Billions in auction revenue up for grabsJune 1, 2012
The cap and trade regulation adopted by California Air Resources Board in December 2011 will create pots of money now attracting a long line of interest groups requesting funds for their favorite projects. CMTA believes AB 32 does not give the California Air Resources Board authority to withhold and sell allowances to create this revenue, yet the first auction is scheduled to take place in November this year. The first year emissions will be regulated is 2013.
The CARB plan will raise tens of billions of dollars between now and 2020 to be appropriated by the legislature. On May 24 the CARB hosted a “public consultation” meeting to hear how the funds could be used for “transformative” purposes and to discuss what criteria should apply to determine priorities. Panelists offered ideas to use funds for transportation, to address local environmental problems, support job creation for small business and disadvantaged communities, and much more. CMTA suggested that CARB first determine that a need for revenue exists, noting that free allowances would accomplish the goals of AB 32 and minimize costs to regulated parties. Some participants believe the auctions are legal, yet warned that the funds must be used to achieve AB 32 goals and litigation risks should be minimized by carefully allocating the funds.
Legislation to govern the process for distributing revenues passed out of both houses this week. AB 1532 (Perez) and SB 1572 (Pavley) create accounts out of which projects that meet the requirements of “Sinclair” would be funded. Under the Sinclair rule, regulatory fees must be used only for purposes with a nexus to the fee payer and the harm being addressed. It is argued that Proposition 26, which significantly narrows the definition of a fee, does not apply in this situation because AB 32 passed prior to Prop 26. Using funds to reduce greenhouse gases is considered a legal use of revenues under a Sinclair analysis. The Governor proposes to use $500 million to offset general fund spending for greenhouse gas emission reduction purposes. He also suggests that High Speed Rail is a legitimate use of cap and trade revenues.
Another pot of money will be managed by the CPUC. Revenues from the sale of allowances to electric generators will be used for the benefit of ratepayers, to offset higher prices of power, fund energy efficiency, or other projects to be determined by the CPUC. A proposed decision is expected in June. AB 1186 (Skinner) was amended May 22 to require that an unspecified percentage of this revenue must be available to schools for cost-effective school energy improvements. CMTA is concerned that commercial and industrial customers will not receive their fair share of revenues, thus allowing the higher wholesale prices for power to flow through into rates with little or no mitigation.
It is worthwhile to remember that cap and trade revenues are on top of billions of dollars that have been and are still being collected through charges on electric and natural gas bills to fund energy efficiency, renewables, low income support, etc. This profusion of programs has prompted the Senate budget subcommittee 2 to adopt budget bill language to require the Legislative Analyst to develop a report listing all energy-efficiency, climate change and AB 32-related activities in state government including their funding sources, and include a preliminary assessment of priority, overlap and redundancy. The report shall be submitted to the relevant Policy Committees and Joint Legislative Budget Committee by January 1, 2013.
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