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Legislature Passes Cap-and-Trade Extension

Bills Advance to the Governor

July 18, 2017
After weeks of negotiations, lawmakers in both houses voted on Monday to extend the Cap-and-Trade program.
This action represents a compromise among stakeholders advocating for environmental, business, agricultural, and other interests. The three-bill package extends Cap-and-Trade through 2030, requires a two-thirds vote in 2024 on how to spend Cap-and-Trade revenues, and implements a new air quality program.

Gov. Jerry Brown has long urged extension of Cap-and-Trade with a bi-partisan, two-thirds majority. However, as late as last week, it remained unclear whether the package could garner support from Republican lawmakers. Throughout negotiations, Democrats have treated the expenditure plan for cap and trade revenues as separate from the extension of cap and trade itself. Republicans wanted to link the two and have an expenditure plan be part of this deal.
Short of a final expenditure plan, Assembly Republican Leader Chad Mayes (R-Yucca Valley) negotiated the addition of constitutional amendment to require a two-thirds vote on spending in 2024. ACA 1 provides some Republicans with enough certainty that their priorities will be considered when it comes to deciding how to spend the funds in the future, and resulted in several Republicans voting in favor of the package.
Details of the three measures are outlined below.
AB 398 (E. Garcia):
  • Extends the Cap-and-Trade system through Dec. 31, 2030 with declining emissions limits;
  • Requires State Air Resources Board (ARB) to set cost containment measures, including a price ceiling, “speed bumps” to limit excessive price spike, offset credit limits, and industry assistance factors for allowance allocation;
  • Establishes a Compliance Offsets Protocol Task Force to advise the ARB on establishing new offset projects that have direct environmental benefits, while prioritizing disadvantaged communities, Native American or tribal lands, and rural and agricultural regions;
  • Establishes an Independent Emissions Market Advisory Committee to report to the ARB and the Legislature on the environmental and economic performance of Cap-and-Trade;
  • Requires the California Workforce Development Board to report on the need for increased education and job training to help transition labor-market changes;
  • Requires the ARB to update the Scoping Plan by Jan. 1, 2018;
  • Establishes funding priorities until Jan. 1, 2031 as follows:
    • air toxic and criteria pollutants from stationary and mobile sources;
    • low and zero-carbon transportation;
    • sustainable agricultural practices that promote the transitions to clean technology, water efficiency, and improved air quality;
    • healthy forests and urban greening;
    • short-lived climate pollutants (such as methane); and
    • climate adaptation and resiliency; climate and clean energy research.
  • Prohibits local air districts from adopting additional emissions reduction rules from stationary sources that are subject to Cap-and-Trade;
  • Suspends the existing fire prevention fees that apply to rural landowners until Jan. 1, 2031; and
  • Extends an exemption from the state portions of sales and use taxes for certain purchases of property used for generation of electric power until July 1, 2030, but does not affect the collection of local shares of city and county sales and use taxes. 
AB 617 (C. Garcia):
  • Requires stationary sources to report annually emissions of criteria air pollutants and toxic air contaminants; require the ARB to develop a new air monitoring plan and determine high priority locations to deploy community level air monitoring systems; authorize the local air district in selected locations to require stationary sources to deploy fence-line monitoring systems;
  • Requires the ARB to prepare a statewide strategy to reduce air emissions in communities with a high cumulative exposure burden and update the strategy every five years;
  • Requires local air districts that have not attained air pollutant goals under the federal Clean Air Act to expedite retrofits of industrial sources; and
  • Increases the penalty for air pollution violations from $1,000 per day to $5,000 per day and increases the maximum penalty annually based on the Consumer Price Index. 
ACA 1 (Mayes):
  • Beginning on Jan. 1, 2024, deposits cap and trade revenues into the newly established Greenhouse Gas Reduction Reserve Fund;
  • Requires a two-thirds vote to appropriate funds out of the Greenhouse Gas Reduction Reserve Fund;
  • After a two-thirds vote appropriation takes effect, ends the deposits into the Greenhouse Gas Reduction Reserve Fund, and instead deposits moneys into the Greenhouse Gas Reduction Fund, which is not subject to the two-thirds vote threshold; and
  • Suspends the Manufacturing Sales Tax Exemption after Jan. 1, 2024 until a two-thirds appropriation from the Greenhouse Gas Reduction Reserve Fund takes effect. 
Next Steps
AB 398 and AB 617 go next to Governor Brown, who is almost certain to sign the bills. As a constitutional amendment, ACA 1 advances directly the voters on the June 2018 ballot. While priorities for funding were set by AB 398, the Legislature may still appropriate funding from recent auction proceeds. Gov. Brown proposed an expenditure plan in his January Budget Proposal; however, with the new prioritization of funds in AB 398, we expect to see new legislative and administrative proposals for spending these funds.
Over recent weeks, some advocated for a housing package to be voted on at the same time as Cap-and-Trade. However, the Governor, Senate President pro Tempore Kevin de León (D-Los Angeles), and Assembly Speaker Anthony Rendon (D-Lakewood) announced yesterday that a comprehensive housing package would be continued until after the Legislature’s summer recess.

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