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 act authorizes the state board to include the use of market-based compliance mechanisms. The act requires the state board 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, when adopting rules and regulations to achieve greenhouse gas emissions reductions beyond the statewide greenhouse gas emissions limit and to protect the states most impacted and disadvantaged communities, to follow specified requirements, consider the social costs of the emissions of greenhouse gases, and prioritize specified emission reduction rules and regulations.

This bill would additionally require the state board to consider and account for the social costs of the emissions and of greenhouse gases when adopting those rules and regulations. The bill would authorize the state board to adopt or amend regulations that establish a market-based compliance mechanism, applicable from January 1, 2021, to December 31, 2030, to complement direct emissions reduction measures in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. The bill would prohibit the state board from permitting a facility to increase its annual emissions of greenhouse gases compared to the annual average of emissions of greenhouse gases reported during specified years. The bill would authorize the state board to adopt no-trade zones or facility-specific declining greenhouse gas emissions limits where facilities emissions contribute to a cumulative pollution burden that creates a significant health impact.

This bill would require the state board, in consultation with affected air pollution control and air quality management districts, to adopt air pollutant emissions standards for emissions of criteria air pollutants and toxic air contaminants at industrial facilities that are subject to a market-based compliance mechanism. The bill would prohibit the state board from allocating allowances as part of a market-based compliance mechanism to industrial facilities that do not meet the air pollutant emissions standards for criteria air pollutants and toxic air contaminants.

This bill would require the state board, in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030, to adopt the most effective and equitable mix of emissions reduction measures and ensure that emissions reduction measures collectively and individually support achieving air quality and other environmental and public health goals.

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 act authorizes the state board to include the use of market-based compliance mechanisms. The act requires the state board 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, when adopting rules and regulations to achieve greenhouse gas emissions reductions beyond the statewide greenhouse gas emissions limit and to protect the states most impacted and disadvantaged communities, to follow specified requirements, consider the social costs of the emissions of greenhouse gases, and prioritize specified emission reduction rules and regulations.

This bill would additionally require the state board to consider and account for the social costs of the emissions and greenhouse gases when adopting those rules and regulations. The bill would authorize the state board to adopt or subsequently revise new amend regulations that establish a market-based compliance mechanism, applicable from January 1, 2021, to December 31, 2030, to complement direct emissions reduction measures in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. The bill would prohibit the state board from permitting a facility to increase its annual emissions of greenhouse gases compared to the annual average of emissions of greenhouse gases reported during specified years. The bill would authorize the state board to adopt no-trade zones or facility-specific declining greenhouse gas emissions limits where facilities emissions contribute to a cumulative pollution burden that creates a significant health impact.

This bill would require the state board, in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030, to adopt the most effective and equitable mix of emissions reduction measures and ensure that emissions reduction measures collectively and individually support achieving air quality and other environmental and public health goals.

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 act authorizes the state board to include the use of market-based compliance mechanisms. The act requires the state board 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, when adopting rules and regulations to achieve greenhouse gas emissions reductions beyond the statewide greenhouse gas emissions limit and to protect the states most impacted and disadvantaged communities, to follow specified requirements, consider the social costs of the emissions of greenhouse gases, and prioritize specified emission reduction rules and regulations.

This bill would additionally require the state board to consider and account for the social costs of the emissions and greenhouse gases when adopting those rules and regulations. The bill would authorize the state board to adopt or subsequently revise new regulations that establish a market-based compliance mechanism, applicable from January 1, 2021, to December 31, 2030, to complement direct emissions reduction measures in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030.

This bill would require the state board, in ensuring that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030, to adopt the most effective and equitable mix of emissions reduction measures and ensure that emissions reduction measures collectively and individually support achieving air quality and other environmental and public health goals.

ASSEMBLY THIRD READING

ATR Bill Id:AB 378

Author:(Cristina Garcia, et al.)

As Amended Ver:May 30, 2017

Majority vote

SUMMARY: Extends the Air Resources Board's (ARB) cap-and-trade authority to 2030 and requires ARB to adopt air pollutant emissions standards that industrial facilities must meet to receive free allowances after 2020. Specifically, this bill:

1. Extends ARB's cap-and-trade authority to 2030.
2. Authorizes ARB to adopt "no-trade zones" or facility-specific declining greenhouse gas (GHG) limits where facilities' emissions contribute to a cumulative pollution burden that creates a significant health impact.
3. Requires ARB, in consultation with each affected district, to adopt air pollutant emissions standards for industrial facilities subject to cap-and-trade.
4. Requires ARB to evaluate the air pollutant emissions of each industrial facility, based on the following factors:
   1. Permitted and actual emissions of criteria air pollutants and toxic air contaminants;
   2. Date of the most recent new source review conducted pursuant to the federal Clean Air Act for each emission unit;
   3. Emissions control measures for each criteria air pollutant and toxic air contaminant, including, but not limited to, emissions control technology for each emission unit;
   4. Whether each emission unit meets "best available control technology" or "best available retrofit control technology," as applicable;
   5. The performance of similar industrial facilities; and,
   6. District records of complaints, enforcement actions, and penalties.
5. Prohibits ARB, after 2020, from allocating allowances pursuant to cap-and-trade to an industrial facility that does not meet the air pollutant emissions standards.

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. Require ARB, when it adopts regulations to achieve GHG emission reductions beyond the 2020 statewide 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.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Increased annual Greenhouse Gas Reduction Fund (GGRF) revenues, potentially in the hundreds of millions of dollars range, resulting from the extension of ARB's cap-and-trade authority from 2020 to 2030.
2. Initial ARB costs of $3.2 million including 18 positions and an additional $500,000 in contract funds for the first two years (Cost of Implementation Account).

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 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.

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.

According a September 2016 research brief, Preliminary Environmental Equity Assessment of California's Cap-and-Trade Program^[2]:

For residents living near large industrial facilities, AB 32 offered the possibility that along with reductions in GHGs, emissions of other harmful pollutants would also be decreased in their neighborhoods. Carbon dioxide (CO2), the primary GHG, indirectly impacts health by causing climate change but is not directly harmful to health in the communities where it is emitted. However, GHG emissions are usually accompanied by releases of other pollutants such as particulate matter (PM10) and air toxics that can directly harm the health of nearby residents. In this brief, we assess inequalities in the location of GHG-emitting facilities and in the amount of GHGs and PM10 emitted by facilities regulated under cap-and-trade. We also provide a preliminary evaluation of changes in localized GHG emissions from large point sources since the advent of the program in 2013.

We found that regulated GHG-emitting facilities are located in neighborhoods with higher proportions of residents of color and residents living in poverty. In addition, facilities that emit the highest levels of both GHGs and PM10 are also more likely to be located in communities with higher proportions of residents of color and residents living in poverty. This suggests that the public health and environmental equity co-benefits of California's cap-and-trade program could be enhanced if there were more emissions reductions among the larger emitting facilities that are located in disadvantaged communities. In terms of GHG emission trends, in-state emissions have increased on average for several industry sectors since the advent of the cap-and-trade program, with many high emitting companies using offset projects located outside of California to meet their compliance obligations. Enhanced data collection and availability can strengthen efforts to track future changes in GHG and co-pollutant emissions and inform decision making in ways that incentivize deeper in-state reductions in GHGs and better maximize public health benefits and environmental equity goals.

In February 2017, the Office of Environmental Health Hazard Assessment (OEHHA) report Tracking and Evaluation of Benefits and Impacts of Greenhouse Gas Limits in Disadvantaged Communities^[3] made the following findings:

1. A disproportionate number of facilities subject to the Cap-and-Trade Program are located in disadvantaged communities. Of the 281 facilities analyzed, 57% are located in or within one-half mile of an SB 535 disadvantaged community. More specifically, 15 of 20 refineries (75%), 5 of 7 hydrogen plants (71%) and 72 of the 110 facilities classified by ARB as "other combustion source" facilities (65%) are located in or within one-half mile of a disadvantaged community. While people's actual exposures to toxic co-pollutants emitted from these facilities would depend on various factors such as meteorological conditions and smokestack heights, changes in co-pollutant emissions resulting from the Cap-and-Trade Program would nonetheless tend to have disproportionate benefits (if emissions decrease) or adverse impacts (if emissions increase) on disadvantaged communities because of their proximity to these facilities;
2. There were moderate correlations between GHG emissions and the emissions of criteria air pollutants. The strongest correlation was with fine particulate matter emissions (PM2.5). There was also moderate correlation between GHG and toxic chemical emissions across the entire set of Cap-and-Trade facilities with covered emissions. Some individual industrial sectors showed greater correlations between emissions of GHGs and toxic co-pollutants. Refineries overall showed a strong correlation, while cement plants showed a moderate correlation. Oil and gas production facilities also showed a moderate correlation, depending on the statistical measure used. Facilities in certain sectors with broad ranges in emissions levels (e.g. electricity generation facilities) showed increased correlation with a specific statistical analysis (logarithmic transformation). This report only looked at emissions from one recent year (2014), however, because this was the only year for which air toxics data could be obtained in time for this analysis;
3. OEHHA also conducted a more detailed case study of nine cement plants and 19 refineries. These facilities have relatively high toxicity-weighted emissions, and data for the years 2011-2014 were available. The different plants showed varying levels of correlation among GHG, toxicity-weighted emissions, and PM2.5 emissions during the four-year period. Several cement facilities showed modest positive correlations between GHG and toxicity-weighted emissions, while two cement facilities showed poorer correlations. For refineries, there generally was a positive correlation between GHG and toxicity-weighted air emissions. Facilities with high levels of GHG emissions generally had higher PM2.5 and toxicity-weighted emissions. There were some differences among individual refineries in the relationships between GHGs, toxicity-weighted and PM2.5 emissions, perhaps reflecting differences in the kinds of products made at each of the refineries; and,
4. These results indicate that the relationship between GHGs and other pollutant emissions is complex. GHG facilities that emit higher levels of GHGs tend to have higher emissions of toxic air contaminants and criteria air pollutants. There is a need for additional investigation into the factors that drive emission changes, how GHG emission reductions are likely to be achieved in different industrial sectors, and what that may mean for concomitant changes in emissions of toxic air pollutants. Nonetheless, these analyses suggest that reductions in GHG emissions are likely to result in lower pollutant exposures in disadvantaged communities, based overall on the positive correlations observed for the 2014 data.

AB 32 recognized the link between climate change, GHG emissions, and air quality. In fact, AB 32 requires ARB to "(e)nsure that activities undertaken pursuant to the regulations complement, and do not interfere with, efforts to achieve and maintain federal and state ambient air quality standards and to reduce toxic air contaminant emissions."

However, the reports referenced above point to the lack of meaningful integration of cap-and-trade and air pollution control, while suggesting that cap-and-trade may permit, or even enable, increased GHG emissions at facilities without regard to associated air pollution impacts.

These concerns have led ARB to propose reducing the offset usage limit, reducing allowance allocation to covered entities that increase criteria or toxics emissions over some baseline, and requiring a 20% reduction in GHG emissions from the refinery sector.

This bill creates a framework for grading industrial facilities' air quality performance and creating a uniform air pollution standard that facilities must meet to receive allocation of free allowances from ARB beginning in 2021.

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0000926

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

2. http://dornsife.usc.edu/assets/sites/242/docs/Climate_Equity_Brief_CA_Cap_and_Trade_Sept2016_FINAL2.pdf ↑

3. https://oehha.ca.gov/media/downloads/environmental-justice/report/oehhaab32report020217.pdf ↑

Date of Hearing: May 3, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 378

Author:(Cristina Garcia) – As Amended Ver:April 18, 2017

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

SUMMARY:

This bill extends the Air Resources Board's (ARB) cap-and-trade authority to 2030 and integrates specified air quality performance requirements into the program. Specifically, this bill:

1. Extends ARB's cap-and-trade authority to 2030.
2. Prohibits ARB from permitting a facility to increase its annual greenhouse gas (GHG) emissions compare to the average of emissions reported from 2014 to 2016.
3. Authorizes ARB to adopt "no-trade zones" or facility-specific declining GHG limits where facilities' emissions contribute to a cumulative pollution burden that creates a significant health impact.
4. Requires ARB, in consultation with each affected local air district, to adopt air pollutant emissions standards for industrial facilities subject to cap-and-trade.
5. Requires ARB to evaluate the air pollutant emissions of each industrial facility, based on specified factors.
6. Prohibits ARB, after 2020, from allocating allowances pursuant to cap-and-trade to an industrial facility that does not meet the air pollutant emissions standards.

FISCAL EFFECT:

1. Increased annual Greenhouse Gas Reduction Fund (GGRF) Revenues, potentially in the hundreds of millions of dollars range resulting from the extension of ARB's cap-and-trade authority from 2020 to 2030.
2. Initial ARB costs of $3.2 million including 18 positions and an additional $500,000 in contract funds for the first two years (Cost of Implementation Account) for ARB to:
   1. Average each facility's 2014-16 emissions and adopt regulations to prohibit increases in GHG beyond that average.
   2. Adopt pollutant emissions standards applicable to industrial facilities in consultation with each affected local air district.
   3. Ensure no allowances are allocated to an industrial facility that does not meet established emission standards.
   4. Monitor and collect data.
   5. Adopt effective and equitable emission reduction measures to achieve the 2030 goal.
3. Ongoing annual costs of $3.15 million and $100,000 in contract funds (Cost of Implementation Account.)

COMMENTS:

1. Purpose. This bill extends the AB 32 Cap-and-Trade program and integrates air quality performance into the program.
2. 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. Cap-and-Trade and Air Quality. AB 32 recognized the link between climate change, GHG emissions, and air quality. In fact, AB 32 requires ARB to "(e)nsure that activities undertaken pursuant to the regulations complement, and do not interfere with, efforts to achieve and maintain federal and state ambient air quality standards and to reduce toxic air contaminant emissions."

This bill creates a framework for grading industrial facilities' air quality performance and creating a uniform air pollution standard that facilities must meet to receive allocation of free allowances from ARB beginning in 2021.

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 378 (

Author:Cristina Garcia) – As Amended Ver:April 18, 2017

SUBJECT: Greenhouse gases, criteria air pollutants, and toxic air contaminants

SUMMARY: Extends the Air Resources Board's (ARB) cap-and-trade authority to 2030, prohibits a facility from increasing its annual greenhouse gas (GHG) emissions compared to the 2014-2016 average, authorizes ARB to adopt "no-trade zones" or facility-specific declining GHG limits, as specified, requires ARB to adopt air pollutant emissions standards that industrial facilities must meet to receive free allowances after 2020.

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. Require ARB, when it adopts regulations to achieve GHG emission reductions beyond the 2020 statewide 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.

THIS BILL:

1. Extends ARB's cap-and-trade authority to 2030.
2. Prohibits ARB from permitting a facility to increase its annual GHG emissions compare to the average of emissions reported from 2014 to 2016.
3. Authorizes ARB to adopt "no-trade zones" or facility-specific declining GHG limits where facilities' emissions contribute to a cumulative pollution burden that creates a significant health impact.
4. Requires ARB, in consultation with each affected district, to adopt air pollutant emissions standards for industrial facilities subject to cap-and-trade.
5. Requires ARB to evaluate the air pollutant emissions of each industrial facility, based on the following factors:
   1. Permitted and actual emissions of criteria air pollutants and toxic air contaminants;
   2. Date of the most recent new source review conducted pursuant to the federal Clean Air Act for each emission unit;
   3. Emissions control measures for each criteria air pollutant and toxic air contaminant, including, but not limited to, emissions control technology for each emission unit;
   4. Whether each emission unit meets "best available control technology" or "best available retrofit control technology," as applicable;
   5. The performance of similar industrial facilities; and,
   6. District records of complaints, enforcement actions, and penalties.
6. Prohibits ARB, after 2020, from allocating allowances pursuant to cap-and-trade to an industrial facility that does not meet the air pollutant emissions standards.

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. 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,^[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. Cap-and-trade and air quality. According a September 2016 research brief, Preliminary Environmental Equity Assessment of California's Cap-and-Trade Program^[2]:

For residents living near large industrial facilities, AB 32 offered the possibility that along with reductions in GHGs, emissions of other harmful pollutants would also be decreased in their neighborhoods. Carbon dioxide (CO2), the primary GHG, indirectly impacts health by causing climate change but is not directly harmful to health in the communities where it is emitted. However, GHG emissions are usually accompanied by releases of other pollutants such as particulate matter (PM10) and air toxics that can directly harm the health of nearby residents. In this brief, we assess inequalities in the location of GHG-emitting facilities and in the amount of GHGs and PM10 emitted by facilities regulated under cap-and-trade. We also provide a preliminary evaluation of changes in localized GHG emissions from large point sources since the advent of the program in 2013.

We found that regulated GHG-emitting facilities are located in neighborhoods with higher proportions of residents of color and residents living in poverty. In addition, facilities that emit the highest levels of both GHGs and PM10 are also more likely to be located in communities with higher proportions of residents of color and residents living in poverty. This suggests that the public health and environmental equity co-benefits of California’s cap-and-trade program could be enhanced if there were more emissions reductions among the larger emitting facilities that are located in disadvantaged communities. In terms of GHG emission trends, in-state emissions have increased on average for several industry sectors since the advent of the cap-and-trade program, with many high emitting companies using offset projects located outside of California to meet their compliance obligations. Enhanced data collection and availability can strengthen efforts to track future changes in GHG and co-pollutant emissions and inform decision making in ways that incentivize deeper in-state reductions in GHGs and better maximize public health benefits and environmental equity goals.

In February 2017, the Office of Environmental Health Hazard Assessment (OEHHA) report Tracking and Evaluation of Benefits and Impacts of Greenhouse Gas Limits in Disadvantaged Communities^[3] made the following findings:

1. A disproportionate number of facilities subject to the Cap-and-Trade Program are located in disadvantaged communities. Of the 281 facilities analyzed, 57% are located in or within one-half mile of an SB 535 disadvantaged community. More specifically, 15 of 20 refineries (75%), 5 of 7 hydrogen plants (71%) and 72 of the 110 facilities classified by ARB as “other combustion source” facilities (65%) are located in or within one-half mile of a disadvantaged community. While people’s actual exposures to toxic co-pollutants emitted from these facilities would depend on various factors such as meteorological conditions and smokestack heights, changes in co-pollutant emissions resulting from the Cap-and-Trade Program would nonetheless tend to have disproportionate benefits (if emissions decrease) or adverse impacts (if emissions increase) on disadvantaged communities because of their proximity to these facilities;
2. There were moderate correlations between GHG emissions and the emissions of criteria air pollutants. The strongest correlation was with fine particulate matter emissions (PM2.5). There was also moderate correlation between GHG and toxic chemical emissions across the entire set of Cap-and-Trade facilities with covered emissions. Some individual industrial sectors showed greater correlations between emissions of GHGs and toxic co-pollutants. Refineries overall showed a strong correlation, while cement plants showed a moderate correlation. Oil and gas production facilities also showed a moderate correlation, depending on the statistical measure used. Facilities in certain sectors with broad ranges in emissions levels (e.g. electricity generation facilities) showed increased correlation with a specific statistical analysis (logarithmic transformation). This report only looked at emissions from one recent year (2014), however, because this was the only year for which air toxics data could be obtained in time for this analysis;
3. OEHHA also conducted a more detailed case study of nine cement plants and 19 refineries. These facilities have relatively high toxicity-weighted emissions, and data for the years 2011-2014 were available. The different plants showed varying levels of correlation among GHG, toxicity-weighted emissions, and PM2.5 emissions during the four-year period. Several cement facilities showed modest positive correlations between GHG and toxicity-weighted emissions, while two cement facilities showed poorer correlations. For refineries, there generally was a positive correlation between GHG and toxicity-weighted air emissions. Facilities with high levels of GHG emissions generally had higher PM2.5 and toxicity-weighted emissions. There were some differences among individual refineries in the relationships between GHGs, toxicity-weighted and PM2.5 emissions, perhaps reflecting differences in the kinds of products made at each of the refineries; and,
4. These results indicate that the relationship between GHGs and other pollutant emissions is complex. GHG facilities that emit higher levels of GHGs tend to have higher emissions of toxic air contaminants and criteria air pollutants. There is a need for additional investigation into the factors that drive emission changes, how GHG emission reductions are likely to be achieved in different industrial sectors, and what that may mean for concomitant changes in emissions of toxic air pollutants. Nonetheless, these analyses suggest that reductions in GHG emissions are likely to result in lower pollutant exposures in disadvantaged communities, based overall on the positive correlations observed for the 2014 data.
5. Bill proposes the first operative integration of air quality performance and cap-and-trade. AB 32 recognized the link between climate change, GHG emissions, and air quality. In fact, AB 32 requires ARB to "(e)nsure that activities undertaken pursuant to the regulations complement, and do not interfere with, efforts to achieve and maintain federal and state ambient air quality standards and to reduce toxic air contaminant emissions."

However, the reports referenced above point to the lack of meaningful integration of cap-and-trade and air pollution control, while suggesting that cap-and-trade may permit, or even enable, increased GHG emissions at facilities without regard to associated air pollution impacts.

These concerns have led ARB to propose reducing the offset usage limit, reducing allowance allocation to covered entities that increase criteria or toxics emissions over some baseline, and requiring a 20% reduction in GHG emissions from the refinery sector.

This bill creates a framework for grading industrial facilities' air quality performance and creating a uniform air pollution standard that facilities must meet to receive allocation of free allowances from ARB beginning in 2021.

1. Proposed facility cap may need to be adjusted to account for different circumstances. This bill proposes to cap GHG emissions at each facility in cap-and-trade at the average of 2014-2016 emissions. This provision would prevent the use of allowances or offsets to cover increased emissions. While the intent is to prevent cap-and-trade from enabling increased pollution, the broad application of a static cap to every facility in cap-and-trade may be impractical. For example, it does not account for normal variations in production. It is also unclear how it would apply to expanded or new facilities.

REGISTERED SUPPORT / OPPOSITION:

Support

American Lung Association in California

City of Pico Rivera

Coalition for Clean Air

Environmental Defense Fund (in concept)

Environmental Entrepreneurs

First Priority GreenFleet

Green Commuter

Natural Resources Defense Council

NextGen California

Proterra

Union of Concerned Scientists

Voices for Progress Education Fund

Opposition

California Building Industry Association

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California League of Food Processors

California Manufacturers and Technology Association

Sacramento Regional Builders Exchange

Western States Petroleum Association

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

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

2. http://dornsife.usc.edu/assets/sites/242/docs/Climate_Equity_Brief_CA_Cap_and_Trade_Sept2016_FINAL2.pdf ↑

3. https://oehha.ca.gov/media/downloads/environmental-justice/report/oehhaab32report020217.pdf ↑