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. Existing law requires all moneys, except for fines and penalties, collected by the state board as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law requires the Department of Finance, in consultation with the state board and any other relevant state agency, to develop, as specified, a 3-year investment plan for the moneys deposited in the Greenhouse Gas Reduction Fund. Existing law requires moneys from the fund to be allocated for the purpose of reducing greenhouse gas emissions in this state and satisfying other purposes. Existing law authorizes specified investments, including land and natural resource conservation and management, if the investment furthers the regulatory purposes of the act and is consistent with law.

This bill would authorize the use of the moneys in the fund for the reuse of dredged material for wetland restoration projects, as specified, projects that may make use of dredged material if the investment furthers the regulatory purposes of the act and is consistent with law.

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. Existing law requires all moneys, except for fines and penalties, collected by the state board as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates 60% of the annual proceeds of the fund for transit, affordable housing, sustainable communities, and high-speed rail purposes. Existing law requires the Department of Finance, in consultation with the state board and any other relevant state agency, to develop, as specified, a 3-year investment plan for the moneys deposited in the Greenhouse Gas Reduction Fund. Existing law requires moneys from the fund to be allocated for the purpose of reducing greenhouse gas emissions in this state and satisfying other purposes. Existing law authorizes specified investments, including land and natural resource conservation and management, if the investment furthers the regulatory purposes of the act and is consistent with law.

This bill would provide that proceeds of the fund may be appropriated to reduce greenhouse gas emissions by the reuse of dredged material for wetland restoration, flood protection, and carbon sequestration. authorize the use of the moneys in the fund for the reuse of dredged material for wetland restoration projects, as specified, if the investment furthers the regulatory purposes of the act and is consistent with law.

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. Existing law requires all moneys, except for fines and penalties, collected by the state board as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates 60% of the annual proceeds of the fund for transit, affordable housing, sustainable communities, and high-speed rail purposes.

This bill, commencing in the 201718 fiscal year, bill would provide that an unspecified percentage of the annual proceeds of the fund, upon appropriation, would be available for expenditure on beneficial fund may be appropriated to reduce greenhouse gas emissions by the reuse of high-quality dredged material for wetland restoration, flood protection, and carbon sequestration.

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. Existing law requires all moneys, except for fines and penalties, collected by the state board as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates 60% of the annual proceeds of the fund for transit, affordable housing, sustainable communities, and high-speed rail purposes.

This bill, commencing in the 201718 fiscal year, would provide that an unspecified percentage of the annual proceeds of the fund, upon appropriation, would be available for expenditure on beneficial reuse of high-quality dredged material for wetland restoration, flood protection, and carbon sequestration.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

AB 388 (Mullin) - Greenhouse Gas Reduction Fund: wetland restoration projects

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

Bill Summary:

1. AB 388 adds wetlands restoration projects that may make use of dredged materials to the list of allowable uses of Greenhouse Gas Reduction Fund (GGRF) monies.

Fiscal Impact:

• Minor administration costs (GGRF) to the Air Resources Board (ARB) and the California Department of Fish and Wildlife (CDFW).
• Unknown annual cost pressures, potentially in the hundreds of thousands to low millions (GGRF), to fund newly eligible activities.

Background:

California Global Warming Solutions Act of 2006 (Act). The California Global Warming Solutions Act of 2006 requires the 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. The Act also allows the ARB to adopt regulations that utilize market-based compliance mechanisms (cap-and-trade). This authority, which sunsets on December 31, 2020, was extended by Legislature with a 2/3 vote (discussed in Related Legislation). All funds, except for fines and penalties, collected pursuant to a market-based mechanism must be deposited into the Greenhouse Gas Reduction Fund (GGRF), for use on projects and programs that reduce GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. The Act was later amended to require ARB to ensure that statewide GHG emissions are reduced to at least 40% below the 1990 level by December 31, 2030.

The Budget continuously appropriates 35% of cap-and-trade funds for investments in transit, affordable housing, and sustainable communities. Twenty-five percent of the revenues are continuously appropriated to continue the construction of high-speed rail. The remaining 40% are to be appropriated annually by the Legislature for investments in programs that include low-carbon transportation, energy efficiency and renewable energy, and natural resources and waste diversion.

Wetlands Restoration. The CDFW administers the Wetlands Restoration for Greenhouse Gas Reduction Grant Program to fund projects that reduce GHGs and provide cobenefits such as enhancing fish and wildlife habitat, protecting and improving water quality and quantity, and helping California adapt to climate change.

In Fiscal Year 2014-15, CDFW funded 12 wetlands restoration projects, two of which involved the reuse dredged materials. (Dredging is the removal of sediments and debris from the bottom of lakes, rivers, harbors, and other water bodies.) The Initiation of Thin-layered Sediment Augmentation at Seal Beach and the North Campus Open Space Wetlands Restoration at UC Santa Barbara were given almost $5 million between the two projects.

A major hurdle in implementing a beneficial reuse of dredged materials is cost. The federal government will only pay for the least costly disposal method for dredged materials that is consistent with sound engineering practices and meets federal environmental standards. In order for the dredged materials to be used beneficially, the Army requires an interested party to enter into an agreement that specifies the interested party will pay for all costs in excess of the lowest cost disposal alternative identified by the Army.

Proposed Law:

1. This bill adds wetland restoration projects that may make use of dredged materials to the list of allowable uses of Greenhouse Gas Reduction Fund (GGRF) monies.

Related Legislation:

On July 2017, the Governor signed the AB 398 (E. Garcia, Chapter 135, Statutes of 2017) and AB 617 (C. Garcia, Chapter 136, Statutes of 2017), enacting the Legislature’s Cap-and-Trade reauthorization package passed with a 2/3 vote.

Among other things, AB 398 requires the ARB to update the scoping plan by January 1, 2018; extends ARB’s authority to establish a market-based mechanism which includes specified price ceilings, price containment points, offset credit compliance limits, and industry assistance factors for allowance allocation as part of the regulation, and prohibits an air quality management district (AQMD) from adopting or implementing an emission reduction rule for carbon dioxide from stationary sources that are also subject to cap-and-trade. The bill also suspends and then repeals the State Responsibility Area (SRA) and provides additional tax exemptions for qualified tangible personal property, stating legislative intent to backfill losses.

AB 617 requires the ARB to establish a uniform, statewide system for stationary sources to report their emissions of criteria pollutants and toxic air contaminants (TACs); increases civil and criminal penalties for certain types of emissions; and creates community emissions reduction programs for communities exposed to criteria pollutants and TACs, as specified.

Staff Comments:

Cost pressures created by codifying current practice. This bill adds wetland restoration projects that may make use of dredged materials to the list of allowable uses of GGRF monies. While not expressly called-out in current statute, nothing prohibits the reuse of dredging materials in wetlands restoration projects funded by GGRF, and as indicated in the background, CDFW has awarded to GGRF-funded grants for such projects. While the bill codifies an existing practice and does not require funding for these types of projects, the addition to statute eliminates CDFW discretion to enact policies that prohibit the use of funds. In effect, it creates a newly eligible category.

The committee generally views bills that expand eligibility for funding as a cost pressure because the newly eligible projects often displace projects that otherwise would have been funded or requires the allocation of more funding for the program to accommodate newly-eligible projects without impacting currently eligible projects.

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SENATE COMMITTEE ON NATURAL RESOURCES AND WATER

Senator Robert Hertzberg, Chair

2017 - 2018 Regular

Bill No: AB 388 Hearing Date: July 11, 2017

Subject: Greenhouse Gas Reduction Fund: wetland restoration projects

BACKGROUND AND EXISTING LAW

1. AB 32 (Pavley, Chapter 488, Stats. 2006) established the impetus and framework for California’s Cap-and-Trade program, by authorizing the State Air Resources Board (ARB) to pursue greenhouse gas emission goals through regulation. Pursuant to Health and Safety Code § 38566, the Air Resources Board, is required to ensure that statewide greenhouse gas emissions are reduced to a benchmark of at least 40 percent below the statewide greenhouse gas limit by 2030, through the adoption of rules and regulations to achieve the maximum technologically feasible and cost-effective greenhouse gas emissions reduction. SB 32 (Pavley, Chapter 249, Stats. 2016) set the 40% emissions reduction requirement.

2. The Air Resources Board is established within the Natural Resources Agency and has conducted Cap-and-Trade Auctions to pursue the previously stated greenhouse reduction goals. Since November 2012, ARB has conducted eight California-only and 11 joint California-Quebec cap-and-trade auctions.

3. Pursuant to Government Code § 16428.8, existing law establishes the Greenhouse Gas Restoration Fund (GGRF) in the State Treasury, and requires that all moneys collected by the State Air Resources Board from the auction or sale of allowances to be deposited in this fund.

4. GGRF funds are required to be spent on projects that reduce greenhouse gas emissions with certain restrictions. Pursuant to Health and Safety Code § 39712, the use of GGRF funds is for the purposes of reducing greenhouse gas emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture.

5. Several bills in recent years have been heard in the Legislature to develop rules for how the revenues generated by cap-and-trade auctions will be appropriated. SB 535 (de León, Chapter 830, Stats. 2012) requires 25% of auction revenue to be used to benefit disadvantaged communities and requires that 10% of the auction revenue to be invested in disadvantaged communities. Furthermore, AB 1550 (Gomez, Chapter 369, Stats. 2016) requires 25% or more of GGRF moneys to be spent on projects located within and benefiting disadvantaged communities. Finally, AB 1532 (J. Pérez, Chapter 807, Stats. 2012) requires the Department of Finance to identify feasible and cost-effective greenhouse gas emission reduction investments to be funded with revenues from cap-and trade auctions.

6. Wetlands can be a net sequester of carbon in some, but not all, cases. Certain types of wetlands emit more carbon than they sequester, depending in part on microbial activity and the release of methane to the atmosphere. Only 10% of the wetland area found in California 200 years ago remains today.

7. The California Department of Fish and Wildlife (the Department) administers the Wetlands Restoration for Greenhouse Gas Reduction Grant Program to fund projects that reduce greenhouse gases and provide the co-benefits of enhancing fish habitat and wildlife habitat, and protecting and improving water quality and quantity. Wetland restoration can also aid Californians in adapting to climate change, because wetlands can mitigate flooding, improve water quality, and provide aquatic habitat to species.

PROPOSED LAW

This bill would:

1. Clarify the authorization for the use of GGRF funds for the purposes of reusing dredged material for wetland restoration projects, including projects that provide flood protection and carbon sequestration, to the provision of law that authorizes GGRF funds.

ARGUMENTS IN SUPPORT

The author argues that “AB 388 allows Greenhouse Gas Reduction Funds to cover the cost of reusing dredged sediment for wetland restoration projects rather than disposing the sediment at sea. This bill can help leverage federal money for projects that capture carbon while providing the additional benefits of flood protection. California is the only coastal state without a funding program for the beneficial reuse of this dredged sediment.”

ARGUMENTS IN OPPOSITION

None received

COMMENTS

1. Not all wetland restoration projects would qualify for GGRF consideration. Whether restoring a wetland provides a net decrease in carbon emissions depends on the individual characteristics of the wetland, and the activity of the wetland’s microbes, in particular. Most freshwater wetlands sequester carbon from the atmosphere through wetland plants, but wetlands also have high methane emissions. Furthermore, for lowland wetlands, where dredged sediment is likely to be used for restoration projects, it is unclear the degree to which overall net carbon emissions will increase or decrease.
2. Previous GGRF funds have been used for restoration of wetlands using dredged materials. Wetland restoration projects that reduce carbon emissions and make use of dredged material have been approved for GGRF funding in fiscal year 2014-2015. In that year, the Department awarded a total of $21 million in funding for 12 wetland restoration projects. All together, these projects aim to restore or enhance 2,500 acres of wetlands and mountain meadows to reduce greenhouse gas emissions. Two of the projects included the use of sediments that had been dredged:
   1. The Initiation of Thin-layered Sediment Augmentation at Seal Beach
   2. North Campus Open Space Wetlands restoration at University of California, Santa Barbara

1. Sediments can be a valuable natural resource, but can also be contaminated from past or recent pollution. Dredging is often conducted in bays, federal navigation channels, ports, berthing areas, and marinas, and, if it is not re-used, the dredged material is disposed of in the ocean. These are areas where boat activity is commonly at high densities, which may increase the presence of hydrocarbons or anti-fouling chemicals in the dredged materials. In addition, pollution from watersheds can settle into bays and build up in the sediments over time. The legacy of mercury, in particular, from the California Gold Rush could be a concern. Two federal agencies have a role of where the dredged sediments will go next. The United States Environmental Protection Agency and the United States Army Corps of Engineers have identified several beneficial uses for dredged materials, one of which is to use the dredged material to restore wetland habitats. The disposal of dredged material is managed by federal state, and local governments, as well as private entities such as port authorities. The United States Army Corps of Engineers issues permits for the disposal of dredged material. The US EPA provides oversight and authorization for this disposal.
2. Wetland restoration can have additional benefits for flood control, migratory birds, and water quality. Even so, these benefits are not criteria for GGRF funding.
3. The cap-and-trade program is being reassessed this year. The details about the program, and how the revenues can be appropriated, may become clear later this year.
4. This is the second Senate committee that has heard this bill. AB 388 was double referred to the Senate Environmental Quality committee, which heard, and passed the bill through committee on June 21, 2017.
5. Potential Conflict. This bill and AB 196 (Bigelow), which was heard and passed by this committee at its last hearing, amend the same section in the Health and Safety Code, which may create chaptering problems. The Environmental Quality committee analysis noted this issue as well.

SUPPORT

Audubon California

AZUL

Bay Planning Coalition

California Coast Keeper Alliance

California Coastal Protection Network

California League of Conservation Voters

Coastal Environmental Rights Foundation

Environmental Justice Coalition for Water

Grasslands Water District

Humboldt Baykeeper

San Francisco Bay Conservation and Development Commission

Seventh Generation Advisors

Silicon Valley Leadership Group

The Trust for Public Land

WILDCOAST

OPPOSITION

None Received

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SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2017 - 2018 Regular

Bill No: AB 388

SUBJECT: Greenhouse Gas Reduction Fund: wetland restoration projects

ANALYSIS:

Existing law:

1. Requires, under the California Global Warming Solutions Act of 2006 (also known as AB 32), the 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. (Health and Safety Code (HSC) §38500 et seq.)
   
2. Allows the ARB until December 31, 2020, under certain circumstances, to adopt regulations that utilize market-based compliance mechanisms. (HSC §38562)
   
3. Requires ARB to ensure that statewide GHG emissions are reduced to at least 40% below the 1990 level by December 31, 2030 (known as the SB 32 cap). (HSC §38566)
   
4. 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. (Government Code (GOV) §16428.8)
   
5. Authorizes, among other things, the use of GGRF funds for the purposes of reducing GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. (HSC §39712)
   

This bill:

Would add authorization for the use of GGRF funds for the purposes of reusing dredged material for wetland restoration projects, including projects that provide flood protection and carbon sequestration, to the provision of law that authorizes GGRF funds to be used for reducing GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture.

Background

1. Wetlands Restoration.
   
   The California Department of Fish and Wildlife (CDFW) administers the Wetlands Restoration for Greenhouse Gas Reduction Grant Program to fund projects that reduce GHGs and provide cobenefits such as enhancing fish and wildlife habitat, protecting and improving water quality and quantity, and helping California adapt to climate change.
   
   According to CDFW, wetlands are among the most efficient carbon sequestration of all habitat types. Healthy coastal, delta, interior, and mountain wetlands provide important and irreplaceable benefits to the human population and fish and wildlife. However, as a result of land conversions and land use changes, only about 10% of the wetlands that existed in California 200 years ago still exist. Increasing the quality and quantity of key wetlands in California will provide measurable benefits consistent with the most recent climate change adaptation and mitigation strategies, as well as the management and recovery plans for wildlife and fisheries.
   
   In Fiscal Year 2014-15, CDFW funded 12 wetlands restoration projects, two of which involved the reuse dredged materials (see below). The Initiation of Thin-layered Sediment Augmentation at Seal Beach and the North Campus Open Space Wetlands Restoration at UC Santa Barbara were given almost $5 million between the two projects.
   
2. Dredging.
   
   Dredging is the removal of sediments and debris from the bottom of lakes, rivers, harbors, and other water bodies. It is a routine necessity in waterways around the world because sedimentation—the natural process of sand and silt washing downstream—gradually fills channels and harbors.
   
   Dredging often is focused on maintaining or increasing the depth of navigation channels, anchorages, or berthing areas to ensure the safe passage of boats and ships. Dredging is also performed to reduce the exposure of fish, wildlife, and people to contaminants and to prevent the spread of contaminants to other areas. This environmental dredging is often necessary because sediments in and around cities and industrial areas are frequently contaminated with a variety of pollutants. These pollutants are introduced to waterways from point sources such as sewer overflows, municipal and industrial discharges, and spills; or may be introduced from nonpoint sources such as surface runoff and atmospheric deposition.
   
   The disposal of dredged material is managed and carried out by federal, state, and local governments, as well as by private entities such as port authorities. The US Army Corps of Engineers issues permits for the disposal of dredged material; the United States Environmental Protection Agency (US EPA) provides oversight and authorization for the disposal of dredged materials.
   
   Historically, dredged materials have been disposed of at specific locations in the ocean. There is growing recognition that dredged materials can be used beneficially, however, especially since most dredged materials are not contaminated and appropriate ocean-disposal sites are falling in number. The beneficial reuse of dredged material could be any use that benefits society or the natural environment.
   
   The US EPA and the US Army Corps of Engineers have identified several beneficial uses for dredged materials, including habitat restoration and development, beach restoration, parks and recreation creation, soil replacement or improvement for agriculture/forestry/horticulture/aquaculture, strip mine and landfill reclamation and protection, and industrial and commercial construction.
   
   A major hurdle in implementing a beneficial reuse of dredged materials is cost. The federal government will only pay for the least costly disposal method for dredged materials that is consistent with sound engineering practices and meets federal environmental standards. In order for the dredged materials to be used beneficially, the Army requires an interested party to enter into an agreement that specifies the interested party will pay for all costs in excess of the lowest cost disposal alternative identified by the Army.
   
3. Use of Cap-and-Trade Auction Revenue.
   
   Since November 2012, ARB has conducted eight California-only and 11 joint California-Québec cap-and-trade auctions. To date, $3.4 billion has been appropriated by the Legislature to 12 state agencies that have distributed $1.2 billion to projects that have been completed or are under way.
   

State law specifies that the auction revenues must be used to facilitate the achievement of measurable GHG emissions reductions and outlines various categories of allowable expenditures. Statute further requires the Department of Finance, in consultation with ARB and any other relevant state agency, to develop a three-year investment plan for the auction proceeds, which are deposited in the GGRF. ARB is required to develop guidance for administering agencies on reporting and quantifying methodologies for programs and projects funded through the GGRF to ensure the investments further the regulatory purposes of AB 32.

Proceeds from cap-and-trade auctions provide an opportunity for the state to invest in projects that help California achieve its climate goals and provide benefits to disadvantaged communities. Several bills in 2012, one in 2014, and one in 2016 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 (Committee on Budget and Fiscal Review, Chapter 39, Statutes of 2012), SB 862 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014), and AB 1550 (Gomez, Chapter 369, Statutes of 2016).

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 and specifies that reduction of GHG emissions through strategic planning and development of sustainable infrastructure projects, are eligible investments of GGRF.

SB 1018 (Committee on Budget and Fiscal Review, 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 (Núñez and 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 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014) established a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. The legislation appropriates 25% for the state’s high-speed rail project, 20% for affordable housing and sustainable communities grants, 10% to the Transit and Intercity Rail Capital Program, and 5% for low-carbon transit operations. The remaining 40% is available for annual appropriation by the Legislature.

AB 1550 (Gomez, Chapter 369, Statutes of 2016) requires a minimum of 25% of GGRF moneys be spent on projects located within and benefiting disadvantaged communities and an additional minimum of 10% of GGRF moneys be spent on projects that benefit low-income households or are within, and benefit low-income communities.

These statutes also require a state agency, prior to expending any money appropriated to it by the Legislature from the fund, to prepare a description of 1) proposed expenditures, 2) how they will further the regulatory purposes of AB 32, 3) how they will achieve specified greenhouse gas emission reductions, 4) how the agency considered other objectives of that act, and 5) how the agency will document expenditure results.

1. Fees versus Taxes: Legal Consideration of Cap-and-Trade Auction Revenues.
   
   Regulatory fees established prior to 2010 (due to Proposition 26) are subject to the Sinclair Paint test, which helps determine whether a levy is a fee or a tax.
   
   Sinclair Paint Co. v. State Board of Equalization, 15 Cal. 4th 866 (1997) considered the legitimacy of a fee levied to support the implementation of the Childhood Lead Poisoning Prevention Act, which provided evaluation, screening, and medical follow-up services to children at risk of lead poisoning. The program was entirely supported by fees imposed on former and current manufacturers of lead or products containing lead, based on the manufacturers “market share” responsibility for the contamination. The California Supreme Court in Sinclair Paint found that a levy is a legitimate fee as long as the revenue of the levy does not exceed the costs of the regulatory activity and the levy is not imposed for an unrelated revenue purpose, and the levy allocated to the payer bears a fair or reasonable relationship to the payer’s burdens on or benefits from the regulatory activity. The Sinclair Paint test is a two-part test: 1) nexus and 2) proportionality.
   
   Nexus. The Sinclair Paint nexus test, which is derived from the case above, requires that a clear nexus must exist between an activity for which a fee is used and the adverse effects related to the activity on which that fee is levied. In order to use the locally imposed motor vehicle fees to pay for remediation of air pollution harm created by motor vehicles, it appears that the funds should be used only to decrease the emissions or the harms directly caused by motor vehicles.
   
   Proportionality. The Sinclair Paint test also has a proportionality component, which requires those burdened with the fee proportionally benefit from the fee – if assessing a fee to reduce emissions from motor vehicles and motor vehicles are the only item assessed the fee, then 100% of those funds are from motor vehicles. However, not all of the revenue from the fee is used to fund motor vehicle projects. Some of those funds are used to pay for reducing emissions from non-motor vehicle sources, such as locomotives and stationary agriculture equipment, which are not assessed a motor vehicle fee.
   
   The 2012-13 Budget analysis of cap-and-trade auction revenue by the Legislative Analyst’s Office (LAO) noted that, based on an opinion from the Office of Legislative Counsel, the auction revenues should be considered “mitigation” fee revenues, subject to the Sinclair Paint test. The LAO concluded, based on the opinion, that 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. In February of 2014, the plaintiffs filed an appeal with the 3rd District Court of Appeal in Sacramento. Arguments were heard before the Appellate Court in January of 2017.
   

On April 6, 2017, the appellate court issued a ruling that again declined to hold that the cap-and-trade auctions are a tax.

1. Third Appellate Court District Ruling.
   
   The appellate court ruled that ARB did not exceed its authority in creating the cap-and-trade program, stating that “the Legislature gave broad discretion to the Board to design a distribution system, and a system including the auction of some allowances did not exceed the scope of legislative delegation. Further, the Legislature later ratified the auction system by specifying how to use the proceeds derived therefrom.”
   
   The appellate court also stated clearly “that the auction sales do not equate to a tax” explaining that “the hallmarks of a tax are: 1) that it is compulsory; and 2) that the payor receives nothing of particular value for payment of the tax, that is, the payor receives nothing of specific value for the tax itself. Contrary to plaintiffs’ view, the purchase of allowances is a voluntary decision driven by business judgments as to whether it is more beneficial to the company to make the purchase than to reduce emissions …these twin aspects of the auction system, voluntary participation and purchase of a specific thing of value, preclude a finding that the auction system has the hallmarks of a tax.”
   
   Going further than the superior court, the appellate court also found that “the purchase of emissions allowances, whether directly from the Board at auction or on the secondary market, is a business driven decision, not a governmentally compelled decision [and] unlike any other tax … the purchase of an emissions allowance conveys a valuable property interest—the privilege to pollute California’s air—that may be freely sold or traded on the secondary market.”
   
   As a result, the appellate court found that “the Sinclair Paint test is not applicable [to the cap-and-trade program], because the auction system is unlike other governmental charges that may raise the “tax or fee” question resolved thereby. The system is the voluntary purchase of a valuable commodity and not a tax under any test.”
   
2. Budget Allocations.
   
   SB 862 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014) established a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. The legislation appropriates 25% for the state’s high-speed rail project, 20% for affordable housing and sustainable communities grants, 10% to the Transit and Intercity Rail Capital Program, and 5% for low-carbon transit operations. The remaining 40% is available for annual appropriation by the Legislature.
   
   The Governor’s 2017-18 proposed budget proposes the following $2.2 billion expenditure plan: (1) $900 million continuously appropriated for state transit assistance ($75 million), transit and intercity rail ($150 million), the Sustainable Communities Strategy ($300 million), and the state’s high-speed rail project ($375 million), and; (2) $1.3 billion in discretionary funding for a variety of projects. This includes $500 million for public transit and active transportation projects and $363 million for clean transportation and petroleum use reduction, as well as $392 million for a variety of other greenhouse gas reducing programs.
   
   The Governor’s 2017-18 proposed budget makes the aforementioned funding contingent on the Legislature reauthorizing ARB to utilize a market-based compliance mechanism (specifically, referencing a cap-and-trade program) beyond 2020 with a two-thirds vote. The Governor’s May revise retains that requirement.

Comments

1. Purpose of Bill.
   
   According to the author, “AB 388 allows Greenhouse Gas Reduction Funds to cover the cost of reusing dredged sediment for wetland restoration projects rather than disposing the sediment at sea. This bill can help leverage federal money for projects that capture carbon while providing the additional benefits of flood protection. California is the only coastal state without a funding program for the beneficial reuse of this dredged sediment. AB 388 would give us the option to fund this use without creating a continuous appropriation.”
   
2. Funding Source.
   
   The author has stated that his goal is to leverage federal funding in order to increase the beneficial reuse of dredged materials. It should be noted that the Wetlands Restoration for Greenhouse Gas Reduction Grant Program at CDFW is, as its name implies, funded by GGRF and does include projects that reuse dredged materials. If the goal is to increase the certainty of funding for the reuse of dredged materials, GGRF, although potentially appropriate, may not be the ideal funding source for several reasons.
   
   First, on the issue of GGRF as an appropriate funding source, according to the ARB and CDFW wetlands sequester carbon through plant material via photosynthesis and store this carbon in both biomass and in soil organic matter. However, as part of the natural respiration of vegetation and underwater microbial activity, wetlands also emit GHGs in the form of carbon dioxide, methane, and nitrous oxide. When considering all emission sources and sinks, wetlands restoration or enhancement projects, when designed correctly, can provide a net GHG benefit. For example, the Sacramento-San Joaquin Delta and Costal Wetlands Restoration was allocated $15.4 million and will reduce 518,800 MTCO₂e between 2020-2070, with $13.4 million (87% of the total funds) located in and benefitting disadvantaged communities.
   
   Second, the Governor has stated that no revenues from the cap-and-trade auctions will be appropriated until the Legislature reauthorizes ARB to utilize a market-based compliance mechanism (specifically, referencing a cap-and-trade program) beyond 2020 with a two-thirds vote.
   
   Third, cap-and-trade auction revenues fluctuate wildly, from as little as approximately $8 million to as much as approximately $2 billion per quarter.
   
   Finally, the cap-and-trade program sunsets in 2020. Even if the Legislature reauthorizes the program, there is no guarantee that a future program will continue to direct funds into GGRF, especially since such funds would be authorized by a two-thirds vote. Such funds could be unrestricted in their use.
   
   Despite GGRF being an appropriate funding source, the author may wish to consider another funding source if the current GGRF funded wetlands restoration program is not meeting desired goals regarding the beneficial reuse of dredged materials.
   
3. Conflict Resolution.
   

AB 196 (Bigelow) amends the same paragraph in statute to authorize GGRF funds for GHG reducing water use and supply projects that may include pump or pump motor efficiency improvements, water loss in drinking water transmission and distribution systems.

As AB 388 and AB 196 progress through the Legislature, the authors will need to decide whether they want to move forward with two bills and include chaptering out amendments, or if one bill is sufficient to accomplish the goals of both bills.

1. Technical and Clarifying Amendment Needed.
   
   As noted in the background, GGRF moneys must be used to reduce GHG emissions. This bill authorizes the use of GGRF funds for the purposes of reusing “dredged material for wetland restoration projects, including projects that provide flood protection and carbon sequestration.”
   
   Given that CDFW already funds wetlands restoration projects that include the reuse of dredged materials, the language in AB 388 seems to imply there are wetlands restoration projects that do not reduce GHG emissions, but could provide flood protection and sequester carbon. If such projects exist, they would not be an appropriate use of GGRF moneys.
   
   Additionally, while it is true that most wetlands restoration projects provide the cobenefit of flood protection, not all wetlands restoration projects do so. In fiscal year 2014-15, all 12 of the wetlands restoration projects funded by CDFW with GGRF moneys involved a flood control component, but AB 388 might unintentionally eliminate the eligibility of wetlands restoration projects that do not provide a flood protection cobenefit.
   
   Given the environmental value of all wetland restoration projects and the required nexus of reducing GHG emissions for the use of GGRF moneys, the following technical and clarifying amendment is needed:
   

(3) Funding to reduce greenhouse gas emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. This paragraph may include the reuse of dredged material for wetland restoration projects, including projects that provide flood protection and carbon sequestration. sustainable agriculture, and wetland restoration projects that may make use of dredged material.

Related/Prior Legislation

AB 196 (Bigelow) amends the same paragraph in statute to authorize GGRF funds for GHG reducing water use and supply projects that may include pump or pump motor efficiency improvements, water loss in drinking water transmission and distribution systems. As of June 12, AB 196 is in the Senate awaiting referral.

DOUBLE REFERRAL:

If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Natural Resources and Water Committee.

SOURCE:

Author

SUPPORT:

Audubon California

AZUL

Bay Planning Coalition

California Coastal Protection Network

California Coastkeeper Alliance

California League of Conservation Voters

Coastal Environmental Rights Foundation

Environmental Justice Coalition for Water

Grassland Water District

Humboldt Baykeeper

San Diego Unified Port District

San Francisco Bay Conservation and Development Commission

Seventh Generation Advisors

Silicon Valley Leadership Group

The Trust for Public Land

WILDCOAST

OPPOSITION:

CalTax

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 388

Author:(Mullin)

As Amended Ver:March 23, 2017

Majority vote

SUMMARY: Specifies that Greenhouse Gas Reduction Fund (GGRF) moneys can be appropriated to reduce greenhouse gas emissions for wetland restoration, flood protection, and carbon sequestration through the reuse of dredged material.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill has negligible state costs.

COMMENTS: Wetlands are one of the earth's most productive wildlife habitats. According to the California Coastal Conservancy, wetlands provide nurseries for fish, including commercial species, and vital habitat for migratory and resident birds; improve water quality by filtering pollutants; recharge groundwater aquifers; protect coastal communities from floods resulting from storms and sea level rise; and, capture and store a significant amount of carbon dioxide in the soil and biomass while reducing methane emissions.

The Army Corps of Engineers requires that all costs exceeding the costs of the Federal Standard dredged material placement alternative must be paid by a non-federal entity. Unlike other coastal states, California does not have a funding program to support the beneficial reuse of this material. In the 2014-15 fiscal year, Department of Fish and Wildlife awarded 12 grants using GGRF monies for wetlands and mountain meadow projects that reduce greenhouse gas emissions; 2 of the projects used dredged material. This bill would specify that projects that use dredged material for wetlands restoration projects are eligible for funding.

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0000090

Date of Hearing: April 5, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 388

Author:(Mullin) – As Amended Ver:March 23, 2017

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

SUMMARY:

This bill clarifies that wetlands restoration projects, including projects that provide flood protection and carbon sequestration through the reuse of dredged materials, are eligible to be funded with Greenhouse Gas Reduction Funds (GGRF).

FISCAL EFFECT:

No additional state costs. While not expressly called-out in in statute, nothing prohibits the reuse of dredging materials in wetlands restoration projects funded by GGRF.

For example, in the 2014-15 fiscal year, the Department of Fish and Wildlife (DFW) awarded 12 grants using GGRF funds for wetlands and mountain meadow projects that reduce GHG emissions; 2 of the projects used dredged material.

COMMENTS:

1. Rationale. According to the author, California is the only coastal state in the nation without a dredge funding program.

The Army Corps of Engineers (ACOE) requires all costs exceeding the costs of the Federal Standard dredged material placement alternative to be paid by a non-federal entity. This results in the pursuit of only the least costly disposal or placement alternative. In practice, this means the majority of dredged sediment is disposed 55 miles offshore, even when habitat restoration sites in need of sediment are available.

According to the San Francisco Bay Conservation and Development Commission (BCDC), attempts to change the ACOE policy have not been effective. BCDC estimates that if state funding were available to pay the incremental cost over ocean disposal – often a few dollars per cubic yard difference – this valuable resource could sequester carbon while increasing shoreline resilience to sea level rise.

This bill expressly specifies wetlands restoration projects that reuse dredged materials are eligible for GGRF funding.

1. Wetlands Restoration and Climate Change. Wetlands are one of the earth's most productive wildlife habitats. According to the California Coastal Conservancy, wetlands provide nurseries for fish, including commercial species, and vital habitat for migratory and resident birds; improve water quality by filtering pollutants; recharge groundwater aquifers; protect coastal communities from floods resulting from storms and sea level rise; and, capture and store a significant amount of carbon dioxide in the soil and biomass while reducing methane emissions.
2. Existing GGRF Funding and Programs. The 2014-15 Budget Act allocated GGRF revenues for the 2014-15 fiscal year and established a long-term plan for the allocation of GGRF revenues beginning in fiscal year 2015-16. Thirty-five percent of GGRF is continuously appropriated for investments in transit, affordable housing, and sustainable communities. Twenty-five percent is continuously appropriated to continue the construction of the high-speed rail project. The remaining 40% is subject to annual appropriation by the Legislature for investments in programs that include low-carbon transportation, energy efficiency and renewable energy, and natural resources and waste diversion.

The Governor's 2017-18 Budget proposes $2.155 billion in GGRF expenditures:

• 1. Continuous Appropriations:

High Speed Rail, Authority, $375 million;

Low Carbon Transit Operations, State Transit Assistance, $75 million;

Transit and Intercity Rail Capital Program, Transportation Agency, $150 million;

Affordable Housing and Sustainable Communities Program, Strategic Growth Council, $300 million.

• 1. Transportation Package, $500 million.
  2. Air Resources Board, Low Carbon Transportation, $363 million.
  3. Transformational Climate Communities, $142 million.
  4. Short-Lived Climate Pollutants, $95 million.
  5. Carbon Sequestration, $127.5 million:
  6. Energy Efficiency/Renewable Energy, $27.5 million.

The Governor's proposed budget does not include GGRF funding for wetlands restoration.

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

Date of Hearing: March 20, 2017

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Cristina Garcia, Chair

ABPCA Bill Id:AB 388 (

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

SUBJECT: Greenhouse Gas Reduction Fund

SUMMARY: Specifies that Greenhouse Gas Reduction Fund (GGRF) moneys can be appropriated to reduce greenhouse gas (GHG) emissions for wetland restoration, flood protection, and carbon sequestration through the reuse of dredged material.

EXISTING LAW:

1. Requires the Air Resources Board (ARB), pursuant to California Global Warming Solutions Act of 2006 [AB 32 (Nunez), Chapter 488, Statutes of 2006], to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. AB 32 authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations once specified conditions are met.
   
2. Establishes the GGRF and requires all moneys, except for fines and penalties, collected by ARB from the auction or sale of allowances pursuant to a market-based compliance mechanism (i.e., the cap-and-trade program adopted by ARB under AB 32) to be deposited in the GGRF and available for appropriation by the Legislature.
   
3. Establishes the GGRF Investment Plan and Communities Revitalization Act (Act) to set procedures for the investment of GHG allowance auction revenues. Authorizes a range of GHG reduction investments and establishes several policy objectives:
   
   1. Maximize economic, environmental, and public health benefits;
      
   2. Foster job creation;
      
   3. Complement efforts to improve air quality;
      
   4. Direct investment toward the most disadvantaged communities and households in the state;
      
   5. Provide opportunities for businesses, public agencies, nonprofits, and other community institutions to participate in and benefit from statewide efforts to reduce GHG emissions; and,
      
   6. Lessen the impacts and effects of climate change on the state's communities, economy, and environment.
4. Specifies that moneys appropriated from the GGRF through investments that may include funding to reduce GHG emissions through:
   
   1. Energy efficiency, clean and renewable energy generation, distributed renewable energy generation, transmission and storage, and other related actions;
      
   2. The development of state-of-the-art systems to move goods and freight, advanced technology vehicles and vehicle infrastructure, advanced biofuels, and low-carbon and efficient public transportation;
      
   3. Strategic planning and development of sustainable infrastructure projects;
      
   4. Investments in programs implemented by local and regional agencies, local and regional collaboratives, and nonprofit organizations coordinating with local governments; and,
      
   5. Funding research, development, and deployment of innovative technologies, measures, and practices related to programs and projects funded pursuant to the Act.
      
5. Requires the investment plan to allocate (1) a minimum of 25% of the available moneys in the GGRF to projects that provide benefits to identified disadvantaged communities, and (2) a minimum of 10% of the available moneys in the GGRF to projects located within identified disadvantaged communities.
   

FISCAL EFFECT: Unknown

COMMENTS:

1. Author statement:

California is the only coastal state in the nation without a dredge funding program. Instead of partnering with [the Army Corps of Engineers] ACOE to beneficially use the high quality dredged sediment through wetland restoration, it is wasted through ocean disposal. ACOE regulations impose strict spending limits that dictate that only the least costly dredged material disposal or placement alternative is pursued. In practice, this means the majority of dredged sediment is disposed 55 miles offshore, even when habitat restoration sites in need of sediment are available. According to [the San Francisco Bay Conservation and Development Commission] BCDC, attempts to change the ACOE policy have not been fruitful. If state funding were available to pay the incremental cost over ocean disposal – often a few dollars per cubic yard difference – this valuable resource could sequester carbon while increasing shoreline resilience to sea level rise.

Wetlands have among the most efficient carbon sequestration rates of all habitat types, allowing for both effective and extensive carbon sequestration. Healthy coastal and Delta wetlands provide important and irreplaceable benefits to the human population and fish and wildlife. Increasing the quality and quantity of key wetlands in California will provide measurable benefits consistent with the most recent climate change mitigation strategies.

1. Existing GGRF funding and programs. The 2014-15 Budget Act allocated GGRF revenues for the 2014-15 fiscal year and established a long-term plan for the allocation of GGRF revenues beginning in fiscal year 2015-16. Thirty-five percent of GGRF is continuously appropriated for investments in transit, affordable housing, and sustainable communities. Twenty-five percent is continuously appropriated to continue the construction of the high-speed rail project. The remaining 40% is subject to annual appropriation by the Legislature for investments in programs that include low-carbon transportation, energy efficiency and renewable energy, and natural resources and waste diversion.
   
   The 2017 Annual Report of Cap and Trade Auction Proceeds includes an analysis of funds spent within and benefiting disadvantaged communities, excluding high speed rail spending. According to the report, 34% of expenditures were for projects located within disadvantaged communities and 50% of the overall funding benefited disadvantaged communities.

Listed below are the major GGRF program areas and funding to date, totaling $3.385 billion:

• 1. Sustainable Communities and Clean Transportation:
     1. High Speed Rail Authority, High Speed Rail Project, $800 million
     2. State Transit Assistance, Low-Carbon Transit Operations, $135 million
     3. Transportation Agency, Transit and Intercity Rail Capital Program, $381 million
     4. Strategic Growth Council, Affordable Housing and Sustainable Communities Program, $570 million
     5. Department of Transportation, Active Transportation, $10 million
     6. Strategic Growth Council, Transformative Climate Communities Program and Technical Assistance, $142 million
     7. Air Resources Board, Low Carbon Transportation, $695 million
  2. Short-Lived Climate Pollutants:
     1. Air Resources Board, Black Carbon Woodsmoke, $5 million
     2. Department of Resources Recycling and Recovery, Waste Diversion, $71 million
     3. Department of Food and Agriculture, Dairy Digesters and Alternative Fuels, $65 million
     4. Department of Food and Agriculture, Healthy Soils, $8 million
  3. Carbon Sequestration:
     1. Department of Forestry and Fire Protection, Healthy Forests, $49 million
     2. Department of Forestry and Fire Protection, Urban and Community Forestry, $33 million
     3. Department of Fish and Wildlife, Wetlands and Watershed Restoration, $30 million
     4. Natural Resources Agency, Urban Greening, $80 million
  4. Energy Efficiency/Renewable Energy:
     1. Department of Community Services and Development, Energy Efficiency Upgrades/Weatherization, $174 million
     2. Department of Water Resources, Water Use Efficiency, $70 million
     3. Department of Food and Agriculture, State Water Efficiency and Enhancement Program, $68 million

The Governor's 2017-18 Budget proposes $2.155 billion in expenditures:

• 1. Continuous Appropriations:
     1. High Speed Rail, Authority, $375 million
     2. Low Carbon Transit Operations, State Transit Assistance, $75 million
     3. Transit and Intercity Rail Capital Program, Transportation Agency, $150 million
     4. Affordable Housing and Sustainable Communities Program, Strategic Growth Council, $300 million
  2. Transportation Package, $500 million:
     1. Transportation Agency, Transit and Intercity Rail Capital Program
     2. Department of Transportation, Active Transportation
  3. Fifty Percent Reduction in Petroleum Use:
     1. Air Resources Board, Low Carbon Transportation, $363 million
  4. Transformational Climate Communities:
     1. Strategic Growth Council, Transformative Climate Communities and Technical Assistance and Outreach, $142 million
  5. Short-Lived Climate Pollutants, $95 million:
     1. Air Resources Board, Black Carbon Woodsmoke
     2. Department of Resources Recycling and Recovery, Waste Diversion
     3. Department of Food and Agriculture, Dairy Digesters
  6. Carbon Sequestration, $127.5 million:
     1. Department of Forestry and Fire Protection, Healthy Forests and Urban Greening
     2. Department of Food and Agriculture, Climate Smart Agriculture and Healthy Soils
     3. Natural Resources Agency, Urban Greening
  7. Energy Efficiency/Renewable Energy, $27.5 million:
     1. Department of Community Services and Development, Energy Efficiency Upgrades/Weatherization
     2. Department of Food and Agriculture, State Water Efficiency and Enhancement Program

1. Wetlands restoration and climate change. Wetlands are one of the earth's most productive wildlife habitats. According to the California Coastal Conservancy, wetlands provide nurseries for fish, including commercial species, and vital habitat for migratory and resident birds; improve water quality by filtering pollutants; recharge groundwater aquifers; protect coastal communities from floods resulting from storms and sea level rise; and, capture and store a significant amount of carbon dioxide in the soil and biomass while reducing methane emissions.

As noted by the author, the ACOE requires that all costs exceeding the costs of the Federal Standard dredged material placement alternative must be paid by a non-federal entity. Unlike other coastal states, California does not have a funding program to support the beneficial reuse of this material. In the 2014-15 fiscal year, Department of Fish and Wildlife awarded 12 grants using GGRF monies for wetlands and mountain meadow projects that reduce GHG emissions; 2 of the projects used dredged material. The Governor's proposed budget does not include GGRF funding for wetlands restoration. This bill would specify that projects that use dredged material for wetlands restoration projects are eligible for funding.

1. Suggested amendment:

The provisions of this bill are currently in the section of the Act relating to continuous appropriations. The committee may wish to amend the bill to move the wetlands funding authorization to Health and Safety Code 39712 (c) and clarify the types of projects eligible for funding.

REGISTERED SUPPORT / OPPOSITION:

Support

Audubon California

AZUL

Bay Planning Coalition

California Coastal Protection Network

California Coastkeeper Alliance

California League of Conservation Voters

Citizens Committee to Complete the Refuge

Coastal Environmental Rights Foundation

Defenders of Wildlife

Environmental Justice Coalition for Water

Humboldt Baykeeper

San Francisco Baykeeper

Seventh Generation Advisors

Trust for Public Land

WILDCOAST

Opposition

None on file

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. /