BILL ANALYSIS �
SB 1268
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: SB 1268
AUTHOR: Beall
AMENDED: April 22, 2014
FISCAL: Yes HEARING DATE: April 30, 2014
URGENCY: No CONSULTANT: Rebecca
Newhouse
SUBJECT : NATURAL RESOURCES CLIMATE IMPROVEMENT PROGRAM
SUMMARY :
Existing law :
1) Under the California Global Warming Solutions Act of 2006
(also known as AB 32), requires the California Air Resources
Board (ARB) to determine the 1990 statewide greenhouse gas
(GHG) emissions level and approve a statewide GHG emissions
limit that is equivalent to that level, to be achieved by
2020, and to adopt GHG emissions reductions measures by
regulation, and authorizes ARB to include the use of
market-based mechanisms to comply with these regulations
(Health and Safety Code �38500 et seq.).
2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the
State Treasury and requires all moneys, except for fines and
penalties, collected pursuant to a market-based mechanism be
deposited in the fund and requires the Department of
Finance, in consultation with the state board and any other
relevant state agency, to develop, as specified, a
three-year investment plan for the moneys deposited in the
Greenhouse Gas Reduction Fund (Government Code �16428.8).
3) Requires moneys from the GGRF be used to facilitate the
achievement of reductions of greenhouse gas emissions in
this state consistent with the California Global Warming
Solutions Act of 2006, and authorizes those funds to be
allocated for the purpose of reducing greenhouse gas
emissions in this state through investments that may include
funding to reduce greenhouse gas emissions associated with
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water use and supply, land and natural resource conservation
and management, forestry, and sustainable agriculture
(Health and Safety Code �39712).
4) Requires that the investment plan for the GGRF allocate at a
minimum, 25% of monies for projects that benefit
disadvantaged communities and 10% of the monies for projects
within disadvantaged communities.
5) Establishes the Strategic Growth Council (SGC), consisting
of the Director of State Planning and Research, the
Secretary of the Natural Resources Agency, the Secretary for
Environmental Protection, the Secretary of Transportation,
the Secretary of California Health and Human Services, the
Secretary of Business, Consumer Services, and Housing, the
Secretary of Food and Agriculture, and one member of the
public appointed by the Governor (Public Resources Code
�75121).
6) Requires the SGC to identify and review activities and
funding programs of member state agencies that may be
coordinated to improve air and water quality, improve
natural resource protection, increase the availability of
affordable housing, improve transportation, meet the state's
climate change mitigation goals, and encourage sustainable
land use planning (Public Resources Code �75125).
This bill :
1) Establishes the Natural Resources Climate Improvement
Program (Program) to be administrated by the ARB, in
coordination with the Natural Resources Agency, to develop
and implement natural resources projects that maximize GHG
emission reductions or sequestration, to be funded with
monies from the GGRF, upon appropriation by the Legislature.
2) Requires the ARB and the Natural Resources Agency to develop
guidelines for program implementation that are consistent
with AB 32 and existing requirements for GGRF monies, and
specifies various requirements for the guidelines that do
the following:
a) Promote projects protecting existing carbon sinks, or
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that assist with other climate-related projects in the
transportation and energy sectors and projects that
reduce extreme weather events.
b) Prioritize county or regional land use GHG emissions
reduction plans, including sustainable communities
strategy, local GHG emission reduction plans, local or
regional climate adaptation plan, or a natural community
conservation plan and a habitat conservation plan.
c) Promote the use of the best climate science and GHG
emissions reduction analytics, projects that include
cobenefits including state and federal air quality goals
and project consistency with the 2009 California
Adaptation Strategy and its most recent update.
d) Ensure projects maximize moneys appropriated, create
jobs and provide environmental benefits and provide for
public participation in the development and adoption of
any new grant programs.
3) Requires the Natural Resources Agency, in coordination with
the ARB, to inform the Strategic Growth Council on critical
issues related to climate change, inform the state
conservancies and the Wildlife Conservation Board (WCB) on
infrastructure projects that would impact project planning,
conduct climate research, promote implementation of the
state's climate adaptation strategy, and to provide
technical assistance grants to disadvantaged communities.
4) Requires the state conservancies and the WCB to identify,
develop, and implement specific projects consistent with the
developed guidelines including management and restoration,
research and development projects as well as incentives and
other measures, to reduce GHG emissions from, and preserve
or increase carbon sequestration of natural systems,
including forests, wetlands, sustainable agriculture and
urban forests.
5) Requires the state conservancies and WCB to give priority to
projects that demonstrate regional implementation, ability
to leverage additional public and private funding, potential
for cobenefits and ability to be replicated, and other
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specified characteristics.
COMMENTS :
1) Purpose of Bill . According to the author, "Smart, highly
leveraged investments of the state's cap and trade auction
revenue funds are needed to develop projects that maximize
reductions in greenhouse gas (GHG) emissions to ensure
California meets its climate goals set forth by AB 32.
"The overall reduction of GHG emissions needs to occur from
a variety of sectors, including transportation, energy,
water, and natural resources. California does not have an
existing program that prioritizes the reduction of GHG
reductions from natural resources projects.
"Recent science is showing that habitat and wetland
restoration, forest conservation, agricultural and
conservation easements and urban greening projects can
significantly assist in the effort to avoid, reduce or
sequester carbon if properly enhanced."
2) Cap and Trade Auction Revenue . The ARB has conducted six
auctions of GHG emission allowances so far. These auctions
have resulted in approximately $663 million in proceeds to
the state.
Several bills in 2012 provided legislative direction for the
expenditure of auction proceeds including SB 535 (de Le�n)
Chapter 830, Statutes of 2012, AB 1532 (J. Perez) Chapter
807, Statutes of 2012, and SB 1018 (Budget Committee)
Chapter 39, Statutes 2012.
SB 535 (de Le�n) requires that 25% of auction revenue be
used to benefit disadvantaged communities and requires that
10% of auction revenue be invested in disadvantaged
communities.
AB 1532 (J. Perez) directs the Department of Finance to
develop and periodically update a three-year investment plan
that identifies feasible and cost-effective GHG emission
reduction investments to be funded with cap-and-trade
auction revenues. AB 1532 specifies that reduction of
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greenhouse gas emissions through strategic planning and
development of sustainable infrastructure projects, are
eligible investments of GGRF.
SB 1018, Chapter 39, Statutes 2012, created the Greenhouse
Gas Reduction Fund (GGRF), into which all auction revenue is
to be deposited. The legislation requires that before
departments can spend monies from the GGRF, they must
prepare a record specifying: (1) how the expenditures will
be used, (2) how the expenditures will further the purposes
of AB 32, (3) how the expenditures will achieve GHG emission
reductions, (4) how the department considered other
non-GHG-related objectives, and (5) how the department will
document the results of the expenditures.
Legal Consideration of Cap-and-Trade Auction Revenues . The
2012-13 budget analysis of cap-and-trade auction revenue by
the Legislative Analyst's Office noted that, based on an
opinion from the Office of Legislative Counsel, the auction
revenues should be considered mitigation fee revenues, and
their use requires that a clear nexus exist between an
activity for which a mitigation fee is used and the adverse
effects related to the activity on which that fee is levied.
Therefore, in order for their use to be valid as mitigation
fees, revenues from the cap-and-trade auction must be used
to mitigate GHG emissions or the harms caused by GHG
emissions.
In 2012, the California Chamber of Commerce filed a lawsuit
against the ARB claiming that cap-and-trade auction revenues
constitute illegal tax revenue. In November 2013, the
superior court ruling declined to hold the auction a tax,
concluding that it's more akin to a regulatory fee.
AB 32 Auction Revenue Investment Plan . The first three-year
investment plan for cap-and-trade auction proceeds,
submitted by Department of Finance, in consultation with ARB
and other state agencies in May of last year, identified
sustainable communities and clean transportation as one of
the key sectors that provide the best opportunities for
achieving the legislative goals and supporting the purposes
of AB 32. The plan recommended the aforementioned sector
receive the largest allocation of funds from the GGRF. The
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other two areas recommended for auction revenue allocation
in the investment plan are energy efficiency and clean
energy, and natural resources and waste diversion.
3) Governor's Budget Proposal . The Governor's 2014-15 budget
proposal appropriates $850 million dollars in cap-and-trade
revenue to fund projects including rail modernization,
sustainable communities, low carbon transportation, water
and energy efficiency, watershed and wetlands restoration
and waste diversion. For the natural resources sector, the
proposal allocates $30 for the Department of Fish and
Wildlife to go to the Water Action Plan for wetlands and
watershed restoration and $50 to the Department of Forestry
and Fire for Fire Prevention and Urban Forestry projects.
4) Proposals to Expend Cap-and-Trade Auction Revenues . There
are a number of bills this session that propose to spend cap
and trade auction revenues for new or existing programs.
Concurrently, the Governor's budget proposal appropriates
$850 million auction revenues for various GHG emission
reduction programs in several agencies, and the Pro Tem has
released an alternate proposal on a long-range cap-and-trade
revenue investment plan. There will need to be coordination
among authors as these measures move forward so that these
proposals create a cohesive investment strategy for
maximizing GHG emission reductions and project cobenefits.
5) Climate Adaptation Versus GHG Emissions Reductions . As
discussed earlier, there are limitations on what
cap-and-trade auction revenues can be used for. Statute
requires moneys from the GGRF be used to facilitate the
achievement of reductions of greenhouse gas emissions in
this state consistent with California Global Warming
Solutions Act of 2006. It appears that some of the program
objectives of SB 1268 stray into areas of climate adaptation
and other climate areas that may be decoupled from
greenhouse gas reduction and carbon sequestration.
While climate resiliency and adaptation are critically
important to the state's future, more clarity on the bill's
guidelines and directives relating to climate adaptation are
needed to ensure that SB 1268 puts climate adaptation and
resiliency goals second to the primary purpose of money's
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from the fund: GHG emissions reductions.
In order to clearly specify climate adaptation and
resiliency as a cobenefit and not as a separate, fundable
program or project, several amendments are needed.
a) An amendment is needed to direct the guidelines
to promote investments in projects that include climate
adaptation or resiliency measures as a cobenefit.
b) SB 1268 requires the guidelines to promote
projects based on the potential to increase climate
benefits and reduce extreme weather events, including,
but not limited to, the risk of fire, flood, water
supply, sea-level rise and urban heat island effects
associated with climate change.
It is unclear whether the intent is to mitigate the
risk of these impacts (climate adaptation/resiliency
measures) or reduce the events all together. For the
former goal, climate adaptation and resiliency should
instead be included as a cobenefit (see (a) above).
For the latter, the stated goal of the program to
reduce GHG emission reductions would help reduce these
events, and thus makes this provision unnecessary.
An amendment is needed to strike this provision.
c) SB 1268 specifies that the guidelines developed
for the program prioritize county or regional land use
GHG emissions reduction plans, including sustainable
communities strategies, local GHG emission reduction
plans, local or regional climate adaptation plans, or
natural community conservation plans and habitat
conservation plans.
Climate adaptation plans as well as community and
habitat conservation plans may not necessarily include
plans to reduce GHG emissions.
An amendment is needed to specify that local or
regional climate adaption plans or natural community
and habitat conservation plans that are incorporated
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into a local or regional plan to reduce greenhouse gas
emissions or a sustainable communities strategy are
prioritized projects under the program.
d) The bill directs the Natural Resources Agency, in
coordination with the ARB to provide updates to the
Strategic Growth Council on climate change, notify
state conservancies and WCB on major infrastructure
projects that impact project planning and
implementation, promote state implementation of the
Climate Adaptation Strategy of 2009, and grants to
project applicants from disadvantaged communities.
An amendment is needed to clarify that those activities
facilitate the reduction of GHG emissions, in addition
to achieving specified goals or providing other
benefits.
1) Cap and Trade and Offsets . Beginning on January 1, 2013,
the cap-and-trade regulations set a firm, declining cap on
total GHG emissions from sources that make up approximately
85% of all statewide GHG emissions. Sources included under
the cap are termed "covered" entities. The cap is enforced
by requiring each covered entity to surrender one
"compliance instrument" for every metric ton of carbon
dioxide equivalent that it emits at the end of a compliance
period. Over time, the cap declines, resulting in GHG
emissions reductions.
Compliance instruments include allowances and offsets, where
allowances are generated by the state in an amount equal to
the cap, and offsets result from emissions reductions
achieved in an uncapped sector and are quantified and
verified using an ARB approved compliance offset protocol.
In the first compliance period, the capped sector includes
the electricity and industrial sectors. Uncapped sectors
throughout the course of the program include small
businesses, agriculture and forestry.
Under the cap-and-trade regulation, offsets may be used to
satisfy up to 8% of a covered entity's compliance
obligation. The inclusion of offsets in the cap-and-trade
program is designed to help reduce entities' compliance
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costs. To date, ARB has adopted protocols for the following
four project types: livestock manure management, ozone
depleting substances, urban forestry and U.S. forestry.
It is possible that projects funded through the Natural
Resources Climate Improvement Program created in SB 1268
could be developed by third parties as offset projects,
which could then be sold to covered entities to meet their
compliance obligation. Is it appropriate for the state to
subsidize offset development, where the amount of GHG
emissions reduced will simply be neutralized by GHG
emissions from covered entities that purchase the offsets,
and the offset proceeds are not directed back to the state?
An amendment is needed to require the guidelines for the
program prevent projects funded through the program from
selling their GHG emission reductions as offsets through the
cap-and-trade program.
2) Clarifying Amendments .
a) SB 1268 currently requires the Natural Resources
Agency to inform the state conservancies and the WCB on
major infrastructure projects that would impact project
planning and implementation.
An amendment is needed to clarify that these projects are
GHG reduction projects developed and implemented pursuant
to the Natural Resources Climate Improvement Program
created by this bill.
b) SB 1268 also specifies that guidelines must promote
innovative natural resources projects that protect
existing GHG emission sinks or assist with the
enhancement of other climate-related projects in the
transportation and energy sectors that can be replicated
regionally.
Because these guidelines are created by ARB and the
Natural Resources Agency, and the stated goal of the
program is to maximize GHG emissions reductions from the
natural resources sector, it may be appropriate to strike
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the language that extends the program into the
transportation and energy sectors.
c) SB 1268 currently requires the Natural Resources
Agency to provide updates to the SGC regarding climate
change, but does not specify an interval for these
updates. An amendment is needed to specify that these
updates should be provided annually.
d) SB 1268 currently requires the guidelines for the
program to maximize money appropriated. An amendment is
needed to clarify that the benefits provided through
program funding be maximized.
e) An amendment is needed to require the guidelines
ensure GHG emission reduction projects are chosen based
on a competitive process that considers GHG emission
reductions, as well as various project cobenefits.
3) Related Legislation .
a) AB 2348 (Stone) of 2014 contains similar language to
SB 1268. AB 2348 is in the Assembly Appropriations
Committee.
b) SB 1217 (Leno) of 2014 directs the Strategic Growth
Council to review the impacts of climate change in the
state to capital outlay and public infrastructure
projects. SB 1217 will be heard in the Senate
Environmental Quality Committee April 30th.
c) SB 511 (Lieu) of 2013 required the Secretary of the
Natural Resources Agency, in coordination, with the
California Air Resources Board, to develop guidelines and
award grants that enhance GHG avoidance and sequestration
associated with natural resources. This subject matter of
this bill was later amended.
SOURCE : Author
SUPPORT : Audubon California
The Big Sur Land Trust
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Bolsa Chica Land Trust
California Association of Local Conservation
Corps
California Association of Resource Conservation
Districts
Cauchuma Resource Conservation District
Land Trust of Santa Cruz County
Marin Agricultural Land Trust
Mountains Recreation and Conservation Authority
Peninsula Open Space Trust
Resource Conservation District of Santa Cruz
County
Rural County Representatives of California
Sonoma County Agricultural Preservation
and Open Space District
Tahoe Fund
OPPOSITION : California Chamber of Commerce
CalTax