Legislative Analyst: New Greenhouse Gas Fees Don’t Help the Budget as Much as Governor Says

The $500 million budget savings Gov. Jerry Brown says will occur from the fees California’s heavy industries will start paying this year to reduce greenhouse gas emissions is overstated by some $400 million, according to a report issued February 16 by the Legislative Analyst.

Lawmakers shouldn’t accept the Democratic governor’s claims without seeing specifics, the analyst recommends.

“The governor’s proposal regarding the allocation of (these) revenues raises some concerns,” the analyst says with its customary understatement.

Brown says he’ll give lawmakers details in early 2013 but is confident he will fund the full $500 million in savings.

The analyst’s nine-page document examines Brown’s plan to use what he says will be $1 billion paid by refiners, old producers, electricity generators and manufacturers to buy “allowances” under the state’s so-called “cap-and-trade” program designed to ratchet down carbon dioxide emission to 1990 levels by the end of the decade.

Under Brown’s proposal, half of the $1 billion would replace general fund dollars currently being used to reduce carbon dioxide emissions with fee revenue. The other half would expand or create programs to lower greenhouse gas emissions.

The cap-and-trade system is central to the implementation of AB 32, California’s landmark 2006 greenhouse gas emissions reduction law. It’s an elaborate marketplace that gives polluters one allowance – either free or for a price — per ton of carbon dioxide the state Air Resources Board permits that entity to emit.

Roughly 460 million metric tons of carbon dioxide is generated by Californians each year, the air board says.

Just over 400 million tons are subject to regulation under AB 32.

Businesses whose emissions exceed the limits imposed on them by the state can buy allowances from other businesses whose emissions have been reduced below the state maximum.

Between now and 2020, the air board says as many as 2.5 billion allowances will issued, half at a price, half for free.

This year, the state plans to sell 20 million allowances in August and another 20 million in November for use in meeting emission standards in 2015.

A batch of 10 million 2016 allowances will be sold in February 2013 along with 3 million allowances for use in that same year. An identical auction is scheduled for May 2013.

The board expects an allowance to sell for a minimum of $10 and a maximum of $50, depending on demand and market conditions. 

That means in the fiscal year beginning July 12, between $660 million and $3 billion in new revenue could be generated.

But the money is considered a “mitigation fee” and so must be used for the same purpose the fee was levied for – reducing greenhouse gas emissions.

With a two-thirds vote, lawmakers could potentially use the funds for other purposes.

The state plans to give another 65 million allowances to the state’s investor-owned utilities, like PG&E and Southern California Edison, in a move aimed at reducing potential increases in electricity bills the cap-and-trade system is expected to foster.

The utilities must, in turn, sell their allowances, which the state predicts will generate another $650 million in revenue. A decision by the Public Utilities Commission on what purposes the utilities can spend this money on is expected in April. 

Among the analyst’s chief concerns is that Brown doesn’t identify the $500 million in budget savings he predicts in his spending plan released in January.

The analyst finds only $100 million in state general fund dollars being used to combat greenhouse gases.

Brown also doesn’t specify what the remaining $500 million he estimates will be collected in allowance revenue will be spent on.

The spending will occur in four broad categories that promote “clean and efficient energy,” “low carbon transportation,” “natural resource protection” and “sustainable infrastructure development,” Brown’s budget summary says.

“We’re confident that we will identify $500 million in general fund relief within the four categories that we spelled out in the budget summary,” said H. D. Palmer, a spokesman for Brown’s Department of Finance.

“We haven’t yet identified the specific programs for funding with carbon offset fee revenues and do not plan to until the spring of 2013, by which time the auction process will be underway.”

The analyst urges lawmakers to withhold approval of Brown’s plans until they see the details.

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