What will cap-and-trade mean for transportation?

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AC Transit busTransForm and our allies have been working hard with the legislature and the Governor’s office to develop appropriate processes and guidelines for using revenue collected from California’s greenhouse gas (GHG) cap & trade auction. The Governor signed two bills that go a long way toward setting these guidelines and processes, reaffirming his support for the actual pollution reductions and mitigations possible with a cap & trade mechanism. 

What do these bills actually do?

To understand just what these two bills accomplish, please let me explain the basics of California’s cap & trade GHG auction mechanism (if you already understand cap & trade skip to the section on AB 1532).

California’s cap & trade carbon auction mechanism

In 2006, California passed the Global Warming Solutions Act, known as AB 32. This bill set clear goals of reducing greenhouse gas emissions (to 1990 levels by 2020, and to 80% reductions by 2050), and it tasked the California Air Resources Board (CARB) with meeting this goal. Among its many methods for reducing greenhouse gasses, CARB designed a cap & trade mechanism with an auction: basically, California puts a cap on the total amount of greenhouse gasses allowed by major polluters, and then lets these polluters buy and sell the privileges to emit greenhouse gasses. These privileges are called “allowances”, and, over time, the State will decrease the number of allowances available on the market. Before trading can start, however, the State auctions off a percentage of these allowances – right now, the State only auctions 10% of the total allowances, giving the rest away for free; but, as time passes, this percentage will grow. The first auction is scheduled for November 14, 2012, and the 10% of allowances may net the State around one billion dollars, although the final amount will depend on the price for permits.

To create a framework for spending the revenue, the California Legislature and Governor passed AB 1532 and SB 535.  The former lays out the process for allocating the revenue, while the latter sets certain parameters for its use – namely, that a percentage must be used for disadvantaged communities. Other limits on its use also exist; after all, it is a fee collected by the state, and thus its use must relate to the reason for its fee (i.e., it must mitigate the impacts of and/or reduce greenhouse gas emissions). Additionally, the Global Warming Solutions Act specifically disallows any “market mechanism” – like a cap & trade mechanism – from increasing other air pollutants.

AB 1532 – Processes for cap & trade revenue proposals

Of the two bills passed by the Legislature and signed by the Governor, AB 1532 deals with process. State law says that money collected from the cap & trade auction must be allocated by the Legislature and Governor; AB 1532 tasks the Department of Finance (DOF) to offer a three-year investment plan for the auction revenues to the Legislature during the May revision of the California budget in 2013.

In developing its proposal, AB 1532 tasks the DOF to work in consultation with the California Air Resources Board (CARB) and other “relevant state entities.”  The law also tasks CARB with conducting two public workshops and one public hearing in different parts of the State prior to DOF submitting their investment plan.

Additionally, AB 1532 lays out some suggestions for the investment plan, although it makes no requirements for particular expenditures that aren’t already required by law.  Among its suggestions are money to, “Direct investment toward the most disadvantaged communities and households in the state…” and, “to reduce greenhouse gas emissions through strategic planning and development of sustainable infrastructure projects, including, but not limited to, transportation and housing.”

SB 535: Parameters for spending - and teeth in reporting

SB 535 establishes parameters for spending auction revenues. Specifically, SB 535 requires that at least ten percent of revenues collected by the State must be used for projects located within disadvantaged communities, and at least twenty-five percent must be spent on projects that “provide benefits” to disadvantaged communities. These communities are to be identified by the California Environmental Protection Agency.

Additionally and importantly, SB 535 requires that the Department of Finance describe how the administering agencies (those agencies who will actually spend the money) have met the requirements of this law.

Next up, and what you can do

California’s first auction is set for November 14th.  Additionally, CARB will soon determine the dates and locations for its public workshops and meetings as required by AB 1532.  We are truly at a precedent-setting moment in California history. Capping and trading pollution allowances is a controversial idea, with many people uncomfortable about letting businesses determine where they will stop polluting and where they will continue or possibly even expand it. But, if spent well, revenues from a greenhouse gas cap & trade auction can be used to help mitigate the impacts of years of neglect and pollution on underserved communities while providing amenities like new public transit options that both reduce pollution and households’ costs. 

The next step is to propose ways to spend revenues that treat all Californians fairly. TransForm and three allies (Housing California, Move L.A. & Move San Diego) have proposed some ideas for how to spend cap and trade revenues efficiently and to benefit all Californians, which you can read here.

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About This Blog

TransForum is the blog of TransForm, California's leading transportation advocate. For more about our work, including ways you can take action and contribute, visit TransFormCA.org.