names of any persons providing legal services, obtained by
participating entities.

(b) No later than June 30, 2015, the state board shall promulgate
a regulation conforming to the requirements of this section. A
regulation adopted pursuant to this section shall be exempt from
the Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code) and the California Environmental Quality Act (Division 13
(commencing with Section 21000) of the Public Resources Code).

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begin insert SEC. 3. end insert   

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This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

end insert begin insert

To address 2014 compliance deadlines imposed by the State Air
Resources Board pursuant to the California Global Warming
Solutions Act of 2006 (Division 25.5 (commencing with Section
38500) of the Health and Safety Code), it is necessary for this act
to take effect immediately.

end insert