(1)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 approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030.

The act requires the state board to prepare and approve a scoping plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions and to update the scoping plan at least once every 5 years.

This bill would require the state board to report to the appropriate policy and fiscal committees of the Legislature to receive input, guidance, and assistance before adopting guidelines and regulations implementing the scoping plan and a regulation ensuring statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030.

This bill would require the state board, no later than January 1, 2019, and in conjunction with specified stakeholders, to report to the Legislature on the need for increased education, career technical education, job training, and workforce development in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the statewide greenhouse gas emissions limit 1990 level no later than December 31, 2030, and as a result of the scoping plan, as specified.

(2)The act authorizes the state board to include the use of market-based compliance mechanisms and to adopt a regulation that establishes a system of market-based declining annual aggregate emissions limits for sources or categories of sources that emit greenhouse gases, applicable from January 1, 2012, to December 31, 2020, inclusive, as specified. mechanisms in implementing the act.

This bill would establish the Compliance Offsets Protocol Task Force for the purpose of investigating, analyzing, and providing guidance to the state board in approving new offset protocols for a market-based compliance mechanism adopted pursuant to this part with a priority on the development of new urban offset protocols, as specified. The bill would require the state board, in conjunction with the task force, to develop a multitiered incentive system for compliance offset credits, as specified.

(1)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 approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030.

(2)The act authorizes the state board to include the use of market-based compliance mechanisms and to adopt a regulation that establishes a system of market-based declining annual aggregate emissions limits for sources or categories of sources that emit greenhouse gases, applicable from January 1, 2012, to December 31, 2020, inclusive, as specified.

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 approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030.

The act authorizes the state board to include the use of market-based compliance mechanisms and to adopt a regulation that establishes a system of market-based declining annual aggregate emissions limits for sources or categories of sources that emit greenhouse gases, applicable from January 1, 2012, to December 31, 2020, inclusive, as specified.

This bill would state the intent of the Legislature to enact legislation that authorizes the state board to utilize a market-based compliance mechanism after December 31, 2020, in furtherance of the statewide greenhouse gas emissions limit of at least 40% below the 1990 level by 2030.

ASSEMBLY THIRD READING

ATR Bill Id:AB 151

Author:(Burke and Cooper)

As Amended Ver:May 2, 2017

Majority vote

SUMMARY: Requires the Air Resources Board (ARB) to develop a specified incentive system for compliance offsets. Requires ARB to report to the Legislature prior to adopting specified greenhouse gas (GHG) regulations, and report on specified workforce issues related to GHG regulation. Specifically, this bill:

1. Requires ARB to report to the appropriate policy and fiscal committees of the Legislature to receive input, guidance, and assistance before adopting guidelines and regulations implementing the scoping plan or rules and regulations to ensure that statewide GHG emissions are reduced to at least 40% below the 2020 statewide limit no later than December 31, 2030.
2. Establishes the Compliance Offsets Protocol Task Force, consisting of specified stakeholders, to investigate, analyze, and provide guidance to ARB in approving new offset protocols, with a priority on the development of new urban offset protocols.
3. Requires ARB, in conjunction with the Task Force, to develop a multi-tiered incentive system for compliance offset credits, in the following order:
   1. Offsets in disadvantaged communities;
   2. Offsets in communities with stationary sources that emit GHGs and are regulated by ARB;
   3. Offsets in the state or on Native American or tribal lands;
   4. Offsets in territories linked to the state through a GHG emission trading program; and,
   5. Offsets in the United States.
4. Requires ARB, by January 1, 2019, to report to the Legislature on the need for increased education, career technical education, job training, and workforce development in ensuring that statewide GHG emissions are reduced to at least 40% below the statewide limit by 2030. Requires ARB to work with the Secretary of Labor and Workforce Development, the Workforce Development Board, the Department of Education, California Community Colleges, Trustees of the California State University, Regents of the University of California, interested stakeholders, and the Green Collar Jobs Council. Requires the report to include policy guidance and recommendations on all of the following:
   1. Creating and retaining jobs and stimulating economic activity in the state;
   2. Preparing the state’s pupils and students with career technical education for the green economy;
   3. Preparing the state’s pupils, students, and workers with the skills necessary to successfully compete in the global economy;
   4. Developing worker retraining programs to assist the existing workforce with the necessary tools to upgrade their skills resulting in a just transition, as that term is defined by ARB;
   5. Responding to the job creation and workforce needs of the state’s new and emerging industries, including emerging technologies that will result in greater GHG emissions reductions;
   6. Integrating workforce skill requirements with the rapidly changing local and regional labor markets;
   7. Developing job training programs to assist specific populations, such as at-risk youth, displaced workers, veterans, and others facing barriers to employment;
   8. Targeting workforce development programs and activities in disadvantaged communities and communities that are located near entities regulated by ARB; and,
   9. Identifying and leveraging state and federal funding resources, including, but not limited to, moneys collected through a market-based compliance mechanism, to implement the recommendations made in the report consistent with the regulatory purposes of this division.

EXISTING LAW:

1. Requires ARB to prepare and approve a scoping plan, on or before January 1, 2009, and once every five years thereafter, for achieving the maximum technologically feasible and cost-effective reductions in GHG emissions from sources or categories of sources of GHGs by 2020.
2. Requires any direct regulation or market-based compliance mechanism to achieve GHG reductions that are real, permanent, quantifiable, verifiable, and enforceable by ARB.
3. Requires ARB to adopt methodologies for the quantification of voluntary GHG emission reductions, and adopt regulations to verify and enforce any voluntary GHG emission reductions that are used to comply with GHG emission limits established by ARB.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. One-time ARB contract costs of $1,750,000 for expert analysis associated with the report on workforce development [Cost of Implementation Account (COIA)].
2. Annual ongoing ARB costs of approximately $1.4 to $1.6 million (COIA) for the report on the scoping plan, to develop a multi-tiered incentive system for compliance offset credits through the offset taskforce, and the education, job training, and workforce development requirements.
3. Unknown, but likely less than $150,000 each, for the Secretary of Labor and Workforce Development, the Workforce Development Board, the Department of Education, California Community Colleges, Trustees of the California State University, Regents of the University of California, and the Green Collar Jobs Council to consult with the ARB on education, job training, and workforce development.

COMMENTS: The cap-and-trade regulation is an important element of ARB's strategy to achieve the 2020 statewide GHG limit. The regulation sets a statewide cap on GHG emissions from sources responsible for approximately 85% of California’s GHG emissions (large industrial facilities and electricity generators emitting more than 25,000 metric tons of CO2 equivalent per year, as well as distributors of fuels, including gasoline, diesel, and natural gas). The cap declines at a rate of about 3% annually, ultimately arriving at the target emission level in 2020. To implement the regulation, ARB issues GHG emission allowances equal to the cap through a combination of free allocation to industrial facilities, consignment to electric and gas utilities on behalf of ratepayers, and quarterly auctions. ARB sets a price floor for auctioned allowances (currently $13.57), and maintains allowances in a price containment reserve, to be sold to mitigate price spikes if allowances prices reach a specified level (currently approximately $50). Allowance price floor and ceiling escalate at 5% per year plus inflation. Once issued, allowances may be traded among entities. At the end of each compliance period, covered entities are required to surrender enough allowances to match their emissions for the period.

In addition to allowances, voluntary, additional emission reductions from sources that are outside the cap, called offsets, can be used to meet up to 8% of a facility's compliance obligation. The 8% limit applies to total emissions, not the reduction obligation. In practice, a facility may increase its GHG emissions and purchase offsets (and/or allowances) to cover excess emissions. Unlike allowances sold at ARB's auctions, purchase of offsets generates no revenue for the state.

To assure that offsets achieve GHG reductions that are real, permanent, quantifiable, verifiable, additional, and enforceable, ARB recognizes only compliance offsets generated by sources that adhere to a compliance offset protocol adopted by ARB. To date, ARB has adopted protocols for the following six project types: livestock manure management, ozone depleting substances (ODS), urban forests, U.S. forests, mine methane capture (MMC), and rice cultivation. U.S. forests projects are the largest source of compliance offsets by far, followed by ODS, livestock and MMC. No compliance offsets have been issued for urban forests or rice cultivation projects.

The majority (76%) of compliance offsets used to date have been generated by projects located outside of California. Arkansas accounts for about one-third of offsets, from large ODS projects. Another one-third are generated by forest projects in states such as Michigan, New Hampshire, and Ohio. California accounts for 24% of offsets, ranging from forest projects on the North Coast to appliance recycling (ODS) in Compton.

The use of offsets for compliance in the cap-and-trade regulation has been invented by ARB with little statutory guidance. While ARB has justified the reliance on compliance offsets as an opportunity for low-cost reductions from outside the cap, others have questioned how offsets, particularly from sources outside the state, might meet AB 32's requirements or otherwise produce benefits in California. ARB staff has recently suggested reducing the offset usage limit to support more air quality co-benefits.

This bill requires ARB to develop an incentive system for compliance offsets, which ranks offsets by location, favoring offsets in disadvantaged communities. Offset projects are, by definition, voluntary, and will only be undertaken where investors can make a profit. An incentive (or a mandate) could be used to induce more local offset projects, but the bill does not say what the incentive will be. Such a system may also work against the cost-containment objective of offsets. Currently, ARB exercises no control over the location of offset projects, beyond limiting to the United States.

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0000821

Date of Hearing: May 17, 2017 REVISED

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 151

Author:(Burke) – As Amended Ver:May 2, 2017

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

SUMMARY:

This bill:

1. Requires the California Air Resources Board (ARB) to report to the Legislature to receive input, guidance, and assistance before adopting guidelines and regulations to implement the scoping plan or rules and regulations to reduce GHG emissions to at least 40% below the 2020 statewide limit by 2030.
2. Establishes the Compliance Offsets Protocol Task Force, consisting of specified stakeholders, to investigate, analyze, and provide guidance to ARB in approving new offset protocols, with a priority on the development of new urban offset protocols.
3. Requires ARB, in conjunction with the Task Force, to develop a multi-tiered incentive system for compliance offset credits, in the following order:
   1. Offsets in disadvantaged communities;
   2. Offsets in communities with stationary sources that emit GHGs and are regulated by ARB;
   3. Offsets in the state or on Native American or tribal lands;
   4. Offsets in territories linked to the state through a GHG emission trading program; and,
   5. Offsets in the United States.
4. Requires ARB, by January 1, 2019, to report to the Legislature on the need for increased education, career technical education, job training, and workforce development in ensuring that statewide GHG emissions are reduced to at least 40% below the statewide limit by 2030.

Requires ARB to work with the Secretary of Labor and Workforce Development, the Workforce Development Board, the Department of Education, California Community Colleges, Trustees of the California State University, Regents of the University of California, interested stakeholders, and the Green Collar Jobs Council. Requires the report to include specified policy guidance and recommendations.

FISCAL EFFECT:

1. One-time ARB contract costs of $1,750,000 for expert analysis associated with the report on workforce development [Cost of Implementation Account (COIA)].
2. Annual ongoing ARB costs of approximately $1.4 to $1.6 million (COIA) for the report on the scoping plan, to develop a multi-tiered incentive system for compliance offset credits through the offset taskforce, and the education, job training, and workforce development requirements.
3. Unknown, but likely less than $150,000 each, for the Secretary of Labor and Workforce Development, the Workforce Development Board, the Department of Education, California Community Colleges, Trustees of the California State University, Regents of the University of California, and the Green Collar Jobs Council to consult with the ARB on education, job training, and workforce development.

COMMENTS:

1. Purpose. According to the author, "AB 151 increases the role of the Legislature in important climate policy decisions, provides the Legislature with necessary information regarding the need for increased career technical education and workforce development as the state works towards the 2030 target, and provides the needed statutory guidance and prioritization of the use of offsets.

Cap-and-trade is an important tool to get California to the 2020 target established in AB 32 and the 2030 target established in SB 32. While there are many conversations that are taking place regarding reforms, it is important that the Legislature improve upon the current program, get rid of the looming legal uncertainty, all while addressing the economic wellbeing and health of Californians."

1. Background. The California Global Warming Solutions Act of 2006 (AB 32) requires ARB to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations, including market-based compliance mechanisms, to achieve maximum technologically feasible and cost-effective GHG emission reductions.
   

As part of the implementation of AB 32 market-based compliance measures, ARB adopted a cap-and-trade program that caps the allowable statewide emissions and provides for the auctioning of emission credits, the proceeds of which are quarterly deposited into the GGRF available for appropriation by the Legislature.

1. Cap-and-trade. The cap-and-trade regulation is an important element of ARB's strategy to achieve the 2020 statewide GHG limit. The regulation sets a statewide cap on GHG emissions from sources responsible for approximately 85% of California’s GHG emissions (large industrial facilities and electricity generators emitting more than 25,000 metric tons of CO2 equivalent per year, as well as distributors of fuels, including gasoline, diesel, and natural gas). The cap declines at a rate of about 3% annually, ultimately arriving at the target emission level in 2020. To implement the regulation, ARB issues GHG emission allowances equal to the cap through a combination of free allocation to industrial facilities, consignment to electric and gas utilities on behalf of ratepayers, and quarterly auctions.

Once issued, allowances may be traded among entities. At the end of each compliance period, covered entities are required to surrender enough allowances to match their emissions for the period. In addition to allowances, voluntary, additional emissions reductions from sources that are outside the cap, called offsets, can be used to meet up to 8% of a facility's compliance obligation.

ARB allocates free allowances to large industrial facilities. Allocation of allowances for most industrial sectors is set at about 90% of average emissions, based on benchmarks that reward efficient facilities. For most industrial sectors, distribution of allowances is updated annually according to the production at each facility.

ARB consigns allowances to electrical distribution and natural gas utilities, with the requirement that the value of allowances must be used to benefit ratepayers and achieve GHG emissions reduction. For electrical distribution utilities, free allocation is set at about 90% of average emissions. For natural gas utilities, free allocation is based on a 2011 supply benchmark.

1. 2030 Scoping Plan. In January 2017, ARB published a scoping plan update, Proposed Strategy for Achieving California's 2030 Greenhouse Gas Target, which is scheduled for adoption by ARB in June. The scoping plan update includes a proposed scenario and four alternatives:
2. Proposed Scenario: Continue the Cap-and-Trade Program combined with an additional 20% reduction of GHG emissions in the refinery sector;
3. Alternative 1: Direct regulations on a wide variety of sectors, such as specific required reductions for all large GHG sources, more renewables, etc.;
4. Alternative 2: A carbon tax to put a price on carbon, instead of the Cap-and Trade Program;
5. Alternative 3: All Cap-and-Trade. This would remove the refinery measure and keep the LCFS at 10%; and,
6. Alternative 4: Cap-and-Tax. This would place a declining cap on industry and natural gas and fuel suppliers, while also requiring them to pay a tax on each ton of GHG emitted.
7. Offsets. In addition to allowances, voluntary, additional emission reductions from sources that are outside the cap, called offsets, can be used to meet up to 8% of a facility's compliance obligation. The 8% limit applies to total emissions, not the reduction obligation. In practice, a facility may increase its GHG emissions and purchase offsets (and/or allowances) to cover excess emissions. Unlike allowances sold at ARB's auctions, purchase of offsets generates no revenue for the state.

To assure that offsets achieve GHG reductions that are real, permanent, quantifiable, verifiable, additional, and enforceable, ARB recognizes only compliance offsets generated by sources that adhere to a compliance offset protocol adopted by ARB. To date, ARB has adopted protocols for the following six project types: livestock manure management, ozone depleting substances (ODS), urban forests, U.S. forests, mine methane capture (MMC), and rice cultivation. U.S. forests projects are the largest source of compliance offsets by far, followed by ODS, livestock and MMC. No compliance offsets have been issued for urban forests or rice cultivation projects.

The majority (76%) of compliance offsets used to date have been generated by projects located outside of California. Arkansas accounts for about one-third of offsets, from large ODS projects. Another one-third are generated by forest projects in states such as Michigan, New Hampshire, and Ohio. California accounts for 24% of offsets, ranging from forest projects on the North Coast to appliance recycling (ODS) in Compton. The use of offsets remains controversial.

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: April 24, 2017

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Cristina Garcia, Chair

ABPCA Bill Id:AB 151 (

Author:Burke) – As Amended Ver:March 2, 2017

SUBJECT: California Global Warming Solutions Act of 2006: market-based compliance mechanisms: scoping plan: report

SUMMARY: Eliminates the December 31, 2020 limit on the Air Resources Board's (ARB) cap-and-trade authority and disconnects the cap-and-trade authority from the purpose of achieving the statewide greenhouse gas (GHG) emissions limit. Requires ARB to develop a specified incentive system for compliance offsets. Requires ARB to report to the Legislature prior to adopting specified GHG regulations, and report on specified workforce issues related to GHG regulation.

EXISTING LAW:

1. Requires ARB to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and to adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions.
2. Requires ARB, in adopting rules and regulations to achieve the maximum technologically feasible and cost-effective GHG emissions reductions, to ensure that statewide GHG emissions are reduced to at least 40% below the 2020 statewide limit no later than December 31, 2030.
3. Requires ARB, when it adopts regulations to achieve GHG emission reductions beyond the 2020statewide limit, to consider social costs and prioritize direct emission reductions at large stationary, mobile, and other sources.
4. Authorizes ARB, in furtherance of achieving the 2020 statewide limit, to adopt a regulation that establishes a system of market-based declining annual aggregate emission limits for sources or categories of sources that emit greenhouse gas emissions, applicable from

January 1, 2012, to December 31, 2020, to comply with GHG reduction regulations, once specified conditions are met. ARB has adopted a cap-and-trade regulation which applies to large industrial facilities and electricity generators emitting more than 25,000 metric tons of CO2 equivalent per year, as well as distributors of fuels, including gasoline, diesel, and natural gas.

1. Requires ARB to prepare and approve a scoping plan, on or before January 1, 2009, and once every five years thereafter, for achieving the maximum technologically feasible and cost-effective reductions in GHG emissions from sources or categories of sources of GHGs by 2020.
2. Requires any direct regulation or market-based compliance mechanism to achieve GHG reductions that are real, permanent, quantifiable, verifiable, and enforceable by ARB.
3. Requires ARB to adopt methodologies for the quantification of voluntary GHG emission reductions, and adopt regulations to verify and enforce any voluntary GHG emission reductions that are used to comply with GHG emission limits established by ARB.

THIS BILL:

1. Extends ARB's cap-and-trade authority indefinitely and disconnects the cap-and-trade authority from achieving a statewide GHG limit.
2. Requires ARB to report to the appropriate policy and fiscal committees of the Legislature to receive input, guidance, and assistance before adopting guidelines and regulations implementing the scoping plan or rules and regulations to ensure that statewide GHG emissions are reduced to at least 40% below the 2020 statewide limit no later than December 31, 2030.
3. Establishes the Compliance Offsets Protocol Task Force, consisting of specified stakeholders, to investigate, analyze, and provide guidance to ARB in approving new offset protocols, with a priority on the development of new urban offset protocols.
4. Requires ARB, in conjunction with the Task Force, to develop a multi-tiered incentive system for compliance offset credits, in the following order:
   1. Offsets in disadvantaged communities;
   2. Offsets in communities with stationary sources that emit GHGs and are regulated by ARB;
   3. Offsets in the state or on Native American or tribal lands;
   4. Offsets in territories linked to the state through a GHG emission trading program; and,
   5. Offsets in the United States.
5. Requires ARB, by January 1, 2019, to report to the Legislature on the need for increased education, career technical education, job training, and workforce development in ensuring that statewide GHG emissions are reduced to at least 40% below the statewide limit by 2030. Requires ARB to work with the Secretary of Labor and Workforce Development, the Workforce Development Board, the Department of Education, California Community Colleges, Trustees of the California State University, Regents of the University of California, interested stakeholders, and the Green Collar Jobs Council. Requires the report to include policy guidance and recommendations on all of the following:
   1. Creating and retaining jobs and stimulating economic activity in the state;
   2. Preparing the state’s pupils and students with career technical education for the green economy;
   3. Preparing the state’s pupils, students, and workers with the skills necessary to successfully compete in the global economy;
   4. Developing worker retraining programs to assist the existing workforce with the necessary tools to upgrade their skills resulting in a just transition, as that term is defined by ARB;
   5. Responding to the job creation and workforce needs of the state’s new and emerging industries, including emerging technologies that will result in greater GHG emissions reductions;
   6. Integrating workforce skill requirements with the rapidly changing local and regional labor markets;
   7. Developing job training programs to assist specific populations, such as at-risk youth, displaced workers, veterans, and others facing barriers to employment;
   8. Targeting workforce development programs and activities in disadvantaged communities and communities that are located near entities regulated by ARB; and,
   9. Identifying and leveraging state and federal funding resources, including, but not limited to, moneys collected through a market-based compliance mechanism, to implement the recommendations made in the report consistent with the regulatory purposes of this division.

FISCAL EFFECT: Unknown

COMMENTS:

1. Cap-and-trade. The cap-and-trade regulation is an important element of ARB's strategy to achieve the 2020 statewide GHG limit. The regulation sets a statewide cap on GHG emissions from sources responsible for approximately 85% of California’s GHG emissions (large industrial facilities and electricity generators emitting more than 25,000 metric tons of CO2 equivalent per year, as well as distributors of fuels, including gasoline, diesel, and natural gas). The cap declines at a rate of about 3% annually, ultimately arriving at the target emission level in 2020. To implement the regulation, ARB issues GHG emission allowances equal to the cap through a combination of free allocation to industrial facilities, consignment to electric and gas utilities on behalf of ratepayers, and quarterly auctions. ARB sets a price floor for auctioned allowances (currently $13.57), and maintains allowances in a price containment reserve, to be sold to mitigate price spikes if allowances prices reach a specified level (currently approximately $50). Allowance price floor and ceiling escalate at 5% per year plus inflation. Once issued, allowances may be traded among entities. At the end of each compliance period, covered entities are required to surrender enough allowances to match their emissions for the period.
2. Offsets. In addition to allowances, voluntary, additional emission reductions from sources that are outside the cap, called offsets, can be used to meet up to 8% of a facility's compliance obligation. The 8% limit applies to total emissions, not the reduction obligation. In practice, a facility may increase its GHG emissions and purchase offsets (and/or allowances) to cover excess emissions. Unlike allowances sold at ARB's auctions, purchase of offsets generates no revenue for the state.

To assure that offsets achieve GHG reductions that are real, permanent, quantifiable, verifiable, additional, and enforceable, ARB recognizes only compliance offsets generated by sources that adhere to a compliance offset protocol adopted by ARB. To date, ARB has adopted protocols for the following six project types: livestock manure management, ozone depleting substances (ODS), urban forests, U.S. forests, mine methane capture (MMC), and rice cultivation. U.S. forests projects are the largest source of compliance offsets by far, followed by ODS, livestock and MMC. No compliance offsets have been issued for urban forests or rice cultivation projects.

The majority (76%) of compliance offsets used to date have been generated by projects located outside of California. Arkansas accounts for about one-third of offsets, from large ODS projects. Another one-third are generated by forest projects in states such as Michigan, New Hampshire, and Ohio. California accounts for 24% of offsets, ranging from forest projects on the North Coast to appliance recycling (ODS) in Compton.

The use of offsets for compliance in the cap-and-trade regulation has been invented by ARB with little statutory guidance. While ARB has justified the reliance on compliance offsets as an opportunity for low-cost reductions from outside the cap, others have questioned how offsets, particularly from sources outside the state, might meet AB 32's requirements or otherwise produce benefits in California. ARB staff has recently suggested reducing the offset usage limit to support more air quality co-benefits.

1. 2030 Scoping Plan. In January 2017, ARB published a scoping plan update, Proposed Strategy for Achieving California's 2030 Greenhouse Gas Target,^[1] which is scheduled for adoption by ARB in June. The scoping plan update proposes the following major elements:
   1. SB 350: Achieve 50% Renewables Portfolio Standard (RPS), and double energy efficiency savings, by 2030;
   2. Low Carbon Fuel Standard (LCFS): Increased stringency (reducing carbon intensity 18% by 2030, up from 10% in 2020);
   3. Mobile Source Strategy (Cleaner Technology and Fuels Scenario): Maintain existing GHG standards for light- and heavy-duty vehicles. Put 4.2 million zero-emission vehicles (ZEVs) on the roads. Increase ZEV buses, delivery and other trucks;
   4. Sustainable Freight Action Plan: Improve freight system efficiency. Maximize use of near-zero emission vehicles and equipment powered by renewable energy. Deploy over 100,000 zero-emission trucks and equipment by 2030;
   5. Short-Lived Climate Pollutant (SLCP) Reduction Strategy: Reduce emissions of methane and hydrofluorocarbons 40% below 2013 levels by 2030. Reduce emissions of black carbon 50% below 2013 levels by 2030;
   6. SB 375 Sustainable Communities Strategies: Increased stringency of 2035 targets;
   7. Post-2020 Cap-and-Trade Program. Declining caps, continued linkage with Québec, and linkage to Ontario, Canada. ARB will look for opportunities to strengthen the program to support more air quality co-benefits, including specific program design elements. In Fall 2016, ARB staff described potential future amendments including reducing the offset usage limit, redesigning the allocation strategy to reduce free allocation to support increased technology and energy investment at covered entities and reducing allocation if the covered entity increases criteria or toxics emissions over some baseline. The scoping plan proposes a 20% reduction in GHG emissions from the refinery sector; and,
   8. By 2018, develop Integrated Natural and Working Lands Action Plan to secure California’s land base as a net carbon sink.

The scoping plan update includes a proposed scenario and four alternatives:

1. Proposed Scenario: Continuing the Cap-and-Trade Program combined with an additional 20% reduction of GHG emissions in the refinery sector;
2. Alternative 1: Direct regulations on a wide variety of sectors, such as specific required reductions for all large GHG sources, more renewables, etc.;
3. Alternative 2: A carbon tax to put a price on carbon, instead of the Cap-andTrade Program;
4. Alternative 3: All Cap-and-Trade. This would remove the refinery measure and keep the LCFS at 10%; and,
5. Alternative 4: Cap-and-Tax. This would place a declining cap on industry and natural gas and fuel suppliers, while also requiring them to pay a tax on each ton of GHG emitted.
6. Effect of proposed offset incentive system is uncertain. This bill requires ARB to develop an incentive system for compliance offsets, which ranks offsets by location, favoring offsets in disadvantaged communities. Offset projects are, by definition, voluntary, and will only be undertaken where investors can make a profit. An incentive (or a mandate) could be used to induce more local offset projects, but the bill does not say what the incentive will be. Such a system may also work against the cost-containment objective of offsets. Currently, ARB exercises no control over the location of offset projects, beyond limiting to the United States.

This committee has previously approved bills that favor local offset sources that resulted in local air quality benefits. For example, AB 153 (Bonilla, 2013) required ARB to prioritize offset protocols based on "green" job and air quality considerations, and AB 1404 (De León, 2009) reduced offset limits and prioritized local sources that resulted in local air quality benefits. None of the several offset bills introduced since the cap-and-trade regulation was developed has been enacted.

1. Indefinite cap-and-trade extension leaves questions about how cap-and-trade will relate to direct measures and statewide limits after 2030. Cap-and-trade was authorized in AB 32 to achieve the 2020 statewide limit. Last session, the Legislature established a 2030 statewide limit (SB 32), as well as 2030 targets for SLCPs (SB 1383), renewable energy and energy efficiency (SB 350), but did not extend cap-and-trade. An indefinite extension of cap-and-trade, with no reference to a statewide limit, raises questions about the role of cap-and-trade after 2030 and how it relates to AB 197's requirement that ARB prioritize direct emission reductions at large stationary, mobile, and other sources when it adopts regulations to achieve GHG emission reductions beyond the statewide limit. The cap-and-trade extension in this bill conflicts with AB 378, also pending in this committee, which extends cap-and-trade to 2030, as part of a mix of measures to meet SB 32's 2030 limit, subject to conditions to assure industrial facilities meet minimum air pollution standards.

REGISTERED SUPPORT / OPPOSITION:

Support

Agricultural Council of California (in concept)

California Building Industry Association (in concept)

California Business Properties Association (in concept)

California Business Roundtable (in concept)

California Council for Environmental and Economic Balance (if amended)

California Farm Bureau Federation (in concept)

California Manufacturers and Technology Association (in concept)

Western States Petroleum Association (in concept)

Opposition

Asian Pacific Environmental Network

California Environmental Justice Alliance

Center for Community Action and Environmental Justice

Center of Race, Poverty & the Environment

Central Coast Alliance United for a Sustainable Economy

Communities for a Better Environment

Environmental Health Coalition

Friends of the Earth

Leadership Counsel for Justice and Accountability

People Organizing to Demand Environmental and Economic Rights

Physicians for Social Responsibility – Los Angeles

Strategic Concepts in Organizing and Policy Education

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. /

1. https://www.arb.ca.gov/cc/scopingplan/2030sp_pp_final.pdf ↑