Budget sub-committee ponders use of cap-and-trade revenues

By CMTA Staff

Capitol Update, March 2, 2012 Share this on FacebookTweet thisEmail this to a friend

The Assembly Budget Subcommittee 3 hosted an informational hearing on the potential use of revenues from the AB 32 Cap-and-Trade program due to begin January 2013. The California Air Resources Board (CARB) will hold the first auctions of allowances in August and November this year. The Governor’s proposed budget assumes $1 billion in auction revenue for the 2012-2013 budget year. He would use the revenue to offset $500 million of current general fund spending for environmental purposes, and the balance would fund new environmental programs. Under the terms of AB 32, fee revenues raised by CARB are subject to appropriation by the legislature.

Some legislators were hearing for the first time how Cap-and-Trade would operate, where the funds would be coming from, and the potential economic and environmental impacts of the program.  Many legislators were not in office at the time AB 32 passed in 2006 and have no first-hand knowledge of the bill and the assumptions that accompanied its passage.  In 2006 a healthy and growing economy with the promise of western region, or federal level cap-and-trade for greenhouse gas emissions was crucial for gaining support for and passage of AB 32.  Except for appropriation of administrative fee revenues to fund CARB operations, legislators have had no direct role in AB 32 implementation since the bill passed in 2006.

A huge challenge for legislators will stem from CARB’s failure to provide them reliable guidance on the potential economic impacts of auctions, the most appropriate use of the revenue to accomplish AB 32 purposes, and the legal foundation for conducting the auction to ensure litigation does not derail the program.   The job-killing potential of a large tax-like auction while no other state is involved with the program is obvious, yet CARB has not analyzed the leakage risks nor do they have a plan to mitigate this impact.  Despite repeated requests by industry groups to host workshops to determine the best use of revenues to maximize emission reductions and minimize leakage under AB 32, CARB has chosen so far not to offer needed guidance to the legislature.  Finally, the key AB 32 advisory committees each raised concerns about the legality of the auction, yet CARB did not follow up to confirm their authority with a legal opinion, nor did they ask the legislature to grant such authority.

During public comment CMTA urged lawmakers to take the time, which could take all year, to ensure that CARB is acting lawfully and to fully understand the economic and environmental implications of CARB’s Cap-and-Trade program.

Read more Energy articles

Capitol updates archive 989898989