Cap-and-trade fund grows to $1B; groups say it could reach $2B 

Source: Anne C. Mulkern, E&E reporter • Posted: Tuesday, January 13, 2015

California will spend $1 billion to combat climate change under a new budget proposal from Gov. Jerry Brown. But some argue it will reach $2 billion.

The money in the Democrat’s draft fiscal 2015-16 budget comes from the state’s cap-and-trade program for carbon emissions, which requires some businesses to account for their greenhouse gas pollution. They buy allowances at auction, with the funds going into California’s coffers.

Cap and trade expanded Jan. 1 to include motor fuels, with distributors of gasoline and diesel now obligated to submit allowances covering all in-state sales. Those are estimated at some 17 billion gallons annually.

Advocates for disadvantaged communities said that will mean twice as many allowances will be up for sale at cap-and-trade auctions. The state in fiscal 2015-16 should take in about $2 billion, not the $1 billion Brown has budgeted, said Bill Magavern, policy director for the Coalition for Clean Air. His group and a few others want a good portion of those funds going to help lower-income residents.

“The $1 billion figure, although it is admittedly a lot of money, is actually well short of what will be coming into the fund,” Magavern said. “The administration is being very cautious.”

Officials with the state’s Air Resources Board (ARB), which implements cap and trade, as well as the California EPA, said that the state can’t plan for $2 billion because it doesn’t know what the auctions will generate.

“The budget number may or may not be conservative,” said ARB spokesman Dave Clegern. “ARB doesn’t project proceeds for several reasons, but two of the biggest are pretty simple: We cannot guarantee the settlement price of an allowance, and we cannot guarantee a sellout at any auction.”

He said groups like those in the coalition representing disadvantaged communities calculate their higher cap-and-trade revenue figures “generally based on two things,” the estimated budget of state-owned allowances and “a number of their own choosing.”

“That’s a way to come up with a total, but we won’t support it, because it assumes no variables, and there are variables,” Clegern said.

Alex Barnum, a Cal EPA spokesman, said in an email that “the point is that no one knows what the actual proceeds will be in FY 2015-16, and we are not doing ‘revenue estimates.'”

He noted that if cap-and-trade revenues come in at above the $1 billion in the budget, 60 percent of the increase automatically would go to “many of these programs, such as state transit assistance and affordable housing and sustainable communities. Nothing else will need to be done for those programs.”

Money allocated in 60-40 split

That was part of a deal struck last year between the Legislature and Brown, who wanted to secure funding for the state’s beleaguered high-speed rail project. That bullet train is estimated at $68 billion to connect Los Angeles and San Francisco. The state had just $9.95 billion that voters approved in 2008 under Proposition 1A.

Under the budget deal, 60 percent of the cap-and-trade money will be automatically allocated to specific programs, including the bullet train, affordable housing near transit, inner-city rail programs and low-carbon transit operations.

The Legislature will decide where the other 40 percent will go, though programs must meet the goals of the state’s climate law. Under S.B. 535, passed in 2012, one-fourth of all of the cap-and-trade funds must be spent for the benefit of disadvantaged communities, with 10 percent directly helping those residents.

Magavern and representatives of other groups working for disadvantaged communities said Friday that in general, they were pleased with Brown’s proposed budget. But they argued that more funds should go to help people who frequently live downwind of oil refineries and other sources of pollution.

One program that would help those people is an effort to convert diesel trucks at the ports to electric or fuel-cell electric, Magavern said.

“The health impacts of that diesel pollution often are acute,” Magavern said.

There also should be more available for the clean vehicle rebate program, he said. That gives motorists cash incentives to buy eligible cars that have low or zero tailpipe emissions. The program has come close to running out of funds because of its popularity. For this year, it’s receiving $200 million, Magavern said. His group argues that it should be increased to $350 million in fiscal 2015-16.

“We can’t just fund that program at current levels, or there won’t be enough to go around,” Magavern said.

Another program worthy of more money is one that plants trees in disadvantaged communities, said Alvaro Sanchez, program manager of the environment equity team at the Greenlining Institute. That effort both reduces greenhouse gases and provides jobs, he said.

The state agrees that spending cap-and-trade revenues to help disadvantaged communities is a priority, said Barnum with Cal EPA.

“We’ve always said that we view the 25 percent to benefit disadvantaged communities under SB 535 as a floor, and we fully intend to exceed it,” Barnum said. “Currently, ARB’s estimate for the proportion of FY 2014-15 funds that will benefit disadvantaged communities is about 32 percent.”