LAO report on use of cap-and-trade auction revenues

By CMTA Staff

Capitol Update, Feb. 17, 2012 Share this on FacebookTweet thisEmail this to a friend

The Legislative Analyst's Office issued a new report on the use of Cap-and-Trade auction revenues and the Governor’s budget proposal to use these revenues for various purposes, including offsetting up to $500 million in general fund costs for greenhouse gas mitigation activities, which the Legislative Counsel has opined would be a legal use of such revenues.   (CMTA believes that CARB does not have legal authority to auction allowances under the provisions of AB 32 and thus the use of the revenues for mitigation activities would also be illegal).  The LAO suggests that the Legislature take more time to determine the best use of Cap-and-Trade revenues. 

Selected highlights of the report include:

“Billions of dollars in revenues from the auction of allowances will likely become available as a result of ARB's cap–and–trade program. The amount of revenues could range greatly depending upon the cost of directly reducing GHG emissions, the state of the economy, and other factors. Using ARB's floor and ceiling prices for allowances, the actual cap–and–trade revenues from ARB's auctions for 2012–13 could range from roughly $660 million to upwards of approximately $3 billion.”

“Under the Governor's (budget) proposal, the Legislature would have little opportunity to review a detailed plan on the use of the auction revenues. This is because the Legislature would only be provided an expenditure plan and notification 30 days before the administration allocates the revenues to specific programs. Such an approach would make it difficult to ensure that the plan is aligned with legislative priorities. This is particularly concerning given that the particular uses of the auction revenues could impact—positively and negatively—the effectiveness and efficiency of the cap–and–trade program in meeting the goals of AB 32. Thus, we believe it is important that the Legislature have an opportunity to review and approve an annual expenditure plan regarding the allocation of cap–and–trade revenues.”

“…any use of revenues (whether to initiate new programs or offset the costs of existing programs) will be subject to the Sinclair nexus test and, thus, must be used to mitigate GHG emissions. Based on our preliminary analysis of GHG mitigation activities that are currently funded by the General Fund, we have identified only a handful of programs—totaling around $100 million—that could potentially meet the above legal requirements.”

“Given the state's fiscal condition, we believe that the Legislature should first use the revenues in 2012–13 to offset General Fund costs of existing programs designed to mitigate GHG emissions. Since the Legislature will need to decide which General Fund costs to offset as part of the 2012–13 budget process, such decisions are best made this spring. In addition, the Legislature will need to begin the process of determining how effectively to allocate the remaining auction revenues on new or expanded programs. However, these latter decisions, which require an array of information to make, do not need to be done as part of the 2012–13 budget process.”

Read more Energy articles

Capitol updates archive 989898989