Gov. Brown, lawmakers strike deal on cap-and-trade spending

Source: Anne C. Mulkern, E&E reporter • Posted: Wednesday, September 7, 2016

California will spend $900 million in revenues raised by its cap-and-trade program for carbon emissions and hold back $462 million for later under a deal reached yesterday by Gov. Jerry Brown (D) and Senate and Assembly leaders.

Funds will go to local transit and rail; rebates for electric and other clean cars; efforts attacking short-lived climate pollutants; paying for solar, insulation and other energy upgrades on homes of low-income residents; and adding green spaces to low-income neighborhoods.

The amount is $300 million less than the $1.2 billion the Senate sought to spend in a plan unveiled last week. But Brown and Assembly Speaker Anthony Rendon (D) wanted to keep more money in reserves.

“California’s combatting climate change on all fronts and this plan gets us the most bang for the buck,” Brown said in a statement. “It directs hundreds of millions where it’s needed most — to help disadvantaged communities, curb dangerous super pollutants and cut petroleum use — while saving some for the future.”

The Legislature controls 40 percent of the funds generated by the economywide cap-and-trade program, and Brown spends the other 60 percent through his budgets. That stems from a pact the governor and legislative leaders reached in 2013. Political battles over the money have kept the Legislature’s dollars largely unspent until now.

The Golden State’s carbon trading system auctions pollution allowances to businesses with the highest greenhouse gas emissions. Those permits went for $12.73 per carbon ton in the latest auction earlier this month. Auctions had reaped nearly $4 billion for California through February, the latest time frame available. That amount doesn’t include the portion that is controlled by the California Public Utilities Commission and returned to utility ratepayers.

But there have also been concerns about cap and trade as a future revenue source. There was low bidder interest in the last two auctions for carbon allowances. Some blamed concerns about the program’s future stability. A pending lawsuit claims the cap-and-trade program is a tax that needed to be approved by a two-thirds vote of the Legislature under state law.

And the 2006 climate law, A.B. 32, which allowed the Air Resources Board (ARB) to set up cap and trade, expires in 2020. The Legislature just passed S.B. 32, which extended carbon cuts to 40 percent below 1990 emissions levels by 2030. But the measure does not specifically mention cap and trade.

The mid-August joint cap-and-trade auction with the Canadian province of Quebec saw 37 percent of available allowances sold. It generated $8.4 million for the state, far less than the $564 million a sold-out auction would have produced. So far this year, the state has seen more than $1 billion in unsold allowances (ClimateWire, Aug. 24).

The spending plan announced yesterday is for fiscal 2016-17 and spends proceeds from auctions in earlier years. It’s unclear how much cap and trade will generate for fiscal 2017-18.

“So rather than hit a kind of fiscal cliff, they’d like to have at least some for next year, even in the worst-case scenario for the auction,” said Bill Magavern, policy director for the Coalition for Clean Air.

“We always knew that the Senate plan was going to be the high-water mark and that the Assembly and the governor wanted to spend less money,” he added. “On the whole, we think it’s a very good plan. Obviously, we all wish there were more money, but given the circumstances, this is a very good plan.”

Some Republicans and business groups have been critical of spending the funds before the lawsuit on the legality of cap and trade is resolved.

Money for clean vehicles

Under the new agreement, the largest individual amount, $150 million, will go to programs aimed at replacing gas- and diesel-powered heavy-duty vehicles and off-road equipment. ARB has a few efforts that target that goal, Magavern said. One puts zero-emissions trucks at locations that include ports and freight centers and gives transit agencies battery electric and fuel-cell buses. Those would be deployed mostly in low-income communities, he said.

Roughly half the diesel particulate matter emissions, almost half the nitrogen oxides pollution and about 6 percent of greenhouse gas emissions in the state come from the freight sector, Magavern said.

To meet the state’s climate and air goals, “we need to clean up the freight sector,” he said.

About $140 million of cap-and-trade funds will go for a new program called “transformative climate communities.” Neighborhood groups with plans that package housing with renewable energy, green improvements to streets and other actions could apply for the funds. Little Tokyo in Los Angeles, for example, has been working on such a comprehensive program.

The effort would be run by the state’s Strategic Growth Council, which already distributes the funds for sustainable housing near transit, given under the 60 percent of the proceeds that Brown controls.

Another $133 million will help fund the Clean Vehicle Rebate Project. It gives residents rebates for buying electric and other zero-emissions vehicles. ARB runs that effort.

The deal allots $135 million for transit and intercity rail, which also receives dollars through the 60 percent of the proceeds that Brown includes in his budgets. Earlier this month, the state Transportation Department announced recipients for $390 million in that category. The money funded improvements allowing for more frequent and faster trains in cities, and in one case a new, zero-emissions streetcar line (ClimateWire, Aug. 17).

An “urban greening” program will get $80 million. It aims to put green spaces in communities where they are lacking. There already is a program funded by cap-and-trade proceeds that puts trees in neighborhoods, but this one would not be limited to trees. There could be “green alleys,” where a company would carve out pavement and add green space, advocates said.

Other money designated: $50 million to reduce methane emissions from dairy and livestock operations, $40 million for forestry and fire protection, and $20 million to add solar and other renewable power and for insulation and other upgrades in homes of low-income residents.