California Air Resources Board:
Legislature Rejects Request for Audit of Questionable Regulatory Fee

As part of AB 32, the California Air Resources Board (CARB) has been collecting millions of dollars in administrative fees to implement the 2006 law. CalTax and others have filed public records requests asking CARB to document how these fees are being spent, yet little information has been provided to clear up the matter.

Senator Bob Dutton filed a request for the state auditor to look into the matter, stating: "If CARB has not been using appropriate financial accounting methods, recommendations from the State Auditor will be invaluable going forward in ensuring accountability and transparency."

On August 8, the Joint Legislative Audit Committee, which approves and rejects audit requests, denied Senator Dutton's request.

A letter submitted by CalTax, CalChamber, the California Manufacturers & Technology Association, the Western States Petroleum Association and others stated: "CARB has also steadfastly refused to release sufficient documentation to justify the fee based program, despite a request under the California Public Records Act to release records that would substantiate how $57 million in special funds (for the first two fiscal years) was spent." The letter concluded: "Perhaps most important, an audit is critical to establishing accountability, transparency, and credibility as CARB embarks on its effort to implement a complex, multi-billion dollar, greenhouse gas trading market … ."

The business community and Senator Dutton were not alone in asking the committee to approve an audit of CARB. During budget discussions, the Senate Budget Subcommittee on Resources and Environmental Protection unanimously recommended that CARB's fee-based programs be audited. Senator Dutton explained: "Significant questions were raised over the transparency, accountability and the lack of consultation by CARB on the implementation of the AB 32 program, which was authorized by the Legislature."

CARB Chairwoman Mary Nichols testified before the committee to defend the nature of the fee her agency has been collecting. She said CARB has provided the Legislature with "every bit of information we had in our possession." Ms. Nichols said the implementation process may have been difficult to follow for some lawmakers, and indicated that this may have been the reason for the audit request. She committed CARB to working with the Legislature to ensure that more information is available.

Senator Elaine Alquist said that when AB 32 was moving through the Legislature, she had the opportunity to support the bill on a number of occasions, and did. During the audit committee hearing, she reaffirmed her support for the state's global warming law, but said the audit request is a different issue, noted that CARB's transparency efforts "may not be enough," and questioned the agency's methodology.

In response, Ms. Nichols said CARB has done everything it can to ensure transparency. Ms. Nichols told Senator Alquist: "It's not a matter of what we're wanting to do, it's what we're willing to do and is what we will be doing."

In related news:

Regulators Prepare Launch of Cap-and-Trade Auctions. California's cap-and-trade market is being prepared for its first trial run later this month, in what the California Air Resources Board describes as a preliminary effort to test the auction platforms and computer systems. To participate in the August 30 practice auction, as many as 600 registered entities that are eligible for the pre-auction activities may register with CARB by the close of business today.

Unlike a typical auction house or Wall Street-style trading format, California's carbon market is expected to be uneventful, and has even been described by some as "the most boring auction format one could envision."

Beginning at 10 a.m. August 30, the market will open, and participants will have three hours to submit a bid. The reserve price for the bid will be set at $10. When the practice auction closes at 1 p.m., CARB says it will not disclose any information on the number of mock allowances that were won, the total cost, or settlement prices, because the agency wants to avoid confusion or market speculation. CARB also has told CalTax that such information will not be made available to the Department of Finance or the State Controller's Office for purposes of determining if general fund budget revenue projections will be affected by the price of cap-and-trade allowances.

August 10, 2012
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