The Global Warming Solutions Act of 2006 (Chapter 488 [AB 32, Núñez/Pavley]) established the goal of limiting statewide greenhouse gas (GHG) emissions to 1990 levels by 2020 and authorized the Air Resources Board (ARB) to implement a market-based mechanism—known as a cap-and-trade program.
In 2016, Chapter 249 (SB 32, Pavley) established an additional target of reducing emissions by at least 40 percent below 1990 levels by 2030, but there is legal uncertainty about the future of cap-and-trade.
Governor’s Budget Proposal
The Governor’s 2017-18 budget proposes to spend $2.2 billion in cap-and-trade auction revenue on activities intended to reduce GHGs.
However, $1.3 billion would only be spent after the Legislature enacted—with a two-thirds urgency vote—new legislation extending ARB’s authority to operate a cap-and-trade program beyond 2020. Under the Governor’s proposal, the Department of Finance (DOF) would have authority to select the specific programs within each category of activities that would receive funding.
In addition, DOF would have the authority to adjust downward allocations to programs based on available funds.
In this report, we provide comments and recommendations related to the Governor’s proposal. We recommend the Legislature authorize cap-and-trade (or a carbon tax) beyond 2020 because it is likely the most cost-effective approach to achieving the state’s 2030 GHG emissions target.
If the Legislature approves cap-and-trade, we recommend the Legislature strengthen the allowance price ceiling and provide clearer direction to ARB regarding the criteria that the board should use to determine whether a complementary policy should be adopted. We also recommend the Legislature approve cap-and-trade (or carbon tax) with a two-thirds vote because it would provide greater legal certainty and ensure ARB has the ability to design an effective program.
With a two-thirds vote, we recommend the Legislature broaden the allowable uses of auction revenue because it would give the Legislature flexibility to use the funds on its highest priorities. When finalizing its 2017-18 cap-and-trade spending plan, we recommend the Legislature (1) reject the administration’s proposed language making spending contingent on future legislation, (2) consider alternative strategies for dealing with revenue uncertainty, and (3) allocate funds to specific programs rather than providing DOF that authority.
This report is available using the following link: http://lao.ca.gov/publications/report/3553
This article was released by the Legislative Analyst’s Office.