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Cap and Trade roundup: debate over revenues continues

Martha Bridegam on
Mar 25, 2014

With $1.54 billion already spent on California carbon emission rights, debate continues on whether the state's cap-and-trade auction process is valid and what the auction proceeds are for.

The Legislative Analyst's Office (LAO) has repeatedly questioned Gov. Jerry Brown's proposed uses for an expected $850 million in annual revenue from cap-and-trade auctions of greenhouse gas (GHG) emission allowances. While Brown's proposals do support projects related to air quality, LAO has asked if they will achieve the best GHG reductions available for the money. LAO lays out and critiques Brown's proposals in a February 24 report at http://www.lao.ca.gov/Publications/Detail/2953. It urges the Legislature to have the Air Resources Board set standards for state departments to use in deciding what programs would reduce GHGs most effectively.

Of interest to local planners is that, per the February 24 report, Governor Brown's proposals would include $100 million in each of the next two fiscal years to support transit-oriented development programs related to SB 375 compliance, to be administered by the Strategic Growth Council, including possibly for grants to local governments' projects. These funds would replace the funds previously provided by Proposition 84, which will run out after this year.

The LAO has been chivvying Brown on his proposed uses cap-and-trade proceeds since January, especially on his proposal to spend up to one-third of each year's proceeds on high-speed rail construction. LAO's January 13 report on the budget proposal at http://lao.ca.gov/reports/2014/budget/overview/budget-overview-2014.aspx called the use for high-speed rail "legally risky". As the Sacramento Bee noted at http://bit.ly/1cvGNuc, the Feb. 24 LAO report said high-speed rail construction "would actually generate GHG emissions of 30,000 metric tons over the next several years." Similar objections appear in a March 6 transportation report at http://www.lao.ca.gov/Publications/Detail/2966.

Brown's proposals have drawn mixed reviews from others too, as discussed in StreetsblogLA at http://bit.ly/1gGYkA8 and the LA Times at http://lat.ms/1g9dJyA.

Per the LAO, the Governor's budget proposal would divide cap-and-trade money among 23 program components run by 11 departments and boards. The High-Speed Rail Authority would get $250 million in the coming fiscal year, and then 33% of all cap-and-trade revenue from 2015-2016 on. The Air Resources Board would get funding to administer the cap-and-trade program itself plus $200 million in each of the next two years for clean transportation. As noted, there would be the $100 million in each of two years for the SB 375 programs. Other recipients would include low-income weatherization, upgrades to Caltrans and state buildings, waste emission reduction and recycling, water conservation, State Water Project generator efficiency, wildfire prevention and watershed restoration. Out of $500 million borrowed from past cap-and-trade income by the General Fund, the budget would pay back $100 million in the coming year.

The report suggested these activities might not reduce GHGs optimally, or if they did, it might be through "activities that would have happened on the natural (meaning without the support of cap-and-trade auction revenues)." Instead, it urged using cap-and-trade income for ending the separate $40 million "Cost of Implementation" charge to polluters or funding energy storage efficiency, carbon sequestration or alternative fuels.

The State Senate's Standing Committee on Budget and Fiscal Review discussed the Governor's proposals for the revenue February 13. Materials are at http://bit.ly/1f0KfxV. On March 19 the Assembly Budget Subcommittee on Resources and Transportation heard testimony on the Governor's proposals for the revenue. The Sacramento Bee's Dan Morain wrote up the appearance at this second hearing of "45 smart lobbyists and consultants" who each had ideas about how to spend the money. http://bit.ly/1gkVBRv.

Steinberg's carbon tax proposal: rhetoric or literal legislation?

State Senate president pro tem Darrell Steinberg has commented on Brown's proposals indirectly with a carbon tax proposal that, as the Mercury News commented at http://bit.ly/1dcbPx2, may be more rhetorical than legislative. Saying, "My attempt here is to stoke a debate," Steinberg proposed replacing the transportation fuels portion of the cap-and-trade system, which is expected to raise the cost of gas in 2015, with a carbon tax starting around 15 cents per gallon of fuel, rising in future years. His proposal would transfer most of the proceeds to households with incomes below $75,000 through a state earned-income tax credit, and would spend the rest on transit. Steinberg's initial statements on the tax are at http://bit.ly/1gEfKSl. The LA Times has more at http://lat.ms/1kZHUYG and http://lat.ms/1l1JGeD. Steinberg introduced a vaguely phrased version of the proposal as SB 1156: see http://bit.ly/1gMpJ4b.

Auctions continue alongside litigation to stop them

As of the most recent auction in February, which sold nearly $330 million in carbon permits, the Sacramento Bee reports at http://bit.ly/1hQg8Lz that California companies have spent $1.54 billion on greenhouse gas emission rights so far. The ongoing ARB auction page is at http://www.arb.ca.gov/cc/capandtrade/auction/auction.htm. However, the legality of the auctions themselves is still at issue. Chamber of Commerce official Loren Kaye noted in a blog post at http://bit.ly/1jiR68Z that notices of appeal are on file in California Chamber of Commerce v. California Air Resources Board, a Sacramento Superior Court case that upheld the existing auction system last year. The decision and pleadings are at https://services.saccourt.ca.gov/publicdms/Search.aspx under case number 34-2012-80001313.