Interests line up to spend cap-and-trade fund that could top $2.3B 

Source: Anne C. Mulkern, E&E reporter • Posted: Thursday, January 15, 2015

California’s cap-and-trade program to cut carbon emissions should bring in more than $2.3 billion in the next fiscal year, not just the $1 billion that Gov. Jerry Brown budgeted, the state’s spending watchdog said yesterday.

California’s Legislative Analyst’s Office reviewed the Democratic governor’s proposed spending plan for fiscal 2015-16. The LAO stipulated that revenue from cap and trade is “subject to substantial uncertainty.” It depends on how many allowances the state sells and their price at auction. Businesses buy those permits to cover their greenhouse gas pollution.

There will be double the allowances sold this year compared to last, because the program expanded Jan. 1 to include distributors of motor fuels. They must submit permits for greenhouse gas emissions tied to all in-state gasoline and diesel sales.

“If all of the allowances that are estimated to be auctioned in 2015-16 sell for the minimum price set by the state (between $12 and $13), state revenue would exceed $2.3 billion,” the LAO said. “Based on our preliminary analysis … it is likely that the state will sell most or all of the allowances offered for sale in 2015-16. Therefore, state auction revenue will likely be significantly higher than what is assumed in the budget.”

Last Friday, after Brown released his draft budget, a coalition of groups that advocate on behalf of disadvantaged communities said that the fund was likely to grow to more than $2 billion. They asked that a healthy share of any surplus go to help people in those communities. Other interest groups, meanwhile, are lining up with lists of requests for how the growing pot of money should be spent.

Alex Barnum, a CalEPA spokesman, on Friday said in an email that “no one knows what the actual proceeds will be in FY 2015-16, and we are not doing ‘revenue estimates.'” He added yesterday that “we will look to see if updates are needed for the May [budget] revision.”

The state’s Legislature over the next few weeks is expected to start offering bills on cap-and-trade money. There will be hearings to take input, then the governor in May will issue a revised plan. The budget typically is passed in June.

Under a deal struck last year between the Legislature and Brown, a large chunk of cap-and-trade money was designated to fund programs on an ongoing basis. One-quarter would help bankroll the state’s high-speed rail project, 20 percent would be directed to affordable housing near transit, 10 percent would go for transit and intercity rail, and 5 percent would go toward a number of efforts that reduce the carbon in transportation. Those include incentives for people to buy electric cars.

That’s a total of 60 percent of the pot. The Legislature would allocate the remaining 40 percent of the funds.

$5B? ‘A drop in the bucket’

A person familiar with the budget process in the Legislature, however, said that the body actually has control of 100 percent of the money and would have to agree with Brown to continue the 60-40 split. The pact is likely to continue, the person said, as many of the programs receiving money — like high-speed rail — need funds over several years.

Cap and trade has been projected to generate as much as $5 billion annually in the coming years. Funds must go to efforts that meet the goals of the state’s climate law.

Although both $2.3 billion and $5 billion sound like a lot of money, they’re not, when considering what’s needed to reach the state’s goal of reducing greenhouse gas emissions 80 percent below 1990 levels by 2050, said Mike Mielke, senior vice president for environment and energy at the Silicon Valley Leadership Group, a local business trade group.

“In a state as large as California, any one-year amount, even if we get to $5 billion, is just a drop in the bucket,” Mielke said. “It’s a longer-term story. It’s a longer-term issue.”

Mielke argued that more money should go to the state’s clean-vehicle rebate program 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.

In addition to cutting emissions from the transportation sector, that area becomes more important as more electricity generated from renewable power is added to the grid, he said. There’s a need for energy storage, and electric vehicles parked in garages can help.

“We think a lot more could be done to incentivize electric vehicles,” especially the “sticker shock up front,” Mielke said. Additionally, he said, there should be money to help companies installing EV-charging infrastructure.

The Silicon Valley Leadership Group also wants money to help protect against extreme storm events, he said.

“We have literally billions of dollars of infrastructure right along the water’s edge,” Mielke said. Some of it, he said, is “13 feet below sea level” and depends on levees for protection. Well-known companies located near the water include Facebook, Yahoo, Texas Instruments, Dell, LinkedIn, Intuit, Intel, Cisco, Citrix and Oracle (ClimateWire, Dec. 20, 2012).

Cap-and-trade dollars can be spent on anything that would store and sequester carbon to reduce greenhouse gas emissions, Mielke said. That means the money could be used to improve soft green levees but not engineered levees. It could also be put toward wetlands, which are seen as a flood protection mechanism.

Urban vs. rural needs

Steven Frisch, president of the Sierra Business Council, a trade group for small and medium- sized businesses in the Sierra Nevada region, wants the state to look at putting more of the cap-and-trade money toward needs in rural areas.

A lot of the money now is slated to flow to urban areas, he said, but “to get to 2050 climate planning goals” with the desired 80 percent greenhouse gas reduction below 1990 levels “it’s going to require a lift across the entire state.”

He said the money could be used for forest thinning to prevent fires, with some of the trees used as biomass to generate electricity. The Rim Fire in 2013 in the Sierra Nevada resulted in greenhouse gas emissions about triple those of the transportation sector in Los Angeles for one year, Frisch said,

Right now, $50 million in cap-and-trade monies goes to the California Department of Forestry and Fire Protection (CAL FIRE) for forest management.

“That investment should be increased dramatically,” Frisch said, “and should go to entities other than CAL FIRE,” including conservancies that are part of the state’s Natural Resources Agency.

Money also should go to better planning for homes and transportation in rural areas, he said. Right now, the only parts of the state required to develop blueprints for sustainable communities are those governed by a metropolitan planning agency or regional transportation agency. That leaves out rural residents, who often drive much more, he said.

Dennis Murphy, founding chairman at the U.S. Green Building Council California, said the state should concentrate on improving the energy efficiency of buildings. That would be among the easiest ways to cut carbon emissions, he said.

“Cap-and-trade money is supposed to go to greenhouse gas reductions,” Murphy said. “The best way to achieve it is deep retrofits in buildings. Period.”

At the same time, he said, the state should agree upon a standard formula for measuring energy usage and greenhouse gas reduction potential in buildings.

“If you’re going to spend all of this money, you need investment criteria,” Murphy said. “It’s great that they are looking to direct funds and everything, but let’s be able to measure stuff.”