Legislative Update:
Billions at Stake With Cap-and-Trade Bills Heading to the Governor

A number of bills that would determine how cap-and-trade revenue should be spent were sent to the governor last week, ending months of jockeying between environmentalists, local government and businesses all seeking to shape a new billion-dollar market.

Because regulatory agencies are prohibited by the state constitution from appropriating funds, the California Air Resources Board (CARB) had to seek legislative approval of how cap-and-trade funds may be spent. The bills seeking to use these funds for various purposes: AB 1186 (Skinner), AB 1532 (J. Pérez), AB 2404 (Fuentes), SB 535 (de León), and SB 1572 (Pavley).

The Legislature approved AB 1532 and SB 535. Last-minute amendments were approved that link the bills together, making each one's enactment contingent upon the other being signed into law.

AB 1532 was approved in the Assembly on a vote of 51-28, and in the Senate on a vote of 21-15. In a letter to lawmakers, CalTax wrote: "AB 1532 is a gross mischaracterization of the Sinclair decision and inconsistent with the constitutional definitions of taxes and fees."

SB 535, which calls for 25 percent of the cap-and-trade revenue to be allocated for low-income communities, was approved in the Assembly on a vote of 43-29, and in the Senate on a vote of 25-14. Assemblyman Curt Hagman opposed the bill, noting that there is no evidence that low-income communities would be harmed without the bill, and adding that the bill merely diverted a "pool of funds to spend on pet projects." Assemblyman Tim Donnelly said the state was confiscating money from industry and extorting food processors and manufacturers.

The Legislature also approved AB 1186, which would make it possible for cap-and-trade revenue to be used on energy-efficiency improvements at K-12 schools. The bill was approved in the Assembly on a vote of 47-27, and in the Senate on a vote of 21-18. Senator Rod Wright said the state was taking money from ratepayers, and that the bill will result in higher electricity rates. He said he is concerned that the bill acts as a "blank check."

With the launch of cap-and-trade in November, a multibillion-dollar carbon trading market will be created. The program, designed by CARB, is intended to achieve the goals of AB 32, the 2006 legislation that requires the state to reduce greenhouse gas emissions to 1990 levels by 2020. In 2012-13 alone, the cap-and-trade program is expected to generate $1 billion, half of which has been budgeted to offset general fund expenditures.

One of the bills earmarking cap-and-trade revenue failed to reach the governor. SB 1572, requiring cap-and-trade revenue obtained from the sale of allowances to the University of California or the California State University to be spent to reduce emissions within these higher education systems, cleared an Assembly committee the day before the session ended, but did not come up for a floor vote.

September 7, 2012
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