The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation. Existing law makes a specified continuous appropriation to the High-Speed Rail Authority from the fund.

This bill would require the High-Speed Rail Authority to allocate not less than 25% of the moneys continuously appropriated to the authority from the fund to environmental mitigation measures and projects that reduce greenhouse gas emissions from transportation sources projects that either reduce or offset greenhouse gas emissions directly associated with the construction of the high-speed rail project and provide a cobenefit of improving air quality. The bill would require priority to be given within this expenditure category to measures and projects that are located in communities in areas designated as extreme nonattainment. The bill would expand the purposes of a continuous appropriation, thereby making an appropriation.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation. Existing law makes a specified continuous appropriation to the High-Speed Rail Authority from the fund.

This bill would require that the High-Speed Rail Authority to allocate not less than 25% of the moneys continuously appropriated to the High-Speed Rail Authority to the authority from the fund be allocated to environmental mitigation measures and projects that reduce greenhouse gas emissions from transportation sources and provide a cobenefit of improving air quality. The bill would require priority to be given within this expenditure category to measures and projects that are located in communities that are located in areas designated as extreme nonattainment. The bill expands would expand the purposes of a continuous appropriation, thereby making an appropriation.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation. Existing law makes a specified continuous appropriation to the High-Speed Rail Authority from the fund.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation. Existing law makes a specified continuous appropriation to the High-Speed Rail Authority from the fund.

This bill would make a technical, nonsubstantive change to these provisions.

Date of Hearing: August 19, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

SBPCA Bill Id:SB 400

Author:(Lara) – As Amended Ver:June 1, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill:

1. Requires the High-Speed Rail Authority (HSRA) to allocate at least 25% of the cap-and-trade revenues received by the authority for mitigation measures and projects to reduce or offset greenhouse gas (GHG) emissions generated by construction of the high-speed rail project.

2. Stipulates that priority for the allocation per (1) is for projects in communities located in areas designated as extreme nonattainment.

FISCAL EFFECT:

Under current law, 25% of annual cap-and-trade revenues are allocated to the high-speed rail project. Assuming $2 billion in total cap-and-trade revenues for 2015-16, $500 million would be allocated to high-speed rail, of which $125 million would be allocated for construction-related mitigation pursuant to this bill. (This allocation would vary based on total cap-and-trade revenues in any given year.) To the extent this allocation exceeds the level of funding currently necessary or contemplated for mitigation (see below), the bill will increase overall project costs.

COMMENTS:

1. Purpose. The communities along the high-speed rail corridor through California's Central Valley suffer from some of the state's, and the nation's, worst air quality. The author introduced SB 400 out of concern for such communities, which are burdened by nearby, heavily congested highway corridors.  He asserts that, while the high-speed rail project will eventually reduce GHG emissions and air pollution, the project will be detrimental to the Central Valley in the short-term due to the environmental impacts from construction.

2. HSRA Actions. The authority has committed to achieving zero-net GHG emissions related to construction activities, material deliveries, and worker travel.  For example, the authority has committed to planting trees to offset the first phases of construction.  Furthermore, HSRA has entered into a Memorandum of Understanding (MOU) whereby HSRA will pay the District quarterly based on the use and impact of construction equipment on the project, with the payments to be used for programs to, for example, replace aging farm and other high-polluting equipment. This mitigation is intended to complement requirements that HSRA already imposes on its construction contractor to use clean construction vehicles.  HSRA expects that it could pay the District approximately $40 million under the terms of the MOU. 

3. Concerns. This bill raises several concerns:

1. The high-speed rail project is severely underfunded. Other than one-time state bond and federal funds, the cap-and-trade revenues are the only ongoing funding source for the project, thus diverting a significant portion of these revenues for mitigation could exacerbate the overall funding situation.

2. Though SB 400 is intended to offset the environmental impacts from construction, the bill, by authorizing expenditures in areas designated as extreme nonattainment areas, allows funds to be spent in communities outside the construction zones.

3. The amount of mitigation required may not bear related to the actual construction-related impacts.

4. At least 25% of total cap-and-trade revenues are already earmarked to benefit disadvantage communities, including a 10% allocation directly within such communities.

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

Date of Hearing: July 13, 2015

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Das Williams, Chair

SBPCA Bill Id:SB 400

Author:(Lara) – As Amended Ver:June 1, 2015

SENATE VOTE: 27-9

SUBJECT: California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund.

SUMMARY: Requires the High Speed Rail Authority (HSRA) to fund projects that offset construction impacts of the high speed rail project.

EXISTING LAW:

1. Establishes the HSRA in 1996 to direct development and implementation of an intercity high-speed rail service that is fully coordinated with other public transportation services. In 2008, voters approved Proposition 1A authorizing $9.95 billion in general obligation bonds for the high-speed rail program and related commuter rail services.

2. Requires, pursuant to AB 32 (Nunez), Chapter 488, Statutes of 2006, the Air Resources Board (ARB) to adopt greenhouse gas (GHG) emissions reductions measures to achieve the goal of reducing GHG emissions to 1990 levels by 2020, including market-based mechanisms (e.g., cap-and-trade program).

3. Establishes the Greenhouse Gas Reduction Fund (GGRF) in the State Treasury and requires all cap-and trade proceeds to be deposited into the fund.

4. Requires the Department of Finance (DOF) to develop a three-year investment plan to guide expenditure of cap-and-trade auction revenues to achieve GHG emissions reductions consistent with AB 32.

5. Requires the GGRF investment plan to allocate, at a minimum, 25% GGRF money to benefit disadvantaged communities and to allocate 10% of GGRF moneys within disadvantaged communities.

6. Continuously appropriates 25% of the GGRF to HSRA for acquisition, construction, environmental review and design of the initial operating segment and Phase I Blended System.

THIS BILL:

1. Requires HSRA to allocate 25% of appropriated cap-and-trade funds to projects that reduce GHG emissions and improve air quality in disadvantaged communities and designated non-attainment areas. Suggested qualifying projects include, but are not limited to:

   1. Public transit improvements that reduce congestion;

   2. Transportation improvements that reduce congestion;

   3. Alternative transportation options;

   4. Natural systems such as rural and urban forests that reduce GHG emissions or increase the sequestration of carbon; and,

   5. Use of low- and zero-emission equipment for transportation construction.

2. Makes related, technical amendments.

FISCAL EFFECT: According to the Senate Appropriations Committee, unknown costs pressures to the GGRF as a result of expanding the eligible uses of the GGRF that are continuously appropriated for the high-speed rail project.

COMMENTS:

The communities along the high-speed rail corridor through California's Central Valley suffer from some of the state's worst air quality.  In fact last year, the American Lung Association noted that, despite vast improvements over the last few decades, the Central Valley still has the nation's highest levels of ozone and fine particle pollution.

The author introduced SB 400 out of concern for communities like these that are already burdened by nearby, heavily congested highway corridors.  He notes that, while the high-speed rail project will eventually reduce GHG emissions and air pollution, the project will be detrimental to the Central Valley in the short term due to the environmental impacts from construction.   

Recognizing concerns such as these, HSRA committed to achieving zero-net GHG emissions related to construction activities, material deliveries, and worker travel.  For example, the authority has committed to planting trees to offset the first phases of construction.  Furthermore, HSRA is working with the San Joaquin Unified Air Pollution Control District (District) to provide additional mitigation for construction emissions.  Under a Memorandum of Understanding (MOU) between HSRA and the District, each quarter the HSRA construction contractor will submit a list of equipment that has been used during the quarter along with the number of miles driven or hours used.  HSRA will then pay the District a dollar value equivalent to be used for programs to, for example, replace aging farm and other high-polluting equipment.  This mitigation is intended to complement requirements that HSRA already imposes on its construction contractor to use clean construction vehicles.  HSRA expects that it could pay the District approximately $40 million under the terms of the MOU.  HSRA has undertaken these measures despite the fact that the U.S. Transportation Board ruled that California's environmental review laws are federally pre-empted; consequently, the project is not required to comply with the California Environmental Quality Act, including requirements to mitigate environmental impacts.

This bill will direct 25% of the cap-and-trade revenue directed to the high-speed rail project (or $125 million/year if cap-and-trade auctions bring in $2 billion/year) to projects that benefit communities in designated extreme non-attainment areas.   While the bill is intended to offset environmental impacts due to high-speed rail construction, it does not impose any requirement that the mitigation funds be spent in communities near the construction zones.  Instead, SB 400 requires monies to be spent in areas designated as extreme non-attainment areas. California has two extreme non-attainment areas:  the San Joaquin Valley and the South Coast Air Basin.  Conceivably, SB 400 could result in millions of dollars being spent in Southern California, hundreds of miles from the high-speed rail construction sites.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

None on file

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. / (916) 319-2092

Date of Hearing: June 29, 2015

ASSEMBLY COMMITTEE ON TRANSPORTATION

Jim Frazier, Chair

SBPCA Bill Id:SB 400

Author:(Lara) – As Amended Ver:June 1, 2015

SENATE VOTE: 27-9

SUBJECT: California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund.

SUMMARY: Requires the High Speed Rail Authority (HSRA) to fund projects that offset construction impacts of the high speed rail project. Specifically, this bill:

1. Requires HSRA to allocate 25% of appropriated cap-and-trade funds to projects that reduce greenhouse gas (GHG) emissions and improve air quality in disadvantaged communities and designated non-attainment areas. Suggested qualifying projects include, but are not limited to:

   1. Public transit improvements that reduce congestion;

   2. Transportation improvements that reduce congestion;

   3. Alternative transportation options;

   4. Natural systems such as rural and urban forests that reduce GHG emissions or increase the sequestration of carbon; and,

   5. Use of low- and zero-emission equipment for transportation construction.

2. Makes related, technical amendments.

EXISTING LAW:

1. Created HSRA in 1996 to direct development and implementation of an intercity high-speed rail service that is fully coordinated with other public transportation services. In 2008, voters approved Proposition 1A authorizing $9.95 billion in general obligation bonds for the high-speed rail program and related commuter rail services.

2. Requires, pursuant to AB 32 (Nunez), Chapter 488, Statutes of 2006, the California Air Resources Board (ARB) to adopt GHG emissions reductions measures to achieve the goal of reducing GHG emissions to 1990 levels by 2020, including market-based mechanisms (e.g., cap-and-trade program).

3. Established the Greenhouse Gas Reduction Fund (GGRF) in the State Treasury and required all cap-and trade proceeds to be deposited into the fund

4. Requires the Department of Finance (DOF) to develop a three-year investment plan guide expenditure of cap-and-trade auction revenues to achieve GHG emissions reductions consistent with AB 32.

5. Requires the GGRF investment plan to allocate, at a minimum, 25% GGRF money to benefit disadvantaged communities and to allocate 10% of GGRF moneys within disadvantaged communities.

6. Continuously appropriates 25% of the GGRF to HSRA for acquisition, construction, environmental review and design of the initial operating segment and Phase I Blended System.

FISCAL EFFECT: Unknown

COMMENTS:  The communities along the high-speed rail corridor through California's Central Valley suffer from some of the state's worst air quality.  In fact last year, the American Lung Association noted that, despite vast improvements over the last few decades, the Central Valley still has the nation's highest levels of ozone and fine particle pollution.

The author introduced SB 400 out of concern for communities like these that are already burdened by nearby, heavily congested highway corridors.  He notes that, while the high-speed rail project will eventually reduce GHG emissions and air pollution, the project will be detrimental to the Central Valley in the short-term due to the environmental impacts from construction.   

Recognizing concerns such as these, HSRA committed to achieving zero-net GHG emissions related to construction activities, material deliveries, and worker travel.  For example, the authority has committed to planting trees to offset the first phases of construction.  Furthermore, HSRA is working with the San Joaquin Unified Air Pollution Control District (District) to provide additional mitigation for construction emissions.  Under a Memorandum of Understanding (MOU) between HSRA and the District, each quarter the HSRA construction contractor will submit a list of equipment that has been used during the quarter along with the number of miles driven or hours used.  HSRA will then pay the District a dollar value equivalent to be used for programs to, for example, replace aging farm and other high-polluting equipment.  This mitigation is intended to complement requirements that HSRA already imposes on its construction contractor to use clean construction vehicles.  HSRA expects that it could pay the District approximately $40 million under the terms of the MOU.  HSRA has undertaken these measures despite the fact that the U.S. Transportation Board ruled that California's environmental review laws are federally pre-empted; consequently, the project is not required to comply with the California Environmental Quality Act, including requirements to mitigate environmental impacts.

The author appears to believe these efforts by HSRA are insufficient; hence he introduced
SB 400 to direct 25% of the cap-and-trade money directed to the high-speed rail project (or $125 million if cap-and-trade auctions bring in $2 billion annually as anticipated) to projects that benefit communities in designated extreme non-attainment areas.  

Committee concerns:  The author's frustration about the impacts to disadvantaged communities in the Central Valley and elsewhere are understandable.  However, SB 400 raises a number of legitimate concerns:

1. Re-directing 25% from HSRA's only steady funding source could threaten completion of the project and jeopardize any future environmental benefits that might be realized.  The project is already sorely underfunded and SB 400 would exacerbate that problem. 

2. SB 400 is intended to offset environmental impacts due to construction but does not impose any requirement that the re-directed dollars be spent in communities near the construction zones.  Instead, SB 400 requires monies to be spent in areas designated as extreme non-attainment areas. California has two extreme non-attainment areas:  the San Joaquin Valley and the South Coast Air Basin.  Conceivably, SB 400 could result in millions of dollars being spent in Southern California, hundreds of miles from the high-speed rail construction sites.

3. The amount of mitigation required by SB 400 (worth about $125 million annually) may have little or no relation to the actual construction-related environmental impacts and will significantly drive up the cost of the high-speed rail project.

The committee may wish to consider the following dichotomy:  Should high-speed rail project dollars be spent to achieve definitive, near-term environmental benefits in the state's most disadvantaged communities or should those dollars be spent to increase the likelihood that the high-speed rail project will be completed and its promised environmental benefits potentially realized?

Double referral:  This bill will be referred to the Assembly Natural Resources Committee should it pass out of this committee

Previous legislation: AB 32 (Nunez), Chapter 488, Statutes of 2006, required ARB to develop a plan of how to reduce emissions to 1990 levels by 2020.

SB 535 (De Leon), Chapter 830, Statutes of 2012, required DOF, when developing the three-year investment plan for cap-and-trade to allocate 25% of these funds to projects that provide benefits to disadvantaged communities and to allocate a minimum of 10% to projects located in disadvantaged communities.

SB 862 (Committee on Budget and Fiscal Review), Chapter 36, Statutes of 2014, established a long-term cap-and-trade expenditure plan by continuous appropriation and designated 25% of annual cap-and-trade proceeds to the HSRA.

REGISTERED SUPPORT / OPPOSITION:

Support

Coalition For Clean Air

Opposition

None on file

Analysis Prepared by: Victoria Alvarez / TRANS. / (916) 319-2093

 THIRD READING  

Bill No: SB 400

Author: Lara (D)

Amended: 6/1/15

Vote: 21

SENATE TRANS. & HOUSING COMMITTEE: 7-0, 4/21/15

AYES: Beall, Allen, Galgiani, Leyva, McGuire, Mendoza, Wieckowski

NO VOTE RECORDED: Cannella, Bates, Gaines, Roth

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 4/29/15

AYES: Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley

SENATE APPROPRIATIONS COMMITTEE: 6-1, 5/28/15

AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza

NOES: Nielsen

SUBJECT: California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund

SOURCE: Author

DIGEST: This bill requires the California High-Speed Rail Authority (HSRA) to allocate not less than 25% of the appropriated cap-and-trade funds to projects that either reduce or offset greenhouse gas (GHG) emissions directly associated with the construction of the high-speed rail project and provide a cobenefit of improving air quality.

ANALYSIS:

Existing law:

1. Creates the HSRA to direct development and implementation of intercity high-speed rail service that is fully coordinated with other public transportation services. In 2008, voters approved Proposition 1A authorizing $9.95 billion in general obligation bonds for the high-speed rail program. Prop 1A authorizes HSRA to use bond funds for, among other things, acquisition of rights-of-way, environmental mitigation, and capital construction of the proposed rail system. In addition to bond funds, HSRA has also received some federal grants to partially fund the construction of the system.

2. Enacts the Global Warming Act of 2006 (AB 32, Nunez, Chapter 488, Statutes of 2006), which requires the California Air Resources Board (ARB) to establish a statewide GHG emissions limit such that by 2020 California reduces its GHG emissions to the level they were in 1990. Thereafter, ARB must adopt the maximum feasible and cost-effective reductions in GHG emissions for sources subject to AB 32.

As one of its key AB 32 implementation programs, ARB has adopted the Cap-and-Trade Program. Under this program, ARB establishes an overall limit — or “cap” — on GHG emissions from specified industries. Facilities subject to the cap may reduce their own emissions or purchase allowances from others to emit GHGs, including from facilities that have reduced emissions more than required.  In essence, the Cap-and-Trade Program uses market forces in an attempt to reduce GHG emissions in the most economically efficient manner.

3. Authorizes, as part of the Cap-and-Trade Program, ARB to auction off GHG emission allowances as mitigation fees. To date, ARB has completed 10 auctions, taking in a total of $1.6 billion in proceeds. These funds may only be used to facilitate the achievement of GHG emission reductions in California consistent with AB 32. The Department of Finance, in consultation with ARB and other relevant state agencies, must develop a three-year investment plan for these funds, but ultimately the Legislature and governor appropriate the funds through the annual budget process.

4. Requires, pursuant to SB 535 (De Leon, Chapter 830, Statutes of 2012) the Department of Finance, when developing the three-year investment plan for cap-and-trade monies, to allocate 25% of these funds to projects that provide benefits to disadvantaged communities, and to allocate a minimum of 10% of available cap-and-trade monies to projects located within disadvantaged communities. The bill outlines a process to identify these communities and allows for periodic modification as necessary.

5. Establishes, pursuant to SB 862 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014), a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. Among other things, SB 862 continuously appropriates 25% of the annual proceeds from cap-and-trade to HSRA for various project components of the high-speed rail program, including:

1. Acquisition and construction costs

2. Environmental review and design costs

3. Other capital costs

4. Repayment of any loans made to the authority

This bill:

1. Requires HSRA to allocate not less than 25% of the appropriated cap-and-trade funds to projects that either reduce or offset GHG emissions directly associated with the construction of the high-speed rail project and provide a cobenefit of improving air quality.

2. Requires HSRA to prioritize allocating this funding for measures and projects in communities that are located in areas designated as extreme nonattainment.

Comments

Purpose. According to the author, many of the communities along the proposed high-speed rail route are in regions that are disproportionately impacted by poor air quality. Residents living in close proximity to heavily congested transportation corridors, for example, already suffer adverse health effects from increased emissions. While the high-speed train might reduce future emissions once operational, there is an opportunity for HSRA to use some of the cap-and-trade funds to help impacted communities today. This bill prioritizes projects that reduce GHG emission in these affected regions, consistent with promises HSRA has made throughout the course of the system’s development.

Cap-and-trade funding. As previously stated, cap-and trade revenues may only be used to facilitate the achievement of GHG emission reductions in California consistent with AB 32. In fact, the Constitution requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for the state’s use of cap-and-trade funds to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions. A pending lawsuit challenges the state’s use of these revenues on these grounds.

With that in mind, it is important that legislation allocating cap-and-trade revenues ensure that the funds are being used to reduce GHG emissions. If opponents of the program can convince the courts that the revenues are not being used appropriately, the entire cap-and-trade program could be jeopardized.

In June 2013, HSRA submitted to the Legislature a report outlining the high-speed rail program’s contribution to the state’s goal of reducing GHG emissions. The report declares that by 2022, the first year the state plans to operate high-speed trains along the initial operating segment, the direct emissions reduction will be the equivalent of taking 31,000 passenger vehicles off the road. Before operation, however, the construction of the system will produce some significant, yet-to-be-determined amount of GHG emissions. HSRA states in its report that it will fully offset these emissions through mitigation efforts such as planting trees in the Central Valley and providing funds to local air districts for other emission-reduction projects.

The 2013 report was submitted prior to the Legislature enacting SB 862 and committing 25% of all future cap-and-trade revenues to the high-speed rail program. Undoubtedly HSRA has updated its plans to reduce GHG emissions before operation of the system begins in order to ensure that expenditure of any cap-and-trade funds are meeting the program’s intended purpose. This bill greatly contributes to that aim by requiring HSRA to spend at least 25% of any cap-and-trade revenue on the reduction of GHG emissions.

To further clarify what types of GHG emission reduction projects HSRA could propose, the bill includes a list of example projects eligible for this funding, such as:

1. Transit projects that reduce congestion by improving public transportation service or frequency of service

2. Transportation improvements that reduce congestion, including network improvements and roadway modifications

3. Alternative transportation options, including infrastructure projects that support clean transportation, facilitate increased bicycle and pedestrian use, and improvements that connect bicycle and pedestrian routes to transit facilities

4. Natural systems, including forests and urban forests, that reduce GHG emissions or increase the sequestration of carbon to mitigate the impacts of GHG emissions and create greater climate resiliency

5. The use of low- and zero-emission equipment for transportation and construction

State and federal environmental laws. Typical transportation projects in California are vetted through an environmental process in which both state and federal environmental laws apply. It is generally considered more challenging to comply with state environmental laws than the federal laws, primarily because California often requires project sponsors to not only identify environmental impacts but also to develop a plan to mitigate those impacts.

The projects comprising the high-speed rail program are not typical state transportation projects in this case. In 2013, the U.S. Surface Transportation Board, a federal adjudicatory body with regulatory oversight of the nation’s railroads, ruled that it has superior jurisdiction over the California high-speed rail program’s environmental clearance process. This ruling exempts HSRA from state environmental laws because federal law supersedes state requirements. Despite this ruling, HSRA has committed to following the state’s environmental processes as if it were still subject to them.

Unfortunately, the Legislature appears to have overlooked this commitment with the drafting of SB 862, as it does not make mitigation of environmental impacts an eligible use of cap-and-trade funds for the high-speed rail system. This bill takes steps to resolve this inconsistency by making GHG emission reduction projects eligible for cap-and-trade funding.

FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, unknown costs pressures to the Greenhouse Gas Reduction Fund (special) as a result of expanding the eligible uses of the Greenhouse Gas Reduction Fund that are continuously appropriated for the project.

SUPPORT: (Verified 5/29/15)

None received

OPPOSITION: (Verified 5/29/15)

None received

Prepared by: Eric Thronson / T. & H. / (916) 651-4121

6/1/15 19:06:10

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 400 (Lara) - California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund.

SUSPENSE FILE. AS AMENDED.

Bill Summary:

SB 400 would require the High Speed Rail Authority (HSRA) to spend at least 25% of the money it receives from the Greenhouse Gas Reduction Fund (GGRF) on environmental mitigation measures and projects that reduce GHG emissions from transportation sources.

Fiscal Impact (as approved on May 28, 2015): Unknown costs pressures to the GGRF (special) as a result of expanding the eligible uses of the GGRF funds that are continuously appropriated for the project.

Background:

Under the California Global Warming Act of 2006 (also known as AB 32), the California Air Resources Board (ARB) is required to establish a statewide greenhouse gas (GHG) emissions limit such that by 2020 California reduces its GHG emissions to the level they were in 1990. The act authorizes the ARB to include the use of market-based mechanisms to comply with these regulations. Under that authority, the ARB established the Cap-and-Trade Program in which ARB establishes an overall limit, or “cap,” on GHG emissions from specified industries. As part of the Cap-and-Trade Program, ARB auctions off GHG emission allowances as mitigation fees. To date, ARB has completed 10 auctions, taking in a total of $1.6 billion in proceeds.

Revenues from Cap-and-Trade are deposited into the GGRF and must be expended in furtherance of AB 32 and result in reduction of GHG emissions. In 2014, the Legislature enacted SB 862 (Committee on Budget and Fiscal Review) Chapter 36, Statutes of 2014, a budget trailer bill which establishes a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. One of these purposes is the initial operating segment and Phase I Blended System of the High Speed Rail project, to which SB 862 commits 25% of annual revenues to the GGRF.

The HSRA must use these funds for the following:

• Acquisition and construction of the project

• Environmental review and design costs of the project.

• Other Capital costs of the project

• Repayment of any loans made to the HSRA to fund the project.

Proposed Law:

This bill would expand the eligible uses of the continuously appropriated GGRF funds to the HSRA to also include environmental mitigation projects that reduce GHG emissions from transportation sources and provide a cobenefit of improving air quality. The HSRA must use at least 25% of the continuously appropriated GGRF funds for this purpose. Eligible projects may include, but are not limited to, the following:

• Public transit improvements that reduce congestion by improving service

• Transportation improvements that reduce congestion, including network improvements and roadway modifications

• Alternative transportation options including infrastructure improvements

• Natural systems that reduce GHG emissions or increase the sequestration of carbon

• Reduction of emissions directly associated with construction of the HSR project including the use of low and zero-emission equipment.

Staff Comments:

By expanding the eligible uses of the GGRF funds dedicated to the HSRA, this bill creates a cost pressure on the GGRF. At this time it unknown how large this cost pressure is because according to the HSRA, a consolidated budget for mitigation has not yet been determined. However, staff believes it’s reasonable to assume that the cost pressures could be in the millions of dollars.

Staff notes that the High Speed Rail (HSR) project may have no legally required mitigations since the federal Surface Transportation Board has declared that CEQA is preempted, though this is being challenged in the courts. The HSR will have to comply with NEPA, though NEPA only requires a lead agency to identify potential environmental impacts, not to mitigate them. The HSRA however has made a public commitment to make all stages of construction GHG emission neutral. If the HSRA follows through with this commitment and has considered these mitigations as part of the project budget for the initial operating segment and Phase I Blended system, this bill would ultimately have no costs, so long as the mitigation budget is larger than 25% of the GGRF funds.

On the other hand, if the mitigation projects planned by the HSRA do not exceed 25% of the GGRF funds, then this bill will effectively increase the overall costs for the early phases of HSR.

The HSRA authority believes that this bill can also have indirect costs. They note that to the extent that its funding is restricted for specific purposes, it makes it more difficult to leverage the funds to draw down other potential funding sources. The cost of the effect is undeterminable and potentially speculative.

Author amendments (as adopted on May 28, 2015): Amend to clarify that 25% of the continuously appropriated GGRF funds for the initial phases of HSR be used to offset or reduce construction GHG emissions and provide air quality co-benefits.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 400 (Lara) - California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund.

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 400 would require the High Speed Rail Authority (HSRA) to spend at least 25% of the money it receives from the Greenhouse Gas Reduction Fund (GGRF) on environmental mitigation measures and projects that reduce GHG emissions from transportation sources.

Fiscal Impact:

Unknown costs pressures to the GGRF (special) as a result of expanding the eligible uses of the GGRF funds that are continuously appropriated for the project.

Background:

Under the California Global Warming Act of 2006 (also known as AB 32), the California Air Resources Board (ARB) is required to establish a statewide greenhouse gas (GHG) emissions limit such that by 2020 California reduces its GHG emissions to the level they were in 1990. The act authorizes the ARB to include the use of market-based mechanisms to comply with these regulations. Under that authority, the ARB established the Cap-and-Trade Program in which ARB establishes an overall limit, or “cap,” on GHG emissions from specified industries. As part of the Cap-and-Trade Program, ARB auctions off GHG emission allowances as mitigation fees. To date, ARB has completed 10 auctions, taking in a total of $1.6 billion in proceeds.

Revenues from Cap-and-Trade are deposited into the GGRF and must be expended in furtherance of AB 32 and result in reduction of GHG emissions. In 2014, the Legislature enacted SB 862 (Committee on Budget and Fiscal Review) Chapter 36, Statutes of 2014, a budget trailer bill which establishes a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. One of these purposes is the initial operating segment and Phase I Blended System of the High Speed Rail project, to which SB 862 commits 25% of annual revenues to the GGRF.

The HSRA must use these funds for the following:

• Acquisition and construction of the project

• Environmental review and design costs of the project.

• Other Capital costs of the project

• Repayment of any loans made to the HSRA to fund the project.

Proposed Law:

This bill would expand the eligible uses of the continuously appropriated GGRF funds to the HSRA to also include environmental mitigation projects that reduce GHG emissions from transportation sources and provide a cobenefit of improving air quality. The HSRA must use at least 25% of the continuously appropriated GGRF funds for this purpose. Eligible projects may include, but are not limited to, the following:

• Public transit improvements that reduce congestion by improving service

• Transportation improvements that reduce congestion, including network improvements and roadway modifications

• Alternative transportation options including infrastructure improvements

• Natural systems that reduce GHG emissions or increase the sequestration of carbon

• Reduction of emissions directly associated with construction of the HSR project including the use of low and zero-emission equipment.

Staff Comments:

By expanding the eligible uses of the GGRF funds dedicated to the HSRA, this bill creates a cost pressure on the GGRF. At this time it unknown how large this cost pressure is because according to the HSRA, a consolidated budget for mitigation has not yet been determined. However, staff believes it’s reasonable to assume that the cost pressures could be in the millions of dollars.

Staff notes that the High Speed Rail (HSR) project may have no legally required mitigations since the federal Surface Transportation Board has declared that CEQA is preempted, though this is being challenged in the courts. The HSR will have to comply with NEPA, though NEPA only requires a lead agency to identify potential environmental impacts, not to mitigate them. The HSRA however has made a public commitment to make all stages of construction GHG emission neutral. If the HSRA follows through with this commitment and has considered these mitigations as part of the project budget for the initial operating segment and Phase I Blended system, this bill would ultimately have no costs, so long as the mitigation budget is larger than 25% of the GGRF funds.

On the other hand, if the mitigation projects planned by the HSRA do not exceed 25% of the GGRF funds, then this bill will effectively increase the overall costs for the early phases of HSR.

The HSRA authority believes that this bill can also have indirect costs. They note that to the extent that its funding is restricted for specific purposes, it makes it more difficult to leverage the funds to draw down other potential funding sources. The cost of the effect is undeterminable and potentially speculative.

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SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2015 - 2016 Regular

Bill No: SB 400

SUBJECT: California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund

ANALYSIS:

Existing law:

1. Under the California Global Warming Solutions Act of 2006, requires the California Air Resources Board (ARB) to determine the 1990 statewide greenhouse gas (GHG) emissions level and approve a statewide GHG emissions limit that is equivalent to that level, to be achieved by 2020, and to adopt GHG emissions reductions measures by regulation. ARB is authorized to include the use of market-based mechanisms to comply with these regulations. (Health and Safety Code §38500 et seq.)

2. Establishes the Greenhouse Gas Reduction Fund (GGRF) in the State Treasury, requires all moneys, except for fines and penalties, collected pursuant to a market-based mechanism be deposited in the fund, and requires the Department of Finance, in consultation with the state board and any other relevant state agency, to develop, as specified, a three-year investment plan for the moneys deposited in the GGRF. (Government Code §16428.8)

3. Requires moneys from the GGRF be used to facilitate the achievement of

reductions of GHG emissions in this state consistent with the

California Global Warming Solutions Act of 2006, and authorizes those

funds to be allocated for the purpose of reducing greenhouse gas emissions. Annual budget appropriations of GGRF funds are required to be consistent with the investment plan. (HSC §39712)

4. Requires the GGRF investment plan to allocate, at a minimum, 25% of the funds to benefit disadvantaged communities, and to allocate 10% of GGRF moneys within disadvantaged communities. (HSC §39713)

5. Continuously appropriates 25% of GGRF moneys to the High-Speed Rail Authority for acquisition and construction, environmental review and design, and other capital costs, as well as repayments of loans made to the authority, for the initial operating segment and Phase I Blended System. (HSC §39719)
   
   

This bill:

1. Requires that at least 25% of the moneys appropriated to the High-Speed Rail Authority for the initial operating segment and the Phase I Blended System be allocated to environmental mitigation measures and projects that reduce GHG emissions from transportation sources, and provide a cobenefit of improving air quality.

2. Specifies that priority for these expenditures be given to measures and projects in communities that are located in areas designated as extreme nonattainment.

3. Specifies that these projects may include, but are not limited to, the following:

1. Public transit improvements that reduce congestion by improving transit service or frequency of transit service.

2. Transportation improvements that reduce congestion, including network improvements and roadway modifications.

3. Alternative transportation options, including infrastructure improvements that support clean transportation, facilitate bicycle and pedestrian use, and connect bicycle and pedestrian routes to transit facilities.

4. Natural systems, including rural and urban forests, that reduce greenhouse gas emissions or increase the sequestration of carbon.

5. Reduction of emissions directly associated with construction of the high-speed rail project, including the use of low and zero-emission equipment for transportation and construction.
   
   

Background

1. Use of Cap and Trade Auction Revenue.

ARB has conducted ten cap-and-trade auctions, generating almost $1.6 billion in proceeds to the state.

Several bills in 2012, and one in 2014, provide legislative direction for the expenditure of auction proceeds including SB 535 (De León), Chapter 830, Statutes of 2012, AB 1532 (J. Pérez), Chapter 807, Statutes of 2012, SB 1018 (Budget Committee), Chapter 39, Statutes 2012, and SB 862 (Budget Committee), Chapter 36, Statutes of 2014.

SB 535 (De León), Chapter 830, Statutes of 2012, requires that 25% of auction revenue be used to benefit disadvantaged communities and requires that 10% of auction revenue be invested in disadvantaged communities.

AB 1532 (J. Pérez), Chapter 807, Statutes of 2012, directs the Department of Finance to develop and periodically update a three-year investment plan that identifies feasible and cost-effective GHG emission reduction investments to be funded with cap-and-trade auction revenues. AB 1532 specifies that reduction of greenhouse gas emissions through strategic planning and development of sustainable infrastructure projects, are eligible investments of GGRF.

SB 1018 (Budget Committee), Chapter 39, Statutes of 2012, created the GGRF, into which all auction revenue is to be deposited. The legislation requires that before departments can spend moneys from the GGRF, they must prepare a record specifying: (1) how the expenditures will be used, (2) how the expenditures will further the purposes of AB 32 (Nuñez, Pavley), Chapter 488, Statutes of 2006,

(3) how the expenditures will achieve GHG emission reductions, (4) how the department considered other non-GHG-related objectives, and (5) how the department will document the results of the expenditures.

SB 862 (Budget Committee), Chapter 36, Statutes of 2014, requires the ARB to develop guidelines on maximizing benefits for disadvantaged communities by agencies administering GGRF funds, and guidance for administering agencies on GHG emission reduction reporting and quantification methods.

Legal consideration of cap-and-trade auction revenues: The 2012-13 Budget analysis of cap-and-trade auction revenue by the Legislative Analyst’s Office noted that, based on an opinion from the Office of Legislative Counsel, the auction revenues should be considered mitigation fee revenues, and their use requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for their use to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions.

In 2012, the California Chamber of Commerce filed a lawsuit against the ARB claiming that cap-and-trade auction revenues constitute illegal tax revenue. In November 2013, the superior court ruling declined to hold the auction a tax, concluding that it is more akin to a regulatory fee.

AB 32 auction revenue investment plan: The first three-year investment plan for cap-and-trade auction proceeds, submitted by Department of Finance, in consultation with ARB and other state agencies in May of 2013, identified sustainable communities and clean transportation as one of the key sectors that provide the best opportunities for achieving the legislative goals and supporting the purposes of AB 32. The plan recommended the aforementioned sector receive the largest allocation of funds from the GGRF, but did not specify a monetary amount.

Budget allocations: The 2014-15 Budget allocates $832 million in GGRF revenues to a variety of transportation, energy, and resources programs aimed at reducing GHG emissions. Various agencies are in the process of implementing this funding. The budget agreement specifies how the state will allocate most cap-and-trade auction revenues in 2015-16 and beyond. For all future revenues, the legislation appropriates 25% for the state’s high-speed rail project, 20% for affordable housing and sustainable communities grants, 10% to intercity capital rail projects, and 5% for low-carbon transit operations. The remaining 40% is available for annual appropriation by the Legislature.

The Governor’s proposed 2015-16 cap-and-trade expenditures are largely the same as the 2014-15 plan, albeit with larger amounts proposed allocations for programs with continuous appropriations, including the High-Speed Rail allocation ($250 million).

2. High-Speed Rail.

1. NEPA and CEQA.

The U.S. Surface Transportation Board, in a December 2014 ruling, voted 2-1 that the California Environmental Quality Act, or CEQA, “is categorically pre-empted” in connection with the Fresno-Bakersfield route of the High-Speed Rail project.

Therefore, the environmental planning and review of this segment of the project is governed solely by federal statute pursuant to the National Environmental Protection Act, or NEPA. Although an environmental assessment is required for both the federal and state acts, NEPA, unlike CEQA, does not require that the lead agency take any action to implement mitigation measures to reduce environmental damages caused by the proposed project or legislation.

2. Components of the High-Speed Rail Route.

1. Initial Operating Section (IOS): According to the High-Speed Rail Authority’s 2012 Business Plan, “the IOS of the California high-speed rail system will connect Merced to the San Fernando Valley gateway to Los Angeles. This facility will be transformational in creating a passenger rail nexus between one of the fastest growing regions in the state with the state’s largest population center. Among its many benefits will be the realization of the state’s highest intercity passenger rail priority— closing the state’s single largest gap in intercity rail service—linking north and south at Bakersfield to Palmdale. Immediate steps toward this goal include the prioritization of environmental clearance and other preliminary work necessary for this gap closure.”

2. Phase I Blended System: The Phase I Blended System refers to connecting San Francisco, the Central Valley, and Los Angeles/Anaheim through a combination of dedicated high-speed rail infrastructure blended or integrated with existing intercity and regional/commuter rail systems via coordinated infrastructure.

3. Plan for Mitigation.

According to the High-Speed Rail Authority, high-speed rail should begin reducing emissions in 2022, its first year of operation. The California High-Speed Rail Authority’s June 2013 report, Contribution of the High-Speed Rail Program to Reducing California’s Greenhouse Gas Emission Levels, notes that the “Authority recognizes the importance of delivering this major infrastructure project in a sustainable manner and is committed not only to clean, renewable energy for system operation, but also to mitigating identified environmental impacts during construction.” The report also states that the “Authority is committed to achieving zero net GHG emissions related to construction activities” and outlines a plan for an urban forestry and tree planting program the Authority to help offset direct GHG emissions associated with construction and provide other environmental benefits.

3. Extreme Nonattainment Areas.

The National Ambient Air Quality Standards (NAAQS) are standards established by the United States Environmental Protection Agency under authority of the Clean Air Act that apply for outdoor air throughout the country. These federal standards exist for several air pollutants due to their negative impact on public health above specified concentrations, including ozone, particulate matter, oxides of nitrogen, oxides of sulfur, carbon monoxide, and lead. Nonattainment areas are regions that do not meet the national primary or secondary ambient air quality standard for one of those pollutants. There are several nonattainment designations ranging from concentrations slightly above the standard, termed marginal nonattainment, to extreme nonattainment, where pollution levels far exceed the national standard. The San Joaquin and South Coast air basins are both in extreme nonattainment for ozone.

Comments

1. Purpose of Bill.

According to the author, “California’s High Speed Rail project will deliver the first high-speed rail system in the nation, connecting the major population centers of the state. High Speed Rail promises to contribute to economic development and a cleaner environment, and create jobs and preserve agricultural and protected lands. By 2029, the system will run from San Francisco to the Los Angeles basin in under three hours at speeds capable of over 200 miles per hour.

“Through last year’s budget, the legislature appropriated hundreds of millions of cap and trade dollars to the High Speed Rail Authority for acquisition, construction, planning, and other costs associated with the project. SB 862 (Budget and Fiscal Review Committee – 2014) continuously appropriated 25% of all cap and trade funds for the High Speed Rail project.

“Once the project is completed, it will have a significant beneficial effect on greenhouse gas emissions in California. According to a 2013 report by the High Speed Rail Authority titled “Contribution of the High-Speed Rail Program to Reducing California's Greenhouse Gas Emission Levels” the system will contribute to the State’s goal to reduce greenhouse gasses once the Initial Operating Section is operational, which is anticipated to happen in 2022.

SB 400 provides additional criteria to ensure that a portion of the cap and trade revenues appropriated to the authority are directed to projects and measures that provide an immediate benefit of reducing emissions and improving air quality. The bill will direct funding to transportation projects that provide environmental mitigation opportunities, many of which are identified in the 2013 report.

“Many of the communities along the proposed HSR route are in regions that are disproportionally impacted by poor air quality. Residents living in close proximity to heavily congested transportation corridors through the Central Valley and Los Angeles Basin already suffer adverse health effects from increased emissions. This bill will prioritize projects in those communities.”

SOURCE:

Author

SUPPORT:

None on file

OPPOSITION:

None on file

DOUBLE REFERRAL:

This measure was heard in the Senate Transportation and Housing Committee on April 21, 2015, and passed out of committee with a vote of 7-0.

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SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: SB 400 Hearing Date: 4/21/2015

SUBJECT: California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund

DIGEST: This bill requires the California High-Speed Rail Authority (HSRA) to allocate at least 25% of the appropriated cap-and-trade funds to measures and projects that reduce greenhouse gas (GHG) emissions from transportation sources, and also provide a cobenefit of improving air quality.

ANALYSIS:

Existing law created the HSRA in 1996 to direct development and implementation of intercity high-speed rail service that is fully coordinated with other public transportation services. In 2008, voters approved Proposition 1A authorizing $9.95 billion in general obligation bonds for the high-speed rail program. Prop 1A authorizes HSRA to use bond funds for, among other things, acquisition of rights-of-way, environmental mitigation, and capital construction of the proposed rail system. In addition to bond funds, HSRA has also received some federal grants to partially fund the construction of the system.

In 2006, the Legislature enacted AB 32 (Nuñez), Chapter 488, the Global Warming Act of 2006, which requires the California Air Resources Board (ARB) to establish a statewide GHG emissions limit such that by 2020 California reduces its GHG emissions to the level they were in 1990. Thereafter, ARB must adopt the maximum feasible and cost-effective reductions in GHG emissions for sources subject to AB 32.

As one of its key AB 32 implementation programs, ARB has adopted the Cap-and-Trade Program. Under this program, ARB establishes an overall limit — or “cap” — on GHG emissions from specified industries. Facilities subject to the cap may reduce their own emissions or purchase allowances from others to emit GHGs, including from facilities that have reduced emissions more than required.  In essence, the Cap-and-Trade Program uses market forces in an attempt to reduce GHG emissions in the most economically efficient manner.

As part of the Cap-and-Trade Program, ARB auctions off GHG emission allowances as mitigation fees. To date, ARB has completed 10 auctions, taking in a total of $1.6 billion in proceeds. These funds may only be used to facilitate the achievement of GHG emission reductions in California consistent with AB 32. The Department of Finance, in consultation with ARB and other relevant state agencies, must develop a three-year investment plan for these funds, but ultimately the Legislature and governor appropriate the funds through the annual budget process.

SB 535 (De Leon), Chapter 830, Statutes of 2012 requires the Department of Finance, when developing the three-year investment plan for cap-and-trade monies, to allocate 25% of these funds to projects that provide benefits to disadvantaged communities, and to allocate a minimum of 10% of available cap-and-trade monies to projects located within disadvantaged communities. The bill outlines a process to identify these communities and allows for periodic modification as necessary.

In 2014, the Legislature enacted SB 862 (Committee on Budget and Fiscal Review), Chapter 36, a budget trailer bill which establishes a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. Among other things, SB 862 continuously appropriates 25% of the annual proceeds from cap-and-trade to HSRA for various project components of the high-speed rail program, including:

• Acquisition and construction costs

• Environmental review and design costs

• Other capital costs

• Repayment of any loans made to the authority

This bill requires HSRA to allocate at least 25% of the appropriated cap-and-trade funds to measures and projects that:

• Reduce GHG emissions from transportation sources

• Provide a cobenefit of improving air quality

In addition, this bill requires HSRA to prioritize allocating this funding for measures and projects in communities that are located in areas designated as extreme nonattainment.

COMMENTS:

1. Purpose. According to the author, many of the communities along the proposed high-speed rail route are in regions that are disproportionately impacted by poor air quality. Residents living in close proximity to heavily congested transportation corridors, for example, already suffer adverse health effects from increased emissions. While the high-speed train might reduce future emissions once operational, there is an opportunity for HSRA to use some of the cap-and-trade funds to help impacted communities today. This bill prioritizes projects that reduce GHG emission in these affected regions, consistent with promises HSRA has made throughout the course of the system’s development.

2. Cap-and-trade funding. As previously stated, cap-and trade revenues may only be used to facilitate the achievement of GHG emission reductions in California consistent with AB 32. In fact, the Constitution requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for the state’s use of cap-and-trade funds to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions. A pending lawsuit challenges the state’s use of these revenues on these grounds.

With that in mind, it is important that legislation allocating cap-and-trade revenues ensure that the funds are being used to reduce GHG emissions. If opponents of the program can convince the courts that the revenues are not being used appropriately, the entire cap-and-trade program could be jeopardized.

In June 2013, HSRA submitted to the Legislature a report outlining the high-speed rail program’s contribution to the state’s goal of reducing GHG emissions. The report declares that by 2022, the first year the state plans to operate high-speed trains along the initial operating segment, the direct emissions reduction will be the equivalent of taking 31,000 passenger vehicles off the road. Before operation, however, the construction of the system will produce some significant, yet-to-be-determined, amount of GHG emissions. HSRA states in its report that it will fully offset these emissions through mitigation efforts such as planting trees in the Central Valley and providing funds to local air districts for other emission-reduction projects.

The 2013 report was submitted prior to the Legislature enacting SB 862 and committing 25% of all future cap-and-trade revenues to the high-speed rail program. Undoubtedly HSRA has updated its plans to reduce GHG emissions before operation of the system begins in order to ensure that expenditure of any cap-and-trade funds are meeting the program’s intended purpose. This bill greatly contributes to that aim by requiring HSRA to spend at least 25% of any cap-and-trade revenue on the reduction of GHG emissions.

To further clarify that these funds are to be spent on GHG emission reduction measures, the committee may wish to amend the bill to include a list of example projects eligible for this funding, such as:

• Transit projects that reduce congestion by improving public transportation service or frequency of service

• Transportation improvements that reduce congestion, including network improvements and roadway modifications

• Alternative transportation options, including infrastructure projects that support clean transportation, facilitate increased bicycle and pedestrian use, and improvements that connect bicycle and pedestrian routes to transit facilities

• Natural systems, including forests and urban forests, that reduce greenhouse gas emissions or increase the sequestration of carbon to mitigate the impacts of GHG emissions and create greater climate resiliency

• Measures or projects that reduce emissions directly associated with construction of the product, including the use of low- and zero-emission equipment for transportation and construction

3. State and federal environmental laws. Typical transportation projects in California are vetted through an environmental process in which both state and federal environmental laws apply. It is generally considered more challenging to comply with state environmental laws than the federal laws, primarily because California often requires project sponsors to not only identify environmental impacts but also to develop a plan to mitigate those impacts.

The projects comprising the high-speed rail program are not typical state transportation projects in this case. In 2013, the U.S. Surface Transportation Board, a federal adjudicatory body with regulatory oversight of the nation’s railroads, ruled that it has superior jurisdiction over the California high-speed rail program’s environmental clearance process. This ruling exempts HSRA from state environmental laws because federal law supersedes state requirements. Despite this ruling, HSRA has committed to following the state’s environmental processes as if it were still subject to them.

Unfortunately, the Legislature appears to have overlooked this commitment with the drafting of SB 862, as it does not make mitigation of environmental impacts an eligible use of cap-and-trade funds for the high-speed rail system. This bill takes steps to resolve this inconsistency, but it is not perfectly clear in its present form whether these funds are specifically for environmental mitigation. In light of this, the committee may wish to amend the bill to clarify that the cap-and-trade funds appropriated to HSRA can be spent on, among the existing project components, environmental mitigation of the project.

4. Double referral. The Rules Committee has referred this bill to both this committee and the Environmental Quality Committee. Therefore, if the bill passes this committee, it will be referred to the Committee on Environmental Quality.

Related Legislation:

SB 535 (De Leon, 2012) — requires the three-year investment plan for cap-and-trade monies to allocate 25% of these funds to projects that provide benefits to disadvantaged communities, and to allocate a minimum of 10% of available cap-and-trade monies to projects located within disadvantaged communities.

SB 862 (Committee on Budget and Fiscal Review, 2014) — establishes a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes.

FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 15, 2015.)

SUPPORT:

None received.

OPPOSITION:

None received.

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