Senate Standing Committee on Environmental Quality

Okay. Good morning. We're calling this meeting to order. This is the Senate Environmental Quality Committee and the Senate Budget and Fiscal Review Subcommittee Number Two on Resources, Environmental Protection, and Energy. And to begin with, I'd like to thank everyone for being here today joining us on this, on the proposed amendments to the cap and invest regulations.

Last year, the legislature, after years of discussion and deliberation, culminating in months of negotiations, passed AB 127 and SB 840 to reauthorize California's flagship climate program, then called Cap and Trade, now called Cap and Invest. I had the privilege of being one of the senators on the Cap and Trade Working Group, which gave me an intimate understanding of the types of trade offs and considerations that go hand in hand with putting a price on pollution.

As part of the legislature's process last year, we renamed it Cap and Invest. This was because of our deliberations time and time again, the focus returning to how we would make the money raised by the program work for Californians. So both pieces of the name are important.

The cap is a guardrail for our goals. And the investment is a springboard for our clean energy future. We have concerns about how CARB's proposed amendments affect both, which we hope to get clarity on today. CARB released their initial proposal in January to mixed reviews. Since then, they've released revisions to that proposal a few weeks ago in mid April.

Since the April amendments, the volume of outreach that I have received has exploded. Today's hearing is our attempt to get to the bottom of the issues that have been raised by many parties. Some of the loudest have been the nature of the manufacturing decarbonization incentive, all also known as MDI, and the impacts to the GGRF, the Greenhouse Gas Reduction Fund.

Clearly, we need to better understand what CARB is planning to vote on, why they chose the approach they did, and if the approved or if the proposed amendments are faithfully executing the laws that we passed. Today's hearing should shine light on this, but the most important part is to answer questions.

The agenda is short and sweet, representing only a few select voices from within California state government. We have CARB Chair Lauren Sanchez. Thank you very much for coming. We have Helen Kirstein from the Legislative Analyst Office. Thank you for coming.

And we have Andrew March from the Department of Finance. Thank you for coming. Given the outreach and engagement we have received, I imagine we will also have robust public comment following the panel, which goes to show how broad and deep cap and invest impacts are in the state of California.

But for the purposes of our panelists, I really want to orient today's conversation around one simple question, which is do the gathered legislators here today feel that the trade offs made in the proposed amendments faithfully execute the intent of the legislature? Do these put us on track to achieve our goals and advance our priorities?

I appreciate all of our panelists for taking the time to be here, and I value the expertise they bring. With that, I'd like to hand it over to my colleagues, to make some opening comments. So we will start with Senator Gomez Reyes.

Thank you, chair Blakespear. I'm honored to co chair this hearing today. Such a on such an important topic. The cap and trade now cap and invest program is an important tool for the state to reach our ambitious climate goals. It is an important backstop in the emission reduction strategy to ensure we meet our goals in the most cost effective way possible.

Last year, the legislature, as was noted earlier, worked tirelessly to reform and reauthorize well in advance of the program sunset to provide certainty to regulated industries, stabilize the market for allowances, and send a clear message that California is still committed to addressing climate change.

A B 127 and SB 840 are the culmination of many discussions and negotiations between members, Senate, assembly, and the administration as well as we all sought to strike the right balance between climate ambition, affordability for consumers and rate payers, and stability and competitiveness for businesses. These bills were signed into law September of of twenty twenty five, less than eight months ago.

There's no straightforward path to this balance especially in this socio political and economic climate with an active war distorting fossil fuel prices and a Federal Government hostile to any efforts towards carbon neutrality.

And now, we are responding to the proposed amendments to cap and invest program introduced last month that have caused significant concerns among our colleagues, particularly about whether the amendment strikes this balance or whether they are far too out of balance serving certain interest groups over the interest of marginalized communities that have suffered disproportionate impacts of climate change.

As chair of the budget subcommittee on resources, environmental protection, and energy, I am particularly concerned about the proposed amendments potential impact on the greenhouse gas reduction fund. The g g r f has provided significant funding support for a wide rage range of important programs. From affordable housing to transit, wildfire prevention, safe drinking water, zero emission transportation, and air quality improvements. If the proposed amendments are adopted, the funding level for these types of programs would be hollowed out. All to support certain industries for the supposed purpose of affordability.

At this hearing, I would like to dig deeper into how the proposed amendments impact consumer costs and what enforcement mechanisms there are to provide accountability to these polluting industries. I think it's also equally important to discuss today the very real consequences of lost g g r f investments at the expense of providing subsidies to certain industries. As the chair of the budget subcommittee that oversees g g r f to to see g that oversees g g r f allocations.

I want to make sure the cap and invest program is benefiting marginalized communities most impacted by climate change. I want to be sure that we are keeping the promises we have made in the past.

I want to be sure we do not ignore last year's laws that directed us to allocate GGRF for the legislature's priorities. I want to make sure that the very programs that have benefited our communities are saved. We need to continue funding cost effective emission redis reducing programs that help us meet our climate goals. And create the tangible improvements in Californian's lives, particularly those in the vulnerable communities.

If we are to assume that giving more free permits to pollute or allowances to the fossil fuel industry will keep gasoline prices low at the at the at the pump, then we should evaluate the evidence that was presented to so that we can make this assumption.

The cap and invest program is an important part of the state's portfolio of policies and it is critical for CARB and the legislature to make improvements to ensure we are striking the right balance between affordability, accountability, and climate ambition. I look forward to the discussion today with representatives, with, our chair from CARB, with the LAO, and with Department of Finance. Specifically on these amendments.

And I hope to make clear our legislative intent and priorities so that this program can work towards our ambitious climate goals in the most cost effective way and in the most equitable way. Thank you.

Thank you. And I think we have Senator Laird next.

Thank you madam chair, and thanks to both of you for convening this hearing. And thanks to both of you for your opening comments because I think they help frame the issue. I have a unique perspective in that I was one of the original co authors of AB 32 in 2006 that originally launched this project. And then I spent eight years on the governor's climate team as we expanded and implemented the program.

And now in the legislature, I also was on the working group last year and on the Senate negotiating team and now in budget chair as we face some of these issues.

Throughout that entire history, the there was a delicate balance here between on one side preventing leakage and making sure that that we reduce emissions. On the other side, it was making sure that we had programs that were funded in the greenhouse gas fund that materially affected greenhouse gas emissions in a way that it was a trade in the cap and invest process. And I think our hearing today is about ground truthing that tension between both of those and making sure they are genuinely balanced.

And now as budget chair, if it turns out that a net effect of of these changes reduces a roughly $5,000,000,000 greenhouse gas reduction fund by 1 or $2,000,000,000 it flies against many things we negotiated just last fall. And further, it would put everything back on the table because if there's that dramatic reduction of 20 or 40% in the fund, it really affects what we do to what level we do it, how the different pieces fit together.

So so I wanna call out the budget side of the equation because this is a big deal. And as it was in the January 10 budget that the governor put out, last year we negotiated what we hoped were gonna be a billion dollars of legislative and and group priorities this year as part of the negotiated solution. And the governor decided to use that billion a different way for backfilling other things.

And so the Senate budget plan that the Democratic caucus released about three weeks ago would allow us to buy out that billion dollars and then return the billion to the discussion that we thought we had negotiated last fall.

If this leads the proposal that we're going to discuss today to a dramatic reduction in the greenhouse gas fund, Once again, it may well remove that billion dollars that we thought we had negotiated and as I previously said, put everything else back on the table when we thought we had put many of those issues to rest.

So that's why on the budget level, this is a big big important issue. I of course, just given my history, am as as concerned and majorly concerned about making sure that this program works in in terms of having enough investment, significantly reducing emissions and not rewarding people that might not be with the program in terms of reducing emissions. So that's why I appreciate this hearing being called. That's why I really look forward to the discussion.

Well, thank you to our budget chair. He always brings a lot of wisdom and history to these discussions. Senator McNerney.

Well, I think that the chair, ladies for calling this hearing. It's an important hearing. And I thank the witnesses for for your work this morning. Basically, the the cap and trade cap and invest program is fundamentally designed and intended to reduce greenhouse gas emissions. That's the basic point.

That's the bottom line. And it uses market forces to do that. So it's been very effective so far in reducing emissions. It's been effective in other parts of the country for other programs such as acid rain and we wanna see that continue here. I'm concerned that the proposals that are being floated by CARB may not help achieve that goal.

I wanna see the highly effective programs like Farmer continue because they're effective and they need to have the funding to do that. And this hearing is basically the last point of leverage that the legislature has to ensure that our goals are met. And that's why it's important that we voice our opinions and that's why it's important that you respond to those questions in in a way that makes sense to us to make sure that the cap invest program meets its goals.

So with that, I will yield back.

Okay. Thank you. Senator Valadares.

Thank you, madam chairs. Multiple chairs here today. I wanna start by saying something that apparently has become controversial and that is that families matter too. Because right now, Californians are not just struggling with affordability. They're being crushed by it.

Gas, electricity, insurance, groceries, housing. And the question before us today is whether the state is willing to honestly acknowledge the role that our policies play on those costs. Let me repeat that. Climate policy without affordability is not sustainable. And climate policy that ignores leakage is not environmental leadership.

It's economic displacement disguised as progress. Because emissions don't magically disappear when production leaves California. So if we shut down refining here, and we import more fuel overseas from countries with weaker environmental standards, global emissions actually rise. Meanwhile, Californians will pay more. Workers will lose their jobs.

Unions trades, union trades lose careers. Communities lose tax revenue. And California becomes increasingly dependent on foreign imports. And that's not a transition. That's outsourcing.

And I think that we need to stop pretending otherwise. Because even the LAO, as as we'll get to in in a bit, acknowledges that this package creates real trade offs between environmental ambition, affordability, leakage, reliability, and economic stability. And that's that's the debate here today. It's not slogans. It's not press releases.

It's reality. And the reality says CARB is proposing to remove a 118,000,000 allowances from the market through 2030, while simultaneously tightening compliance obligations. And basic economics says, when supply shrinks and compliance pressures rise, costs increase. So I believe we need to stop pretending here. The question is not whether whether costs will rise.

The question is how much, who pays, and what happens when industry leaves faster than demand declines. Because California consumes roughly 13 billions of fuel a year. 13,000,000,000 gallons of fuel a year. Demand has not disappeared but refining Casa capacity has. And now, we're down from roughly 30 refinery, refineries decades ago and just a handful today, six.

And yet, somehow, we're expected to believe there's no affordability or reliability risks here. What happens, some of the questions I'm gonna be, focused on today is how is this climate leadership? And here's another uncomfortable truth. The legislature has repeatedly directed to carb. Reduce emissions cost effectively.

That's also been in in in multiple, pieces of legislation. Minimize leakage, protect rate payers, and avoid disproportionate impacts on low income families. And that is statutory language. It's not partisan rhetoric rhetoric. It's what we, the legislature, has also given direction, on.

And so I have plenty of questions for the panel today. I won't rant any longer, and thank you for this opportunity, manager.

Okay. Thank you. Seeing no, other, opening Yes. Senator Gomez Reyes.

Thank you so much. I did receive, a request from Senator Cortese that I read his statement. It is a brief statement. "As chair of the Senate Transportation Committee, I am deeply concerned that CARB's proposed changes to the cap and invest program undermine the legislature's commitment to transit and high speed rail. CARB's projections show funding shortfalls that could could eliminate up to 400,000,000 annually for the TIRCP program.

200,000,000 to LC TOP and jeopardize the guaranteed $1,000,000,000 annual commitment to high speed rail. These investments are were prioritized by the legislature and governor through SB 840 and AB 127 to reduce emissions, improve mobility, and support jobs across California. Weakening these commitments now would put critical transportation and climate climate goals at risk. CARP's proposal raises major unanswered questions about impacts on transportation agencies and other state priorities with no guarantee of lower energy costs for consumers.

I urge CARB to revise this proposal and protect the legislature's transportation and climate commitments. I thank Senator Eloise Reyes for sharing my thoughts on the proposed changes."

Okay. Great. Thank you. So now we will go to CARB Chair, Ms. Sanchez to start us off.

Thank you so much. Good morning, Madam Chair, Madam Chair, and members of both committees. My name is Lauren Sanchez and I am the Chair of the California Air Resources Board. I want to thank you all for the opportunity to join you this morning to present our proposed updates to the Caput Invest program. As the chair mentioned in her opening comments, the staff proposed updates to this program to implement legislative direction in January for public comment.

Staff proposed additional amendments last month in April and have also received substantial public comment. I look forward to sharing with the committee, details on the proposal and next steps. These updates follow the legislature's landmark passage of the cap and invest extension. Thank you all to you. Thank you to all of you for your leadership last year extending the program out to 2045.

In doing so, you directed CARB to ensure that this program remains aligned with our 02/2045 statutory targets while also supporting affordability, minimizing leakage, supporting cost effectiveness, and providing regulatory certainty. So I wanted to start this morning with a recap of what the cap and invest program is. This program was formally known as cap and trade. And as both all of the senators mentioned in opening comments, it is a cost effective policy tool that makes polluters pay while reduce reducing their climate emissions.

I want to be clear that it's one of many programs the state is using to achieve its climate goals.

It sets a declining limit on major polluters, major sources of pollution covering factories, energy facilities, and oil and gas suppliers that account for 80% of California's climate emissions. Importantly, the program creates a powerful economic incentive for investment in clean and efficient technology. And it is four to six times less costly than prescriptive regulations. This program has enjoyed thirteen years of successful implementation and nearly 100% compliance.

The program has a track record of proven success and contributed to California reaching its 2020 target six years ahead of schedule, all while growing the economy to be the fourth largest economy in the world.

Beyond reducing emissions, which as mentioned is the primary goal of the program, the program has also generated $35,000,000,000 in climate investments. Those have funded over half a million projects, generated 30,000 jobs, and cut millions of tons of carbon emissions in communities across the state. In addition, this program has delivered $16,000,000,000 in utility bill credits for California households known as the California Climate Credit.

The proposed changes coming to the Air Board later this month are in response to legislative direction in AB 127 and SB 840. This includes aligning with our climate goals and continuing to reduce greenhouse gas emissions, addressing affordability concerns, providing regulatory certainty, supporting businesses and jobs in state, and spurring additional investment and innovation.

As mentioned by Senator Laird, doing all of this requires a careful balancing act considering all perspectives and weighing trade offs so that we can continue to move forward in this program towards our sustainable future. Let me briefly recap how we arrived at today's staff proposal. In September, the legislature successfully passed with super majority in both houses AB 127 and SB 840, extending the program out to 2045. In January, CARB staff released a draft proposal open for public comment until March.

Based on the volume and substance of the comments and feedback we received from legislators, businesses, utilities, environmental groups, community groups, staff proposed additional changes and opened a new fifteen day public comment period last month.

Recent adjustments address several key concerns that were raised during the first comment period. We heard strong feedback about short term economic uncertainty driven by federal disruption, loss of incentives, global events, and volatile market conditions. We've received feedback on needing to increase our support for affordability, which aligns increases our alignment with the statutory direction from AB 127. And across stakeholders, we heard a clear message. We must support the ability for California businesses to stay in state while delivering on our statutory climate goals.

Before walking through the major changes in the fifteen day proposal, I wanted to do a brief recap of what was covered in the January proposal responsive to legislative direction. Included in the January proposal is long term allowance budgets beyond 2030. Removing allowances once offsets are used. Transferring free allowances from gas to electric utilities.

Extending rate payer protections, strengthening market safeguards, adding post 2030 allowances to our price containment reserve, and maintaining free allowances for the industry for the industrial sector to protect jobs and avoid an additional pass through at the gasoline pump.

Some of these items as noted on the slide have additional changes now proposed in the fifteen day.

Some of these items as noted on the slide have additional changes now proposed in the fifteen day.

The first major adjustment in the April proposal provides additional relief for electric bills. We received substantial public comment and feedback on this issue as energy affordability is top of mind for Californians and many members of the legislature. We are proposing to increase the California Climate Credit from $8,000,000,000 to $10,000,000,000 through the end of this decade and, chiefly, through two different ways.

First, we increase and redirect more of free allowances to electric utilities that would otherwise go to state auction. And second, we're expediting the transfer of 70% of the gas utility allowances over to electric utilities.

And to balance this with a lot of feedback that we got for on energy affordability for low income gas customers, we are coordinating with the PUC to ensure that 30 percent of the gas utility allowances that remain will specifically be directed to low income Californians and help them with their gas bills. The second change expands the manufacturing decarbonization incentive to $4,000,000,000. This expansion will help make up for the loss of federal industrial decarbonization funds.

Think cement decarbonization, the Arches Hydrogen Hub, a number of grants that were coming to the state that we can no longer count on. And it will also importantly accelerate reductions in the near term. Eligible entities for this incentive fund include manufacturers, food processors, cement and steel plants, refiners, among others who make upgrades at their facilities to reduce their emissions. The categories of the projects eligible are limited and aligned with state policy to help us achieve our climate goals and will incentivize clean technology needed for decarbonization.

It's a first of its kind market feature and as with all car programs, staff will continue to monitor, evaluate, and propose adjustments to this program to ensure that it's working as intended and delivering on those emissions reductions.

This mechanism has prod - this mechanism has guardrails on projects, on limits, on the application process, on an eligibility. And I want to emphasize that these projects would not only have strict requirements under our regulation, they would still be subject to all applicable state and local laws and permitting requirements. The third change provides additional assistance to industry beyond what we proposed in January, which was what which could largely be categorized as status quo.

This includes approximately $800,000,000 in additional compliance support through 2030 by redirecting allowances that would otherwise go to state auction. The goal of this change is to help provide immediate relief during a period of global economic uncertainty and to support no additional pass through, cost pass through at the pump for consumers.

Importantly, we continue to maintain the signal to reduce emissions since no sector under this program gets all of the allowances needed to comply. And the caps in this program remain as previously proposed. So in effect, this does not weaken the stringency of the program, it simply makes it more affordable. I know there have been a lot of questions and as was raised in the opening comments specifically about the redistribution of allowances under this proposal.

These pie charts show the distribution of allowances in total through the end of this decade. For the January proposal on the chart in the left on the left and the April amendments in the chart on the right. As you can see, we have increased the direct benefit to utility customers by increasing their allowance allocation by 7.4%. We have increased compliance support to industry to address affordability concerns by increasing allowances to them by 3.4%.

And these increases result in a commensurate reduction in allowances that would go to the state auction and fund the Greenhouse Gas Reduction Fund.

Before I move to the final change in the April amendments, I wanted to share what ambition looks like, if these amendments are adopted. The blue line shows the cap the existing annual caps in the program at 11%. Oops. Pardon me. The green line shows the current proposal to remove a 118,000,000 allowances before 2031 and, importantly, 900,000,000 after 2030 in alignment with our carbon neutrality goal.

For comparison, the average cap decline in the program through this decade is 4%. The proposal guarantees an immediate increase in stringency to 11% year over year in the near term. And I'll note, the yellow line shows covered emissions in the program and their decline showing that the mere presence of allowances in this market does not drive emissions. The fourth and final change is regarding post 2030 flexibility.

We are removing post 2030 allowance allocations from this rule making so that they can be addressed in future proceedings.

This will give more time for the legislature, stakeholders, and CARB staff to work together through the to evaluate the market uncertainties, the economic uncertainties, and allows us to better evaluate that key balance between allowances for utilities, for industry, and for state auction. It's important to note that we look forward to working with the legislature and stakeholders on this issue because the number of allowances as designed in the program will be further reduced in the future as we get closer to our 2045 goals.

Importantly, the proposal still includes the emission caps through that carbon neutrality 2045 to send the long term market signal to all regulated entities to invest in cleaner technology. These adjustments together accomplish several important outcomes. Because we cannot predict auction revenues or results, these this slide uses a $30 per allowance assumption. Given that $30 per allowance assumption, these changes will provide an additional $2,000,000,000 to electric bill credits for Californians lowering electric bills from here to 2030. The amendments provide $800,000,000 in compliance support for industry to provide that immediate near term relief that we heard was needed because of the economic uncertainty facing businesses in California today. The amendments will generate an estimated $8,000,000,000 for GGRF through the end of this decade.

The amendments double the manufacturing decarbonization incentive fund without borrowing from future GGRF revenue which was in a previous proposal.

And again, to emphasize, the proposal maintains the cap alignment with our statutorily required climate goals of 2030 and 2045. In response to a request from Madam Chair and Madam Chair, the public comment period was extended to and closed on Monday, May 4. Staff is currently reviewing and assessing all submissions and feedback. We look forward to your feedback on the proposal during this hearing today and we will assess the need to make any further adjustments to the proposal. On May 20 is the quarterly auction.

And on May 28 we will hold a hearing for the board to consider the proposed changes. In addition to the direction in AB 127, staff will hold a workshop this summer to implement the key pieces of SB 840, including updating the state's compliance offset protocols, which we understand to be an area of extensive stakeholder interest and look forward to that work in the second half of this year.

Finally, on September 1, the proposed amendments would go into effect if adopted by the board. This importantly allows the PUC to continue with their proceeding to implement the direction under AB 127 to make adjustments to the electric climate credit. And also allows CARB to begin evaluations of a potential linkage in our market with Washington state.

In closing, I want to emphasize how important this rulemaking is to California and beyond. Timely action is essential now to deliver on our legislative mandates and provide the certainty that businesses, communities, markets, and our global partners rely on. It's no secret that climate policy is at a crossroads. Under attack by a well funded and openly hostile opposition and undermined by months of global economic upheaval.

At a moment of uncertainty at the federal and the international lee levels, California has an opportunity and a responsibility to continue to lead.

Moving forward shows that we can be responsive to affordability concerns that have been raised while also setting a clear signal for Californians, other states, and global partners that we remained committed to our climate goals. Thank you for your leadership, for your partnership, and I'm wanted to mention, I'm joined by Deputy Executive Officer Rajendra Sahota from CARB staff. And with that, we look forward to all of your questions and feedback this morning.

Thank you so much. And I would like to hear from LAO. Miss Kerstein.

Good morning, Chair. Can you hear me? Sorry. Good morning, Chairs and Senators. Thank you so much inviting me to participate this morning. My name is Helen Kerstein with the Legislative Analyst's Office.

I'm gonna be speaking from a handout. It's available on our office's website, on the committee's website, and also I think the sergeants have some extra copies if any of the members here, don't have copies. In the interest of time, and as we've heard extensively about the background and these proposed regulations, I'm going to skip the whole beginning part of the handout. And I'm just going to focus on two pieces, the last couple pages.

What we see as the key implications of these proposed regulations and some key questions that we see before you as a legislature.

So, if you'll turn to page seven, you can follow along with those key points that I'll be trying to make today. On page seven, we outline some of the key significant implications that we see from these proposed regulations based on our review thus far. And really, I want to highlight that these proposed regulations are quite significant. They propose to make really notable changes, not just compared to current regulations, but also compared to the version that we all reviewed in January. So, these are not little tweaks.

These are pretty significant. And we think that they could affect a lot of key legislative priorities that we've heard from all of you and your colleagues, over the last number of months and years. So, I want to kind of highlight some some key highlights in in terms of how we see these proposed amendments affecting those key priorities. First, environmental ambition.

As we heard, that's really the the core crux of this program is the environment and trying to protect our state and world from the effects of greenhouse gas gases.

We think there are probably a few different ways that these proposed regulations could affect environmental ambition. We're going to just highlight a couple. I think one of the main ones I wanted to highlight is these MDI allowances because this is kind of a new thing. It's not only a new program, but the mechanism this is being funded is also new In that these new this new program would be funded from by adding allowances sort of above the cap, right?

So, you have the cap going down and then they would add allowances on top of that to fund this program.

And that's a really kind of key difference. And it does allow for additional emissions above that cap level. Above the level you saw in that figure that that CARB displayed. So we do think that could reduce the certainty that the state has that it will meet its 2030 targets. We would note that there's a little bit of a counter, countervailing kind of aspect, which is that the legislature in as part of AB 1207 required CARB to put offsets under the cap.

So, that has the effect of removing some allowances so that maybe sort of helps offset that to some extent. But, there are a variety of provisions that affect environmental ambition. Second, I wanted to highlight industry and leakage. This is also another issue we know is is of a lot of importance to many members because of the potential effects on jobs, on industry.

So, we know this is also of a lot of interest. We would highlight that in our review, it appears that this that these proposed regulations would provide quite a bit of additional support for industry, both relative to current regulations and relative to what was proposed in January. And that would be through 2030, so that's notable. And there are a couple of ways that, industry would get additional benefits under these proposed regulations.

The first is that industry is proposed to receive a greater number of those allowances in the allowance budget the free allowances.

The second is that MDI program that I mentioned. So, CARB is estimating that program valued at about $4,000,000,000 it so if folks fully take advantage of that, that's a quite significant sized program that would also help industry. Third, we wanted to highlight the effect on utilities and particularly because of the the implications for the climate credit. And we know this has been important for many members because of the connection to affordability because this is the money that that folks see rebated back to them on their electric bills, and really helps sort of with the pocketbook issues that we've heard.

There are a few potential implications here that we see. One is as was consistent with, legislation, there is a proposed transition, of natural gas allowances to electric utility customers. Also, CARB is continuing to try to basically offset electric utility customer costs. We would note that on net, according to the information we've seen, we do think that there's a smaller number of allowances for electric utilities relative to existing regulations.

I'm gonna clarify that real quickly because you might say, "That doesn't seem like what we just heard from CARB?"

And so I just want to make sure to kind of clarify what I think is going on, which is that in our review, again, it looks like there are a small a smaller number of allowances going to those electric utilities. However, that's relative to current regulations. I think the numbers that they've stated, that extra $2,000,000,000, is relative to what was in January. So, the January regulations represented quite a significant reduction in utility allowances.

And this is basically adding back almost most of them, but not all of them, kind of thing.

So, hopefully that's a little helpful. But essentially that's if that's a smaller effect, then there's sort of a bigger increase for industry, some modest decrease for utilities, again, relative to current regulations. Then fourth, I want to highlight the impacts on the Greenhouse Gas Reduction Fund. I know that's something that many members deeply care about because there are so many programs that rely on that funding source. So, we think that this could significantly reduce GH - GGRF revenues, excuse me.

And there are two reasons for that. One is GGRF is slated to receive significant significantly fewer allowances. So that's less less for the fund. And the second is through potential or potential interaction with the MDI incentives. So, I wanted to kind of call that out because it's not necessarily quite as clear.

Basically, the MDI allowances serve to increase the allowance supply. And by doing that, we think they could potentially put some downward pressure on allowance prices. So, to the extent that occurred, you'd also see less revenue for GGRF. We note there's a lot of uncertainty with GGRF revenues. They are very hard to predict, and so I think we're all trying to be a little bit humble in trying to predict them.

But, we do know the the estimates that CARB's put out, about $8,000,000,000 over the four year period: so that would be about $2,000,000,000 per year, assuming that $30 price per allowance. If that happened, that would not be adequate to fully support tier two, and it would not leave any funding for tier three. And if folks wanna reference those tiers, it's - we have them on page four of our handout. So, you can see which programs could potentially not be funded. And again, a lot of uncertainty there.

So, you know, it's hard to predict. But those are - that's kind of what's at stake. So, if you turn to page eight, I'm gonna I'll try to go pretty quickly. I think I'm over my time. There are some key questions for legislative consideration that we wanted to highlight for the members.

I know many of these came up already in the discussion, but I'll refer to them quickly. The first is: do these proposed amendments strike the legislature's preferred balance between certainty and flexibility? So, I wanted to highlight this because the allowance allocations are now proposed only through 2030, not through 2035. I know some stakeholders have raised this as a potential issue. And there's a real trade off here.

Right? If you do it for a shorter period of time, you have more flexibility. The situation might be different. You'll have more data. You'll have more information.

But there's less certainty for those entities that are receiving those allowances. So, there's a real trade off there. And there's a question about whether this strikes your preferred balance. Second: do these proposed regulations strike the legislature's preferred balance between environmental ambition and other priorities? Again, like the, I think the MDI allowances are a perfect example of that.

Right? By adding in allowances, essentially expanding the allowance supply, that probably reduces your environmental ambition, but to the extent it puts downward pressure on allowance prices, there could be some impact on affordability: is that what you is that your preferred balance? Three: does the allocation of allowances reflect legislative priorities?

Again, relative to current regulations, and also relative to what we saw, back in January, these proposed regulations would provide more allowances for industry and less for GGRF. So, is that consistent with your priorities? Fourth, is the MDI program structured to achieve your goals? Again, this is this has potential to be a pretty significantly sized program if it's fully taken advantage of $4,000,000,000. And it's broader than was previously proposed.

So, I think the legislature will want to make sure it's comfortable that the benefits of that program exceed the costs, that there are real verifiable emissions reductions, and that it's comfortable with the way it's designed. And then fifth, I know this was also brought up, I think by Senator Laird, I think it's also a key question: how should GGRF be prioritized? So, GGRF revenues may be lower than was anticipated.

If that's the case, is the legislature still comfortable that that SB 840 framework represents its highest priorities? So, those are my comments. Happy to take questions at the appropriate time.

Thank you so much. Mister March from Department of Finance.

Good morning, Chairs and members. I was asked to just give a very brief presentation about how the Department of Finance projects, GGRF revenues. So, I'll do that and hopefully, we can continue on with the hearing. So, the Department of Finance, we update our GGRF revenues three times a year at Governor’s Budget at May revision and at enactment. We look at historical data, in order to inform our future projections.

As LAO noted, it's very difficult to predict, GGRF revenues. It's a market and there's a lot of information that's not publicly available. So, what we do is we look at the typically the last four auctions and look at the the settlement price for the allowances, how it compares to the floor reserve price, that CARB sets. And so, and then we project that forward. Sometimes, we throw out the outliers.

So, for example, our Governor’s Budget: we looked back at the last five auctions because we left out the May 2025 auction, which was sort of an outlier where we were selling at the floor and we did not sell all of the allowances. So, for example, I'll just provide an example, maybe easier to to look at.

So, our Governor’s Budget, we look back at the last five auctions throughout the May 2025 auction and assume the 17% price premium, I guess above the floor, would go forward. So, that reflected a price of around $33 to $35 depending on the calendar year because the floor price increases each calendar year.

We assume that all allowances sell when we when we do these projections. So at Governor's Budget, we estimated that there would be around 3,800,000,000, for GGRF in 26' 27'. Obviously, there are some, downsides with this, depending on different market conditions, those submits are off. So, for example, at the February 2026 auction, where it came in closer to the floor, our projections were off since we were projecting sort of a 17%, premium above the floor.

So, you know, at May revision, we'll have updated, revenue estimates for the for the legislature to to examine. Likely, we'll be a downward revision based on Governor’s Budget, given sort of that we've only had one auction since mayor revision which was a February auction which was sort of a little bit lower. But happy to take any other questions on GGRF or the regulations or anything else subject to the hearing.

Thank you so much. I know there will be lots of questions. Let me turn it over to my co-chair.

Well, thank you Co-chair. You're welcome to start with your co-chair questions if you would like.

There are so many questions. I... So many comments that were received from the community, from our colleagues. And I'm going to start with legislative intent. In response to the January initial statement of reasons, some industry stakeholders alluded in public comment to an agreement or understanding about CARB's intent to provide higher levels of industry subsidies than provided in the January proposal. Are you aware of any such agreement or understanding, and was that agreement part of the legislative reauthorization?

Thank you for that question, Senator. I am not aware of any agreement or understanding that was referenced in the hearing you spoke to. I will say the staff proposal for April, the amendments that were made public last month are really in response to industrial feedback we heard from across the sector. Refiners, oil and gas, cement, food processors.

All of whom came to staff and explained that because of the global economic uncertainty they are facing, federal tariffs, the loss of federal incentives, there is unprecedented economic issues facing them, and this program needed to look at additional ways to support compliance.

It was troubling to hear that from the hearing, after the hearing. Now when we voted for the reauthorization, it was just in September. We're talking about just a few months ago. We did that with a clear understanding that the program would not only keep us on track to meet our climate goals, but support vital reinvestment in our communities for the next two decades. There was lots of talk during those discussions before the vote about how we needed to reauthorize and extend the period of time.

We needed stability. We all bought it. We all agreed this is something that is good. But what we're seeing now is very different. Now do you believe the legislature's intended, the legislature intended to eliminate funding for affordable housing, transit, drinking water, wildfire prevention, and clean air programs with the reauthorization?

Let me... Yeah. Thank you for that question, Senator. And again, thank you to you and your colleagues for championing the extension of this program and providing that market certainty for the next two decades. I want to be clear that these staff propose, the staff proposal does not propose to defund any of those specific programs that you just described.

Let me stop you for a moment. That will be the effect. When we look at the fact that we are going to lose approximately $2 billion. Then we have tier one funded, tier two almost funded, tier three unfunded. There's nothing left to fund tier three. And those are the most important programs that have served the community.

So if we are losing $2 billion at the, we have the approximation of 3.8 billion. That's the number we worked with. And now we have 2 billion left, $2 billion less. We're left with 1.8 billion. It doesn't take care of tier one and tier two, which means tier three is out.

Right. And I, you know, the staff amendments tried to strike a delicate balance of allowances to state auction, to the utilities, and to industry. As I mentioned, public comment closed on Monday. We are receiving a lot of feedback on our proposed allocation and we welcome additional feedback from you and your colleagues. We recognize how important the revenue that has been raised from this program is.

It is not the primary goal for the program. The primary goal is to reduce greenhouse gas emissions in a way that is cost effective and minimizing leakage. That revenue generated is one very important feature of the program. And again, we look forward to your feedback on that proposal.

Does that mean that the period for commenting is extended?

It closed on May 4.

I understand. So if you're welcoming more comments, it's still going to be considered?

Well, there are a number of comments that are now being reviewed by staff. And as I mentioned, this is a staff proposal coming to the board on May 28. So we need to take into consideration a lot of feedback ahead of the board hearing.

Okay. I want to now move into affordability. And thank you for your answer. Is the Cap and Invest regulation in any way related to the current market disruption and fuel price spike that Californians are experiencing? And will these amendments have any effect on near term fuel prices?

The fuel price spike that Californians are experiencing, as I understand it from our colleagues at the Energy Commission, which are really charged with that body of work, is primarily due to the increased cost of crude acquisition because of the disruption in global energy markets, not related to the Cap and Invest program.

The Cap and Invest program does have a gasoline cost pass through that has been publicly stated. In considering these amendments and the legislative direction to prioritize affordability, we wanted to make sure that there was no additional increase in that gasoline pass cost through given the sensitivities around energy cost for the state.

But we're talking about global impact, we're talking about the war in Iran?

We are. Yes.

And what evidence did CARB rely on to determine that providing subsidies to industry would result in lower consumer costs?

Yeah. Thank you for that question, Senator. We've received feedback on that as well. I would say like many similar programs, carbon markets around the world, the allocation of free allowances to industry is a well studied design feature of markets to make sure that we minimize for leakage. Minimizing for leakage ensures that we have competitive pricing for customers and consumers across the state and address affordability.

And just for someone who may not understand what leakage is because leakage does not mean the same in our context as it does normally.

Leakage is essentially a business leaving our state and taking with them the emissions. Because climate change is a global issue, if emissions are coming from California or nearby Nevada, we're still contributing to the global climate crisis. So we want to minimize for that leakage and keep businesses in state.

In the true idea is to keep our businesses here. Keep the jobs here. Keep our community's economy going. And I absolutely understand that, and but my question is what evidence do we have that these refineries will pass along savings for the reduced compliance costs to the customers, to the consumers?

We track very closely the gasoline cost pass through that you're referencing, Senator. It's published on the CEC's website. Again, staff received a number of amount of feedback on the January proposal about how additional compliance support for industry would help address costs they're facing from this program.

And what program or what rules are going to be added to what you've proposed to make sure that we can track this? I'm not sure that we're going to see how, specifically talking about MDI. How are we going to know that what we're giving to industry is going to translate to savings for at the pump for our for our constituents?

Got it. So we're shifting from allowance allocation over to the manufacturing decarbonization incentive. Thank you for that question, Senator. Because I would like to address several of the issues raised including in the LAO report released today.

The as I explained in the presentation, the Manufacturing Decarbonization Incentive Fund is really a unique feature that does not give additional allowances for compliance but rather would provide support for the deep decarbonization investments that we need these facilities to make in order to stay in state and hit our climate targets.

We, as with all of our programs, whether it's the Low Carbon Fuel Standard or offsets, staff has a detailed reporting and analytics both on the application period and also on the back end for making sure that it is publicly transparent how all of those allowances and their funds are being used. The greenhouse gases are reduced and the jobs that are protected as well.

I will tell you that when I saw the presentation that you gave, I thought this is wonderful. This makes sense. Until you start looking at what it really is going to do to our GGRF funding. And what it's going to do to the communities. Did CARB consider the impact for affordability and for greenhouse gas emissions of eliminating eliminating the only continuous state funding source for affordable housing during a housing crisis?

We did not look at the, this. Again, the CARB doesn't play a role in the budget process and dedicating budget funds to specific programs like the Affordable Housing and Sustainable Communities Fund. We do do a comprehensive cost benefit analysis of the regulation. The MDI, I'm glad, Senator, you had some excitement reading about it.

I just want to clarify that that is not taking allowances that would have otherwise gone to the GGRF. Which is to say, in the January proposal, we were funding the MDI with GGRF future allowances. We received comments on that that protecting GGRF funding was important. So now those MDI, that MDI is being funded with different allowances.

Another is, did you consider that this is going to eliminate transit funds as operators across the state face a fiscal cliff?

The, again, Senator, the purpose of this program is to reduce greenhouse gas emissions. That revenue generation is one feature of the program. The allocation changes that were made increase the electric bill credits for Californians and support additional industrial compliance.

Which we heard was needed to ensure affordability. There will be a commensurate reduction in Greenhouse Gas Reduction Funding, and that is why we welcome the feedback from the Senate on our proposal and the delicate balance that we struck.

I won't ask you to respond to each one, but I, the others, it's eliminating safe drinking water funds while 1 million Californians lack access to safe drinking water. Eliminates wildfire prevention funding during a wildfire driven home crisis, home insurance crisis. Eliminates clean air funding for communities breathing the most polluted air in the nation.

Or did CARB consider the relative benefits for affordability of ZEV incentives, equitable building decarbonization, natural and working lands investment, agricultural emission reductions that could be funded through GGRF? I recognize that you're saying that's not your primary goal, but your actions have a direct impact on GGRF funding.

And that funding is what helps the communities who have suffered so much from what we have done to the air. And the if we've made promises when this was all negotiated, this was included in the negotiations. Tier three was not just added as an appendage. Tier three is part of the negotiations. Tier three includes things like funding for AB 617 communities.

And if that funding is not there, that was a promise we made to them. When we reauthorized back in February 2016, I wasn't there for the initial one, but I was there in 2016. And in those negotiations, AB 617 was part of the package.

That was the promise made to the community saying, okay, we're going to give these allowances to the polluters. But because they're polluting your community over and over and over again, we're going to provide some funding for you.

And this year, we also specifically said $250 million will go to those communities that are most polluted. And how much are they going to receive? A big fat zero. And that is completely unfair in all of this. The MDI weakens the demand for allowances.

So it may not have a direct impact, but it does have a specific impact on what GGRF is going to be able to do for the communities. And then my last question in this regard, and I'm going to save the rest of them to give an opportunity to my colleagues to ask questions. Did CARB consult with agencies administering these programs about the impact of eliminating their only viable funding sources during a structural budget deficit?

CARB regularly coordinates with agencies administering these funds. It is not CARB's role to identify a viable funding source. That I leave that to the legislature, the Department of Finance, and the Governor through the budget negotiation every year.

Thank you. To the Department of Finance, you've indicated that the estimate is going to be lower than what we had received in January. It's going to be revised. Is it going to, in January, did it include the proposal from CARB? Was that considered with with the numbers that were given in January?

No. So January and at May, what you'll see is is based on status quo because these regulations are not final. So until these regulations are final, then that's when they would be incorporated into the Department of Finance's estimates.

And it's I'll use the word peculiar that we're on this timeline and that it won't become final until after the May Revise, but it will become final, it'll become final May 28. It'll become final before the budget is actually voted on, which puts everybody at a disadvantage because the numbers clearly have to be reduced.

Which then tells us, as Senator Laird indicated earlier, then everything that was negotiated in SB 804 then is put back on the table. Because if out of $3.7 billion we now, or 3.8 billion, we now have 1.7 to deal with. And the only thing that can that can be included in there is tier one and a part of tier two, then the agreement we had was not the agreement that we'd be able to move forward with.

And would it would cause the... What it's going to do is causes all to then say, it all has to be renegotiated. We can't agree to, we can't go forward with something that was based on information that is completely inaccurate. So that I will leave it at that and because I do have more questions, but I don't want to take up all the time. Madam Chair.

Okay. Thank you. Let's go to Senator Menjivar. She hasn't had a chance to speak yet. Go ahead.

Thank you, Madam Chairs and Madam Chair. You've said it a couple of times. Can you reiterate the purpose of the Cap and Invest program? The main key.

To reduce greenhouse gas emissions in line with our statutory climate targets.

Do you believe it is the purpose of Cap and Invest to protect businesses?

That is one key feature in terms of the statutory direction to minimize leakage and maximize cost effectiveness.

Minimize leakage. Yes. Is it the goal of Cap and Invest to assist businesses given whatever is happening in the world?

Not explicitly. No. But again, I think when in thinking through compliance support for the cost of the program, we take into consideration the global events of the world.

You said a comment that in a response to the feedback from these entities to the federal impacts, we needed to help these entities given what's happening federally. While this isn't a topic that is part of this conversation, I am a Budget Chair for Health and Human Services.

And the federal government, with HR 1, completely slashed our funds, completely, for Health and Human Services. There isn't one program, Department of Finance, that the department, that the administration is looking to protect given the federal impacts, and services for humans, human beings, are not gonna be covered.

It is hypocritical, I think, of this department to come and say to us, because the federal impacts are impacting businesses, multibillion dollar businesses, we have to bend the knee and assist them, but vulnerable people have to come up here and beg us to protect their programs. That is a sentiment that I do not understand. So it's frustrating to hear that, that that is the reason why we're doing this.

LAO has mentioned, Madam Chair, and I wanna know if you completely disagree with this. And the Chair has pointed to this, that MDI allowances are gonna go outside of the cap. They're gonna allow for greater emissions above the cap. Do you agree or disagree with that statement?

I think it's important to know, and I appreciate the LAO also referenced that we are these proposed amendments would place offsets under the cap per legislative direction. The MDI program, yes, is above the cap. It wouldn't necessarily mean that 118 million allowances would immediately come into the program.

We have to get it up and running. Applications, it'll be a vigorous application process. And so we do not anticipate any structural changes to the program and the cap and its integrity.

That's some but not all at the same time? That it's will be a ramp up of the potential of it going above the cap?

Depending on the applications we receive, yes.

Depending. So there's a possibility. It's not a certainty either way.

Yes. As I explained, this is a first of its kind market feature that we are standing up and have received positive feedback on. It would require staff to monitor, evaluate, and assess how the program is working and ensure that it is importantly achieving the program's goals.

The name of this program is called Cap and Invest. Cap is half of this program. And if we go above the cap, we're failing 50% of the program. The other half of this program is invest. What do you think the invest part of the program is?

I think it's important to invest both the revenue and the allowance value back to utility bill customers. The revenue is invested through the annual budget process, and the utility bill rebates are sent back through the allowances we give to utilities.

Is investment back to the same polluters or is the investment back to offset their emissions or invest into consumers for affordability?

I... We are here to implement the legislature's direction as we had understood it from last year's extension. We were to prioritize affordability, minimize leakage, maximize cost effectiveness. We increased the rate payer benefit on electric bills to address electricity affordability. Senator, if you feel like we have gotten that balance wrong, again, we welcome your feedback.

I definitely think we've gotten that balance wrong. I feel like we're completely failing the integrity of the whole Cap and Invest. The cap part, we're gonna go above the cap. The invest part, we're slashing by $2 billion. So I'm struggling to understand what the purpose of this program is moving forward if it's failing on both parts of its bare minimum intent.

I recognize that you are not in charge of the budget. I've heard the responses that you've given to Senator Gomez Reyes. But if the whole purpose of the Cap and Invest is to cap emissions and then reinvest those investments back into the communities, we're not doing either.

The goal is to meet our 2030 GHG emissions by 40%. LAO has stated that this really would impact our ability to meet that goal of 40% by 2030. What do you believe still exists in the proposed April amendments to this that will help us get to our 2030 goals?

Two important points on that point, Senator, or on that question. Thank you. First, I'd like to point out that this is one of many programs that the state uses to achieve its 2030 climate goals. Our 2030 climate goals do not hinge on the Cap and Invest program.

CARB operates a number of other programs as do other agencies to make sure that we are bending down climate emissions. I'd also point out that the proposed, the staff proposal includes the annual caps on declining emissions that are in the alignment with our statutory goals for both 2030 and 2045.

So regardless of the MDI, of the potential of it busting that cap, you, your stance or CARB stance is still that it's on track to meet the 2030 and 2045 goals?

Yeah. We remain confident in our ability to make that. I'll mention we are facing unprecedented federal headwinds, and so that's why getting this rule making done is important and continuing to address emissions from the industrial sector.

Something that the state has been directed to do. And so we maintain our confidence in our ability to achieve our 2030 goal in this program. These staff amendments will play an important role in that.

And LAO, if you can address, because this is a statement straight from your report on MDI preventing us from meeting our 2030 goals, and if you can expand a little bit more on the potential for MDI going past our cap.

Absolutely. And can I maybe first start with the first point I believe CARB brought up about that whether our climate, meeting our climate goals hinges on this program because I think that's also an important kind of consideration.

So yes, the state has many other programs. Unfortunately, many of those are kind of in question at this point, and some of the state's abilities to do those programs have been reduced. Also, I'd note that historically this program was seen as a backstop.

Right? So if those things don't work out, we've at least got this cap and this is gonna ensure that we meet those goals. And so I think that's historically been viewed as one of the key roles this program can play. And so ensuring that it continues to play that role, I think, is a critical aspect of this program.

So to your question about the MDI allowances, I think that's, I think that's really an open question. Because as was mentioned, CARB is setting their allowance budget to meet those goals, but then they're adding these additional allowances on top of that.

But and there's a lot of uncertainty because it's up to 118 million. We don't know if all of those will be utilized. It might be fewer. We don't know exactly when they'll be utilized. So it's possible you could have a lot of entities come in right at the get go because they wanna reserve their allowances or it's possible that that won't happen.

Right? And so I think it just introduces another level of uncertainty about meeting the state's climate goals. So will it mean we don't? I can't say for sure, but I think it just adds that sort of we have less certainty that we'll meet those goals, given this program design.

Thank you for that. And Madam Chair, I was, please correct me if I'm wrong. There was so many numbers that I'm reading around. And I think CARB did some calculations and something around like we will allow up to like a 160% free allowances for the for emissions. I can't remember where I got that number. Is there any calculation that CARB did around MDI allowing up to upwards of a 160% free allowances for their emissions?

That calculation or analysis, Senator, did not come from California, from the Air Resources Board. As I mentioned in my presentation, no sector under the cap receives allowances to fully comply with the program. And also the MDI allowances cannot be used for compliance. I think it's really important to take a step back here.

We're focused on the MDI and the 118 million allowances. As you saw in my slide, between now and 2045 we're looking at a million allowances, a billion allowances coming out of this program, which means that the MDI is only 5% of those allowances. We're very focused on 5%.

Well, respectfully, it's brand new.

Absolutely. And we and we welcome that feedback. I just wanted to put it in context. I don't know that 5% of allowances is going to determine whether or not we're able to meet our 2030 goals. And I would also disagree with the LAO's assessment that many of our programs are under, uncertain I think was the word you used, Helen. I appreciate that.

I, you know, we remain confident in our ability to prevail in court against all of the federal attacks, specifically on our transportation programs. But also if you look at how this state has decarbonized the electricity grid largely without federal support. We've made a tremendous amount of progress. That's largely what's going to help us electrify the world's fourth largest economy and achieve that 2030 goal.

Okay. You mentioned you heard great feedback, I think I wrote down. Great feedback from one side and that's where the changes from the January to April happened. Is it your position that you did not hear great feedback from the opposing views?

I apologize if I, if I made a subjective comment about the feedback. We heard substantial feedback. We heard a great amount of feedback on the January proposal. My expectation is we will hear a substantial amount of feedback on April's amendments as well. We are now assessing those. The comment period just closed on May, on Monday.

Okay. Yes. May 4. Going back to the question that Senator Gomez Reyes was asking, I'd like to dive a little bit more. I can't find historically, please, I would love an example, where we've subsidized multi billion corporations and that has trickled down to savings to everyday human beings.

Florida removed their mileage tax. People did not see savings at the pump. What confidence are we banking on to see that we're gonna see savings for Californians given these subsidies? Because I'm treating these as subsidies. And now Cap and Invest is now cap and subsidize our polluters is how I'm treating this now.

Because we think that that's gonna stabilize the market. I'm just trying to find one example because last year, this legislature and environmental justice advocates and legislators voted for bills that they've never voted on because we were worried. We were worried and we wanted to stabilize the market. Now it's drill baby drill in Kern County. I haven't seen relief at the pump.

Recognize there's a war in the Middle East. I get that. But there's always something going on and I just don't see ever that trickling down. Madam Chair, I'm still I didn't hear in the response what confidence, where are we drawing this confidence from that this is gonna help Californians in affordability?

Yeah. Thank you, Senator. I would say the additional allowances that the staff is proposing giving to the industrial sector is akin to many similar programs around the world. The well studied design feature of industrial free allowances to minimize for leakage and to ensure affordability.

It's minimized for leakage, yes, from leaving California. But it's not, it's not, I don't think this should be the this is for affordability. Maybe potentially for leakage and helping the global emissions elsewhere because we have stringent rules. But to say that this is gonna help with affordability piece, again, I don't, I've never seen a corporation take a subsidy and then reinvest in their communities. Not once I've ever seen that.

So I think that unless I get examples, it's hard to to accept that that's what's gonna happen. So I don't see guard rails on how we're gonna be, how we anticipate this additional 800 million compliance support. We're ensuring no additional cost.

And with that, Madam Chair, if you can, I like to burn it down, burn it down some style, some things? The Marine Corps as we call it, burning it for us. Can you walk me through in real life? Because this is how I see Cap and Invest right now. Polluters pay into a fund. They get free allowances, offsets. So for they buy it at the auction, creates a fund.

That fund is utilized to invest in tier two and tier three issues. With the current proposal, and you've explained that those MDI allowances aren't gonna go into the actual pot. It's gonna create a separate pot. Is that when you're, in real life, that separate pot will then be reinvested back into same emitters to use for their own offsetting projects. Is that correct? As simple terms as possible.

Eligible entities for the MDI include the manufacturers as a part of this program. I think it's important to note that the allowance value will be used for projects that reduce emissions. That benefits...

But go back to same emitters for them to invest in their own projects?

Yes. Because they are investing in the project facility upgrades, in the on-site geothermal or solar, in the switch to hydrogen. They are making the investments to clean up their facilities to both reduce pollution in the frontline communities and help us achieve our climate goals.

What would you say to some opposing views that say that we're creating a slush fund for the emitters for them to use the slush fund for how they see fit within the parameters of them to help prevent, switch over and so forth?

I would say staff appreciates that feedback and we have proposed strong guardrails in the regulation. We are assessing feedback to see if any adjustments are needed.

And again, you don't control how we invest the GGRF funds. But look at the aesthetics of this. We're creating a slush fund. We'll call it what you will, a fund for polluters, emitters to reinvest in their project, which will profit. They will profit off of that, whatever they invest in. And we're decreasing by potentially 50% GGRF that is goes directly into transit, SB 617, water, x, y, and z.

That's the aesthetics of what we're selling to California today, of what the legislature would like to, how we wanna switch and invest in. No question in there. I just wanna paint at least that's how some of us see it. And then Department of Finance, is there anything that precludes you from recalculating outside of the three times that you do the GGRF?

Well, there are only four auctions a year. So these are the public time periods when then when Department of Finance and the administration releases information to to the public. So it generally coincides. I don't think...

In January, the May Revise, and when the budget coincides with the auction?

Yeah.

Is there because you're coming out the second week in May for the May Revise and then this drops May 28, what precludes you from getting a reevaluation between the May Revise and when this body needs to vote on the budget?

I mean, we'd be happy to share additional information after the May auction. Again, it would just be one additional auction, so it'd be difficult to to develop a trend from one auction. That's sort of the the difficulty with sort of the projection...

Assumption. I mean, Department of Finance assumes everything every single year for the budget and is wrong 95% of the time, under or over. So I would ask to the Chairs here if we could request an updated GGRF calculation before this body votes, to your point, Madam Chair. Before this body vote, we should get an updated calculation on GGRF.

One thing that I will just point out is that that's assuming sort of the status quo after the May auction. It may be much more difficult for us to provide something on that timeline with the regulation changes and being able to understand them in such a short compressed period of time. So happy to continue working with staff on sort of what information the legislature requires, but just want to be careful about sort of like what we're committing to in long term.

I think what Senator Menjivar is requesting I think something that would be essential. And we find that in these hearings, it's so important to make decisions based on evidence. Make decisions based on data. Make decisions based on facts. And the fact is we don't know what GGRF is going to be.

The estimate that we have right now of 3.8, we know for sure is going to be incorrect. And we are relying on that number and I think that the senator's request is a reasonable request and that would be something that we would we would expect from the Department of Finance.

Yeah. Given that you can apply the proposed regulations right now, there's a potential that these would go forward to potentially start working on those so we can have something.

Happy to continue working with staff. I get and I just wanna point out some of the uncertainty with GGRF projections that it is it is understanding that all the allowances sell, which is not something that's a guarantee. Industry is not required to buy allowances. We saw GGRF revenues decreased significantly during the, the pandemic. So there is some some uncertainty here about just how much GGRF revenue there is.

It's not a guarantee. So it's not like sort of income taxes or other other revenues that the state has. Which is again why it's very difficult to to estimate it. So I think to your point, Senator Menjivar about us being 95% wrong. I think we would expect that given the uncertainty in the market.

And I don't think that there would be anyone that would be able to accurately predict, GGRF revenues. If there is, I'd be happy to talk to them.

And, and, sir, I'll I'll, you know, I'll retract that comment. Percentage remark. The last comment I'll say is I recognize that we are struggling with our capacity for, producing, obtaining crude oil. The refineries are leaving. I think that's a real, real issue.

But the cap and invest program was not created to focus on that. I think our body has done a lot of work and will continue to do a lot of work on how we can protect that industry for now until we transition over and we must do what we can. But that should live outside of Cap and Invest. Cap and Invest, his goal, manager, is to reduce is to reduce greenhouse emissions.

That's its primary goal and to invest in our communities who are on the front lines getting impacted day in, day in because of these polluters.

To mold, cap, and invest to now subsidize those same emitters, I think is really impacting, the integrity of this program and we should work outside of this program to protect those industries but this should not be the vehicle for that. With that, I'll turn over to the chairs. Okay. Thank you. Well,

I appreciate the hard questions of my colleagues. And, the, the pointed focus on the things that are important. You know, it's I recognize that CARB really is between a rock and a hard place.

And I think it's important to recognize that because there are many there this I feel like this is almost an exact replica of the type of thing that was happening with SB 54 last year related to industry saying they couldn't comply with the recycling and composting mandates that we had that CalRecycle was dealing with. And so, you know, a shifting framework based on a lot of feedback from business and industry about what is possible and what, what what are various asks.

And, you know, it's really hard to live in the current environment and not be bombarded with the affordability argument all the time. And it's and so while Cap and Invest's goal is to reduce emissions, it's also important that we recognize that when we reauthorized it, AB127 directed CARB to quote, evaluate the cost impact on California consumers when it revises the regulations. So this issue of and then you've also received a letter from various legislators, and a lot of feedback from industry.

So, so recognizing to me it's important to pull out the straight, strings to be honest about what we're doing. And so I'm concerned about this conflating of linkage with affordability.

Because I think you, you said, Chair Sanchez that allowances are well studied. That it's something that we have a lot of data on. And the legislature has talked about prioritizing affordability. But this issue which both my colleagues have talked about, but I wanted to like hit it more directly, is that providing allowances to industry is not there's no guarantee that that's gonna be passed on to consumers. There's no mechanism for us to make that happen.

There might be the linkage issue is we, is wanting them to stay in state. Wanting us to have industry stay in state. Wanting us to have a short supply chain. To have jobs. To have vibrant communities.

To be able to meet our own needs in the state of California. But but I just wanted to ask if there's anything else you wanna pull out that would get at how is it exactly that that we are going to give additional allowances to industry and then that is somehow gonna actually lower cost for consumers. Because I do feel like that is a lower cost for consumers. Because I do feel like that is a different question than a linkage question.

So if, if you could just address that head on.

Yeah. Thank you for that question, Senator. And from for your comments. I think the what we have seen in other carbon markets around the world in terms of design features is that maintaining competitive in state businesses and in state production supports competitive pricing which helps to ensure addressing affordability concerns for Californians. I, I understand the need or the, the desire for insurances that these costs savings will be passed through and we we certainly hope that they will do that.

And in the meantime we will be rigorous in our tracking of the publicly reported data on the pass through of the costs of this program.

Okay. Okay. I do appreciate that. It's a it's a bit of a chain but it is, you know, it, I, I appreciate you saying that. It's I also wanna just recognize that if we identify leak link, leakage as a problem.

And, in the 2017 reauthorization, we directed CARB to report to the legislature by the 2025, so the end of last year, on the leakage leakage risk posed by cap and trade. We have not received that report. And I know there's a rule making proceeding, or this current rule making proceeding is making major changes to leakage provisions without that information. So I just wanted to, you know, 2020 2017 was almost ten years ago now. So, you know, asking for really an analysis of leakage.

How much because this is to me, it seems like this is general concept or it's threats that are made. And in the legislation we do, we hear threats all the time about and they become hollow. Right? That if, if, if the California is gonna collapse because so many businesses are gonna leave. So can you just address that?

What, you know, when would we have the report or what kind of data are you relying on when you're when we're talking about leakage?

Yeah. Thank you for that question, Senator. Several elements to your question. I would say, on the report specifically, it is that staff has been working hard to complete that report. Given the recent months of economic upheaval there have had to we have had to make some adjustments to that.

Staff is hoping to, expedite that to have it done later this year. I will say that will be an important input to the rule making that I referenced that will chiefly define the allowance allocation for post 2030. So remember that we've bifurcated the allowance allocation right now coming to the board at the May is just through the end of the decade. And that's really to give ourselves more time to use this leakage report as an input.

And, you know, give ourselves and the legislature and stakeholders more time to do analysis on what the allowance allocation needs to look like beyond 2030.

And I will mention that becomes a difficult challenge to tackle because the number of allowances is reducing over time by design of the program as we get closer to hitting our climate goals. I also want to just clarify one piece of your question. We did not make changes to the leakage provisions in the staff amendments. I think there's been some misunderstanding on that. We can clarify that further.

But we have kept everyone at high risk for leakage as was statutorily directed last time the program was extended.

Okay. Yeah. I want I want to focus a little bit on the MDI. And I think it's important that you reference that this is only 5% of the allowances so that we recognize we're not talking about 95%. But this issue of it basically busting the cap.

You know, that it it it has the potential to be used by a lot of different parties. And so what what, you know, can you address that? The busting the cap. I mean, we're already not in a great position to meet our twenty thirty climate goals. So and it does seem like this proposal moves us in the exact opposite direction.

And 2030 is really soon. So CARB's, you know, own documents have said that we actually need more allowances to come out of the program, not go into it. So this does seem like, it's pretty clearly going in the wrong direction. But I think we need a nest, 11% annual reduction in GHG emissions between now and 2030. So, you know, how does that compare to historic program performance or, you know, how are you thinking about meeting the cap given this I this proposal?

Yeah. I appreciate that question, Senator. So, you are correct that the caps going forward are an 11% decline. Those are in the staff proposal. Those are an ambitious near term signal for the decline in emissions that again are aligned with our 2030 and 2045 target.

We really see the MBI MDI as, an important fund that can support the near term emissions reductions that are needed at our facilities at across the industrial sector to make sure that we maintain that 11% annual decline. I'll note that the current cap decline for this decade is 4%. So it's quite a steep increase which is why you're hearing a big focus on affordability in this rule making.

Let me turn it to my deputy executive officer, for more thoughts on the, the busting of the cap argument that again we've received a lot of feedback and questions on.

Good morning madam chairs, senators. Rajendra Sota, deputy executive officer at the Air Resources Board. So the MDI is really designed to be, used if, if requested. So there's no guarantee that any of those, allowances would come back into the market. It's only about 25,000,000 max.

So we did a bounding exercise. What could come out the first time?

Maybe 25,000,000 at most in What could come out the first time? Maybe 25,000,000 at most in a single time. That's if a 100 facilities actually applied for and wanted to do the kinds of projects that support other statutory targets. When we think about the return on those, the investments that they would be making are things that would reduce emissions not just in a single year, but ongoing.

That's a reduction that means that you're not just getting a single one time greenhouse gas benefit, but it would follow through in every subsequent year to 2030 and beyond. It would also deliver criteria pollutant reductions, not just in a single year, but that first year and, and beyond. So that's the way we see it. We see it as being very bounded in the way it can come in.

We know that there's been a lot of concern about somehow all of it would be released into the market.

It would depress mark, prices for the auctions. It would flood the cap and the cap would be busted. We don't see that that is a possibility in the way that we've developed the guardrails around it. Now, of course, because it is a new one, we will want to monitor and adjust. And we're always looking for ways to think about, did we miss anything?

Is there something in the public comments that we need to look at and maybe incorporate or comments that are coming in through these kinds of venues? And we will look at that and give it the appropriate consideration and integrate it in. But at this time, we feel like it has the strong guardrails. It's not going to bust the cap and it's not going to just flood the market in a way that's going to cause a big disruption in the in the price signal.

And you're saying 25,000,000. Is that dollars?

25,000,000 allowance. Allowance. If a 100 facilities applied and they were all approved.

Right.

That's a lot of applications.

Okay. Well, I appreciate that you've done that modeling and you do have some projections there. You know, having guardrails is important. And so and we wanna make sure that we don't have kind of these fake decarbonization projects that, like, aren't actually doing anything. But are, you know, technically qualifying.

So I, I wanna just ask about how you envision the MDI working in practice in the real world. So since the spending deadline for the value of the MDI allowances is at least six years after the allowances are granted. How do we know those emissions reductions are real and accurate? And do we have does CARB or does the legislature I mean, we could establish it. But do you see us having oversight into or recourse over how this MDI money is used?

So again, just on the public process and the guardrails, absolutely. We wanna make sure that anything that is provided

in this way to industry is absolutely used to reduce emissions.

We also don't want to see, We also don't want to see misuse of that value or no reductions appear from it because this is a design feature that others are looking at. We know that there are other jurisdictions that are intrigued by the way to support near term reductions in a similar way in their industrial sector. So for us, it's about that rigorous application process which will include an estimate of how much greenhouse gas emission reductions you expect to get with this investment.

That's part of the upfront information you have to submit. At the end of the compliance period because one application is only good for one compliance period, you have to report back to CARB what you did with that value and what the expected reductions were.

We then heard comments that sometimes for these large investments and large structural changes, you may have to do CEQA and permitting and other requirements to change just the configuration of a facility and that may go beyond two or three years. And that point is why staff proposed to extend it to two compliance periods. But that reporting would happen in those interim steps to make sure that we have tabs on what's going on.

I think the other part that's really a good check on this is if those investments aren't made, if those greenhouse gas reductions don't occur, that company has to return all of that value back to the state and then we remove it permanently and it's not available to somebody else. It's almost like you apply for it, you use it or you lose it.

And if you're going to take, you know, five, 500,000 allowances from CARB today and you don't use it, you have to return that value when that that period is up.

Okay. You know, it's interesting because hearing you talk about it. I, I do appreciate it conceptually what you're going for. And I also appreciate that it's so clearly linked to emissions reductions because I recognize that the GGRF, funds are used in ways that are really important to the legislature and critically important to our state. But sometimes it does appear that there's a tangential relationship with, greenhouse gas reductions.

And so, you know, this the reality of that is we it makes our job a lot harder when GGRF goes down. There's no question about that. I also and I think it it's in a difficult budget year as we're struggling across the cuts from the Federal Government and everything. It's just I think it's a problem we don't want. But recognizing that that we are trying to reduce our emissions.

I mean, that is our the primary goal of this program, and we need to make sure that we're doing that in multiple different ways. So you know, I appreciate hearing more about how you envision this working. And let me let me just see if I have another okay. We have, Senator Valadares is back. I know she has some questions she wants to ask.

I think my last point is, it's always a concern when when we're giving incentives and appear to not be getting anything from it. And I think that kind of goes to the core of what Senator Menjivar was saying and my co chair here about, you know, we wanna make sure that we're really meeting the goals of this program and that we're not just giving things away.

And that we don't have guardrails and we don't have insight into what it is we need and that it that's a mistake. So, you know, that's my my caution and concern about this. It's just to I really don't want us to do that.

So, so with that, I'll just, conclude and hand it over to Senator Valadares.

Thank you so much, Madam Chair. So I have quite a few questions. My apologies. I know. We hopefully, it won't take too long.

A lot of them are gonna be yes and no. And then some I'll ask for some elaboration on. And I'll start with CARB. So CARB is removing a 118,000,000 allowances from the market through 2030. So yes or no is the question is a yes or no, question.

So reducing supply and compliance market increases compliance pressure and costs. Is that yes or no? Simple answer. Yes. Okay.

Does CARB acknowledge that at least some portion of those increased compliance costs will ultimately be passed on to Californians through gasoline, electricity, and consumer goods? Yes, Senator. And that's why the staff amendments, several of the proposed updates and changes are to address that very issue. Okay. So California still consumes roughly 13,000,000,000 gallons of fuel annually while refining capacity continues to shrink.

So yes or no. If refining capacity declines faster than demand declines, Californians, face increased price volatility and supply risk. I think that the expert on

the issue are that my colleagues at the Energy Commission but it is a stated goal of the administration to ensure an affordable, safe, and reliable transition on on the issue of transportation fuels. Yes.

Okay. So, so yes. Okay. Thank you. And so, the Iran Conflict, did that cause the, closure of the Benicia refinery fill up 66 refineries?

The last three refineries we've seen closed, since 2018.

Thank you for that question, Senator. Aye, don't want

to speak on behalf of those private companies, but those business decisions predated the, conflict you've referenced. Right. So, are you aware that those refineries refined roughly 20% of California's fuel? Yes. Okay.

So as a result of those refinery closures, where do we source that fuel from?

My understanding, and again, this is the Energy Commission's lane of expertise, is we've largely met that delta via imports Okay. Of fuel.

So the, the root of of our high gas prices right now is not the conflict in Rian in Iran. It's the fact that California has created a system that relies not on our own energy independence and production of oil and gas and refining gas in California, but it's because we've outsourced it. Is, is the closure of these two, the recent refineries, and the past, couple of months, is that essentially creating leakage?

Just briefly on the, the comment you had made, Senator. It's our understanding that the increase the fuel price spike that Californians are facing that the rest of the country is facing is largely as a result of the increased cost of crude which has largely been the global energy market disruption. But on your point of leakage, yes. As we've discussed the point the statutory direction to minimize leakage is to make sure that the program is providing adequate support to keep businesses in state.

So is CARBAware that Californians play roughly $2 more for a gallon of gas than the rest of

the nation? Again, publicly post on the Energy Commission's website. But yes, there is a a Nash a differential between national prices and California's. Okay.

To dig in a little bit on the MDI a little bit a little bit more. The MDI has been double and I think my, my facts is the end, the, the MDI has been doubled. Can you tell me what it's been doubled to?

To $4,000,000,000. Okay. Under and 18,000,000 allowances. Yes. Got it.

But eligibility standards and approval timelines are still, undefined. What accountability and will it when will it be in language? What accountability mechanisms ensure that this program is actually accessible to the companies it's meant to help? And I think there is definitely, some synergy on us wanting me. I, I think this is a great program, but I do understand that we need some accountability to it.

So will there be language on that accountability on those accountability mechanisms?

Yes. Staff proposed language in January. We received substantial comment, on on the proposal for the application process. The accountability and eligible projects. That's why you saw several proposed changes to that in the April amendments.

I'll turn to deputy executive officer again to provide the detail and the substantial feedback. Thank you chair.

Good morning, Senator. So of course, we heard from the forty five day period, which was January, that there were concerns about duration of eligibility. It was shorter. It was about two to three years. We heard that companies might have issues with permitting or sequel or other things that are required of them to make these big structural changes.

And so as part of the April proposal, we extended that time period to two compliance periods. We added in specificity on the kind of information companies would have to provide as their application process. We also added in deadlines so that by the time they had us the application to us, we would have sufficient deadlines or timing to review that information and then reflected in the amount of MDI that we awarded them for the next year.

And so we went through and sequentially looked at what does this mean from the point of do I know what I need to submit and what information is required? If I submit that on 06/01/2027, is there enough time for CARB to review and act on it in the fall when I would get any of that value for the next calendar year?

So we added that detail in. And then we extended the time period for expenditure of that incentive to make sure that if there were delays in permitting or c core or any other issues, we could accommodate that and it wouldn't just be taken back in some premature way. Okay. So

again, for for carbon then. So you excluded oil and gas producers from the MDI entirely. So how are you expecting them to reduce emissions without access to the same decarbonization tools that you pretty much covered in every other industry?

The oil and gas, sector can actually access the MDI if they're doing it to advance statutory, direction in SB 905 which is carbon capture and sequestration.

So we are aware of several efforts within the Central Valley which has really good geologic pore space to capture and remove carbon where projects can happen, access the MDI and use that as part of the operations but not related to oil extraction to have to grow up a new type of industry while they're actually still producing the crude that is possible to meet ongoing demand

in the state. And the California Resource Corporation, who I think is at the forefront of that, is in my district. Very proud of that work. I would love actually to have, is anyone from from the oil industry, a CIPA, in in the hearing room? If I could have you come up, I just have a quick question, for you, In your understanding of MDI and specifically your exclusion, how that's going to impact oil producers.

And then, well yeah. Let's just answer that question first. I Did you did you wanna step up to the mic over there? Yeah. Sorry.

One day. One day you can present present a bill there.

Hi. Good morning. John Constantino. I represent CIPA on carbon regulatory affairs. The MDI excluded the oil and gas industry from doing things like thermal storage, biofuels and, and other operational activities.

So by excluding the oil and gas sector, they can't do some of the things that are in the mix for reducing emissions for steam and natural gas reduction in in usage.

So can you also let me know statutorily is the cap and invest program or former cap and trade cap and invest program allowed to create leakage?

Wait. I'm gonna have to bust in here for a second. So we're we're actually not interviewing people from the audience as part of this hearing. We have these three on the panel, but it'd be more appropriate for him to make his comments during the public comment time, because he's not a member of this panel. So, so, so we're gonna need, I, I thought maybe this was gonna be a quick question which is why

That wasn't, that wasn't my question.

Okay. Okay. Great. Thank you. Thanks for your commentary.

We appreciate it. Okay.

So, so then, I mean, I guess that I can ask CARB and I can ask the LAO. So, is statutorily, AB32, are are you is the cap and invest program allowed to create leakage?

The statutory direction in AB32 directs CARB to minimize leakage in operating this program. Okay.

And does the LAO have an interpretation then?

So my understanding is the same. It's to minimize leakage, not necessarily to eliminate it. So there could still be some leakage. And I think in CARB's, some of CARB's documentation, you know, they they estimate that not full they're not necessarily at least historically, the state hasn't necessarily met the full compliance provided free allowances to meet the full compliance costs. So that's been part of the policy for, I think, a number of years.

But again, they're they're in one of the goals and some of the goals are competing. So this is a challenge, I think, that CARB has before it. But one of the goals is certainly to to minimize that leakage.

Okay. And also to the LAO. And the LAO's independent assessment, do you think that this package adequately balances affordability, reliability, emissions reductions? Or does it prioritize, one at the expense of the other?

So I think we're not in a position to weigh those things for the legislature. I think that's really a policy choice that's before before you and before CARB and, and before the state. I think I can speak to relative to existing regulations this these proposed regulations do provide additional benefits to industry and they reduce GGRF. Those are some things I can I can say just factually?

Whether that's what you want, whether that reflects your priorities and the state's, you know, highest highest priorities or the intent of AB1207, I, I think it's hard for me to to comment.

So, yeah. No. I'm not asking you to, to I'm I'm asking for an interpretation of what the amendments and the program currently does. And, yes, we have to make a decision on on, you know, and, and CARB obviously with with the new, scoping plan. You know, what that is.

But, so, so you wouldn't you you don't want to or can't make an an assessment if it's prioritizing one or the other?

So I think relative to current regulations, this prioritizes industry and it deprioritizes GGRF relative to current regulations. Whether that's relative to what it should be, that

I can't say. Okay. So is, was the cap and invest program and cap and trade, was it designed to be a revenue program?

So I think the main focus of the program is reducing GHGs. And again, you know, trying to do that cost effectively and with minimized leakage. So I think historically we've seen GGRF as, as kind of a an ancillary benefit to the program rather than its core function. K.

And do you would the LAO agree that California families are already facing unusually high energy and utility costs relative to relative to most of the country?

Yeah. That's I think it's definitely true that California pays among the highest fuel prices as well as electricity prices. So we also have higher incomes, which is, on average, which is helpful. But certainly the costs in terms of energy costs that the state pays are relatively high. I guess also on the electricity side, we have a nice climate, so we do tend to use a little less electricity.

That also helps. But for folks who are trying to pay the bills, costs are are quite high.

So my district, you know, we have average electricity bills anywhere between $400 and sometimes a thousand dollars in, you know, the High Desert when you need to run your air conditioning or when it gets freezing and you have to run your heater. It it is expensive so you're paying for both gas and electricity to run your heater. So does the LEO believe that the state has fully quantified the cumulative affordability impacts of cap and invest, you the utility rate increases, fuel regulations, and electrification mandates together?

So I don't think I've seen a full and comprehensive analysis of all of that and how it all plays in. I think we've tried to kind of, as a state, we've done, you know, pieces of it but I'm not sure that I've seen a comprehensive analysis of that.

Okay. And then I'll move over to, I did have a question for the Department of Finance. So in terms of the GGRF, allocations or funding, if Californians are paying some of the highest gas and utility prices in the nation, Where is your evidence that the investments made through the program, are lowering cost or improving reliability for working families?

So, so I mean, when they're, to take a step back. So a large portion of GGRF is allocated by statute. There's a small portion that's allocated every year based on the, the budget and the negotiations. And out

of these suite of programs, CARB analyzes sort of their, their GHG, emissions, to quantify the benefit to to Californians overall. As far as the sort of the direct benefit, it depends on the program. There are a number of programs. So as we heard, there's affordable housing, there are transit programs that help a number of Californians, wildfire risk reduction programs that are sometimes difficult to quantify the individual impacts to to to families.

But that's the, the extent and that just the suite of programs that we funded from GGRF since its inception is, is quite large.

Okay. So would the department support a requirement that every future GGRF allocation include a simple one page disclosure showing projected cost to consumers, projected emissions reductions, and a measurable return on investment?

I can't speak to that but it's certainly something that we can take back and that's a conversation that we can have with the legislature.

Okay. And how much GGRF funding has gone to projects that are still years away from operational impact?

I I can't speak directly to that. I mean, there's a number of programs. So for example, some some of the programs that we fund from GGRF take take many years. I assume sort of some of the question is trying to get a high speed rail and sort of just the overall, funding that we provided to that.

But there are other programs that we fund such as affordable housing that can take many years, from the time that we actually appropriate the money for that affordable housing to when it's actually built and being able to use for people.

So and some of the transit, funding also takes many years to realize. I think that's a trend that we see across the state for large infrastructure projects where it does take multiple years from when we appropriate that funding to when we actually see that ready to go.

Okay. And then my very last question here, would is again to the LAO. Would the LAO agree that leakage undermines Californians environmental goals if production simply moves overseas while emissions continue else elsewhere? And could you expand on that?

Yeah. So I think that leakage is a concern probably mostly in terms of the economic and jobs issue. There could be some environmental impacts, potentially dependent. But I think they would be probably a little bit more complex. You know, if you're the most of the emissions, for example, from gasoline are related to actually burning it from the tailpipe.

Right? And so whether you have the refining here, if you have them somewhere else, yes, you don't have the transportation of the refined product here. But we're also importing a lot of crude. So I guess it's a long long answer, but I think the environmental side is a little bit more complicated. The job side, I think, is a little clearer.

And then there are also EJ concerns as well there. So they're real difficult and complicated questions about leakage and what the state wants to do. And also, whether these programs are are really sufficient to keep in state, you know, these companies in state. And whether they're really whether this is really driving that leakage. So I think it's probably a longer conversation.

Okay.

And then, sorry, this is really my last question to Carla. So if, if in the cap if through the cap and invest program, our priority was affordability, was balancing our climate goals, with affordability. Do you think that, while keeping affordability at the forefront of the program, do you think that our 2030 goals and 2045 goal timelines are realistic?

Thank you for that question, question Senator. As mentioned earlier, we are confident in our ability to reach those 2030 and 2045 goals. But it will require an ongoing process with the legislature, with stakeholders, and across all of our agencies to assess our progress, monitor, evaluate, consider new proposals such as the MDI. I did want to mention, you know, these amendments we focused a lot in this discussion on support for industry which was geared towards affordability.

It's important to note that we are proposing $10,000,000,000 to the climate credit which will lower electric bills.

As you mentioned a top concern in your district. That's really the bulk of the changes in the April amendments as opposed to January. That lowering electric bills for Californian families. Thank you.

Thank you. I just had one, procedural question. Does this have to be adopted in May? Could it Could it be adopted in June?

Thank you for that question, Senator. We are, proposing that the, the amendments go to the board in the hearing on May 28.

Right. But could it be adopted in June and all the rest of the timelines be met?

I think we feel, May 28 has allowed for the amount of public process, necessary over the past year and that we need to maintain on track for the summer, milestones that I mentioned. We if adopted in May, these amendments would go into effect on September 1, which is an important allocation deadline. It allows for the PUC to move forward with its proceeding related to the climate credit in implementing the statutory direction on AB1207.

And importantly, it allows us to begin the very rigorous work of evaluating linkage with Washington State.

I see. Okay. Thank you.

Back to me with more questions. But I did want to allow my my colleagues time to ask their questions as well. And before I ask them, I do want to say that that I'm very grateful to for the work that that you all do. This isn't easy, but I think that what is clear is that we are one team for the state of California. We want what is best for the state of California.

I recognize this is a first of its kind feature for a carbon market. And recognize that sometimes we want to be creative about what we do and how we do it. Sometimes it takes years to see the unintended consequences. But for this particular one, for the MDI, we are seeing what those unintended consequences will most most likely be. And I think that that is beneficial for us to be able to see that because then we can make adjustments to what it is we want.

We know what we want to accomplish but we have to ask, are we really going to accomplish that with this particular program? So the, the, the, my first question is, how can CARB ensure that investments and any attributable emissions reductions are achieved through the MDI and specifically the fees are additional what would have otherwise occurred. I'll tell you that's a question that's been asked by many of my colleagues. I did did did we we know that many of the refineries are already making adjustments.

They're already trying to do something that is good for California, I am told.

And if they're already doing it but California is saying, here's $4,000,000,000 try to do more. Try to do more investments. How how do we ensure that these weren't investments that were already being planned?

Thank you, Madam Chair. That's a very critical and important question that we asked ourselves as we were designing the regulation and the proposal that was out for the April comment period. The eligibility types, the projects are really focused on big investments, big capital investments, not something as simple as I'm going to fix a leak here that I would have done anyway and that's kind of save me money. That's right. A different kind of leak.

Sorry. Too many leaks here. But it's not focused on changing light bulbs to be more efficient. It's not those ticky tacky things that you would do on the normal side of business to reduce your energy bills or your energy usage. We are really focused on project types that align with some of the largest statutes that we've seen pushing hard on deep decarbonization that we know today are going to take a big capital investment.

And the added benefit of companies coming to the table and applying to make those big capital investments is they're demonstrating that they do wanna stay in California because they're willing to go through the process and actually partner with us in some way to be able to have different technologies, different structures that will pay in emission reductions for many, many years.

I hope it's true. I honestly, I, I, I hope it's true. But it sounds like at least from the feedback that we have received, there is no assurance. And that's why I said that when I went through this, I thought this is it it sounds good. It sounds sounds like something that it it's we're we're looking to the future.

We're looking to reducing emissions. But then when you really study it, that's when you realize that there are no guarantees. I know we talked about, guard rails and it was, strong guard rails. And I, I, I don't see them because I don't see that we're going to be able to I haven't heard how we're going to be able to show that the emissions have actually been reduced as a result of of what we're investing here.

No. And we share that concern as well, madam chair. I think the robust reporting upfront, like when a project is proposed, you have to tell us how it aligns with the big projects aligned, defined in the regulation. You also have to estimate the amount of greenhouse gas reductions you're expected to get from that project. And then at the end of the compliance period, you have to report that.

So we are going to post those applications on the proposed projects that are going to be seeking this MDI incentive on our website because we think that public transparency is critical and important. So right out the gate, we're gonna post the number of applications, the types of projects. And as we approve them, we're gonna post that on our website as well. And people will be able to see the expected reductions that those facilities believe they are going to get with that investment.

Then we'll get reports at the end of the compliance period.

We will post those to our website as well because we want accountability. Not just accountability within the program, but we wanna make sure that the companies that come forward that wanna use this this new mechanism know that there is going to be public accountability and there's gonna be public reporting on how they came to the table, said we're willing to invest and we're looking for a little help. Thank you for helping us. A little bit of a lot of

help. A lot of help. Thank you, state of California, for helping us. Now, I owe you reductions. And if I don't those reductions don't materialize, I have to return that full value back to you.

Alright. Well, thank you for saying that. So my next question had to do with enforcement. What is CARB's recourse for failure to perform by covered entity receiving MDI allowances? What if an entity ceases operation or files for bankruptcy prior to fulfilling its obligations?

What if the project being credited with MDI allowances is delayed beyond the compliance period for which the allowance is credited. So what's our recourse? What enforcement mechanism is there? And are you saying that if they don't comply they have to return the money?

Absolutely. So just like in the current design of the program, because we do give allowances to minimize for leakage in the way that we've been talking about it generally here. If a company were to go out of business or or to file bankruptcy, we are a a an entity in the court asking for the return of that value because that belongs to the state of California. We have, updated our regulation almost ten years ago to deal with bankruptcies because we had a situation in the past.

And so here, the same way, if this value is not used, we would take it back.

And if they're unwilling to take it back, we would go to court. That is the enforcement. It is clear in the regulation. You have to report. If you don't use it, you lose it and we and we want it back.

If you even if you use part of it, you still have to return the rest of the value back to the state of California. Otherwise, we have strong enforcement to go through our normal enforcement process that we would do for any other part of the program that we have.

Alright. Well, my next question assumed otherwise. But here's my question. Why does the MDI structure seemingly and this is what we have been able to read. Why does the MDI structure seemingly reward capital expenditures rather than demonstrated emissions reductions?

As noted by academic experts including Kyle Meng and Meredith Fowley, This structure appears to misalign incentives for recipients of these allowances and is not structured to deliver cost effective verifiable remissions reductions in line with statutory requirements.

So I've I've not seen any materials that the authors of the materials that you just quoted have Let me get them put in. That would be great. What I know is that in the design of the program, the capital expenditures are large because the project types are meant to be something that's above and beyond something a company would do as usual. We know this because we wrote the types of projects based on statutes and the types of things that need to scale.

And that if that value is not used, it has to come back.

If it's used, those projects will deliver emission reductions not just in a single year, but for the entire lifetime of that project. So it's not just a once demonstration. It is decades of payback on that investment with that big capital expenditure. So the cost per ton is amortized over many, many years when you make that initial capital investment. And that's the way that traditional planning and investments happen with pairing money from the private sector and the public sector.

So we've thought about that model to make sure that it is above and beyond what's normal or expected or may happen otherwise. And that it furthers some of the statutory targets on technologies and energy that we wanna see scaling and that there is a strong requirement that the project not just be a short term delivery on emission reductions but it delivers over a long long period of time because we know those expenditures are huge upfront.

Thank you. I, I, I, one of the comments that was made by by my colleagues is if we are investing $4,000,000,000 and and Senator Menjivar commented on this as well. Investing $4,000,000,000 to help industry. To help them invest in their company. To increase the value of their company.

$4,000,000,000 if we invested it in humans, just as the Senator has has discussed. The value to Californians would be so much greater. And it's something that that we have to continue to come back to. $4,000,000,000 is is a substantial sum of money to be investing in an industry that already shows great profits. Especially the what what is happening globally, which we've talked about, is affecting the cost of gasoline at the pump.

And we know it and we see it. Yes, California still is higher than other states. Our income is higher. There are other factors. But the the cost that has increased recently has been as a result of the war that was called by our our our president in Iran.

And that has increased the the the cost, but it has also increased profits for the very industry that we're going to now invest $4,000,000,000 with. And those are the comments that I'm hearing from from our colleagues and also from other stakeholders. Why are we investing? What is so important that, why is it so important to invest it? The other thing that has been has caused great consternation and my co chair has asked about it is the timeline.

To say that here it is, we're talking about a first of its kind, something that nobody else has ever tried, the MDI. And nobody else, we have nothing to to to compare it to. Nothing to use as a as a model for it. And yet, we gave just a fifteen day with a five day extension period for comments. My my my co chair has asked the question and I will ask it again.

If this is set for May 28, May 28, as I understand, just happens to be a date that was put on the calendar for when carb is going to meet. It isn't something that when you started MDI, you said May 28 is a date we need to to do all of this, but rather a date that was on the calendar already. First of all, is that correct?

Senator, several things to unpack there. Madam Chair, thank you. I think the the important thing about the May 28 deadline is part of our APN OAL process to meet that September 1 deadline for allocation of allowances and also to allow the PUC to con conclude their rule making on making changes to the climate credit.

PUC is meeting in the fall?

They they are meeting later this summer. They need out They have publicly said late summer they need our regulation to conclude and to go to the office of administrative law and be in effect. So we're working closely with them as well as our partners in Quebec, our linked market, and in Washington to evaluate a potential linkage with them. And I I want to clarify the MDI, which again we have heard substantial feedback on, was a part of the January proposal. Not a new feature in April It was 40.

Proposals. It was 40 credits. 40 allowances as opposed to 118. And it did not include some of which you're including now. Right.

And, those those changes we again have look forward to reviewing the public comment and the feedback that we have received as well as today's conversation. We will take it all into consideration as this proposed package comes before the board for their consideration.

Because in January, it was what was being proposed in January was very different. That and this is something the LAO has spoken to at great length. There's a big difference between what was done in January, what was proposed in January and what was changed completely in in in in April. So what we're dealing with is April. January, you made you you received some feedback, but that was 40 credits as opposed to 118, or allowances rather.

That's a big difference. It's more that's triple almost what you had proposed previously. And these are all and then now taking us over the cap. And I know that there is some discussion, some disagreement on that. But something that very possibly and probably will take us over the cap should should the the allowances be sought.

Because that's the also the other discussion that that doesn't mean that just because you're providing the allowances that that the the industry is going to take them. Last thing or question is when we talk about the for utilities, we're talking about 20¢. Right? I mean per per customer.

Madam chair, are you referring to the climate credit? Yes.

Because we're talking about utility bills. Right? And it was $30 before. Right?

Are we talking about So utility bills differ by service territory Correct. For the investor in utilities and if the POUs are issuing it. So every utility doesn't get the same amount of increase. And so it would require us to go back and look at their specific increase and what it means for their specific customers in terms of an increase on the on the credit on their bill.

I, I, I saw that estimate that it was 20 some cents per customer on average. Does the LAO have any comment on that?

So I, I'm sorry. I haven't done the per customer calculation. Again, I think I do I think it is important, though, to highlight, like, what's the baseline for you to for what we're talking about. Right? Because, again, according to, the numbers that I've seen, it appears that actually there'll be fewer total allowances for utilities under this, right, proposed regulation relative to current regulations.

Again, more relative to January. January was a big cut to utilities. This is basically mostly restored that. And the the figure's a little different when you look at the percentage allocations because the pie is growing smaller as they're taking away the 118,000,000 allowances. But essentially, relative to what current regulations on net, we think there are fewer allowances for utilities, which would be somewhat smaller climate credit.

Again, and there's also variation among utilities. I think that was, expressed as well. So, but I wouldn't say this is, like, some boon to utility customers. This is still basically intended to offset their costs, not to be like a real net benefit to them.

Alright. I will tell you the one thing that I do hear from my colleagues is the protection of work. Protection of workers. That is the one thing that's an overriding concern. And something that it goes to the leakage and I recognize that being creative to try to figure out, how we take care of that.

But cap and invest has to do with carbon reduction or emissions reduction. And that has to be that has to be the the the goal here. Alright. Any further questions? Then we're gonna open it up for public comment.

You have a on the cap. Say it now. One minute or two.

We're we're going to I I thank you so much that there are so many people who want to to give comment. We're going to put a thirty second limit. I know.

Good morning Chairs. Rico Mastrodonato with the Trust for Public Land. We share a lot of the concerns you do, Senator Reyes. The ultimate impact and we have serious concerns about CARB's proposal because it's gonna cut the GGRF in half. And those investments to the transformational climate communities, sustainable agriculture, urban greening and urban forestry are all going to be devastated because of this proposal.

And all of those programs are ultimately focused on frontline communities and marginalized communities exclusively. So let's, you know, understand that this is going to impact the people that are bearing the burden of climate most.

Thank you.

Thank you, Chairs and staff. Katie Valenzuela on behalf of the Center on Race, Poverty, and the Environment. It would be one thing if, revenue of the GGRF was going down because emissions were going down. We were prepared for that.

But that is not what is happening here. They're reducing the climate credit. They're reducing revenue to provide additional incentives to industry. And to your very important question on additionality, these industries still have other programs like the low carbon fuel standard that don't have any additionality projections. And so this is an additional layer of money going to those.

CARB has no legal reason to act on May 28. They could push this out and do this better, and we strongly encourage your continued engagement. Thank you.

Thank you.

Thank you, Brendan Orpickey, on behalf of San Mateo County Transit District, Santa Cruz Metropolitan Transit District, and County Connection. Wanna thank both of you for holding this hearing. We request that you and your colleagues continue to lean in with CARB and just make clear the devastating impacts that these proposals would have on transit and housing programs in California. Thank you.

Thank you.

Clifton Wilson, on behalf of the following, Mayor Daniel Lurie, Monterey Salinas Transit, the City County Association Governments of San Mateo County, Solano County Transit, and CalTrain, all asking legislature to engage with CARB and the administration to make clear the devastating impacts the proposed amendments would have on transit and housing programs across the state and oppose the amended regulation, which would reduce funding for programs that keep California affordable for all of its residents while reducing greenhouse gas emissions. Thank you.

Thank you.

Good morning. Alex Loomer on behalf of Pacific Forest Trust. Really appreciate the chair, both chairs and members of the committee for hosting this today. I think the questions that have been asked are the really important ones that we should be digging into. The changes introduced in the fifteen day notice are far beyond the scope of what is appropriate.

They fundamentally change the program and there should be absolutely more time for public engagement. They threaten the ability to reach the required 2,030 and 2045 GHG reduction goals and they undermine the ability of the state to invest in important mitigation programs from wildfire resilience to housing to transit and clean drinking water. These regs are too important to rush. The external deadlines and drivers can't be the reason to erode the core California climate policy for the next twenty years. Thank you.

Thank you. Good morning. Bill Magavern with the Coalition for Clean Air. Meeting the statutory targets that you've put in law for emission reductions requires preserving the integrity of the cap. Creating allowances outside of the cap jeopardizes the ability to get those emission reductions.

And I agree with Senator Menjivar that giving away allowances, these are valuable public assets. Those are subsidies. They do not lead to affordability for everyday Californians. Thank you.

Good morning. Noam Elroi, on behalf of Rethink Waste, the California Compost Coalition and People, Food, and Land Foundation. Thank you very much for holding this hearing, and we appreciate many of the comments you said. We just encourage the legislature and the administration to, maintain the funding for GGRF that's necessary for the many, emissions reducing programs, such as those for, building out compost capacity and other organic waste diversion and happy compost week.

Thank you.

Thank you. Happy compost week. Is that what you said?

Compost awareness week.

Compost awareness week. Okay.

Elizabeth Escobello, the California Manufacturers and Technology Association. From the manufacturer's perspective, I wanna highlight three considerations. First is the leakage prevention must remain central to the program design. As the legislature evaluates these amendments, we urge caution around any changes that could weaken those protections or introduce uncertainty, particularly beyond 2030 where key policy signals are currently undefined. Second is the long term certainty and market stability are essential.

Uncertainty around the post 2030 allocation levels, allowance supply, and compliance cost makes it significantly harder to invest in California. And third is on the manufacturing decarbonization incentive. We recognize the concerns that were raised today. From our perspective, the question is not whether to support the industrial decarbonization, but how to effectively do so. We understand that the transparency, accountability, and, this incentive clearly tied to a real, verifiable emissions reductions is important.

Manufacturers do face real barriers to deploy low carbon technologies at scale. And without a workable pathway, we were setting goal target goals without proving the means to achieve them.

Thank you.

Alright. You know that was more than thirty seconds. However, I I did want you to be able to give your opinion which was different from the majority of those who expressed it before. But the rest of you, it's thirty seconds.

Alright. Chair, Blakespear and and Reyes. I'm Michael Pimentel, the executive director of the California Transit Association here on behalf of my members, as well as, more than 70, more than 60 coalition partners, raising concerns about the impacts, of the proposed regulation on GGRF funded programs, AHSCT, IRC, PLC TOP, AB 617, communities.

We understand the very difficult balancing act that CARB is faced with, but we hope that entered into this conversation will be the real impacts to jobs and investments here in the state, as well as affordability through all the investments in housing and transit. Thank you.

Thank you.

Kellen Belcher speaking on behalf of Earthjustice. We strongly oppose the MDI, which would divert billions of dollars from climate investments and electric relief to big oil. It puts our ability to meet our 2030 goal at risk by adding a 118,000,000 more allowances, the equivalent emissions of 30 medium sized coal plants emitting for a year. California should not be forced to pay for big oil pollution because of an eleventh hour proposal.

CARB must remove the MDI from this rule making so that strong rules can take effect this fall.

CARB has already said it will address post 2030 allowance allocations in a future rule making, and that's where this should be considered. Thank you. Thank you.

Co-Chair, Chair Chan says, I'm Christian Toya with Heirloom Carbon, a California carbon dioxide removal company. We support this cap and invest package, specifically the manufacturing decarbonization incentive. Without MDI enabled investment, California cannot meet our twenty thirty or 2045 net zero targets, not technically, not economically. MDI is not just about existing industry, it's about new innovation, which the markets can't scale on their own that creates new jobs in California. This this delicate balancing at a difficult crossroads for climate technology, we support MDI in efforts to strengthen it.

Thank you very much.

Thank you.

Jake Schultz on behalf of the California Habitat Conservation Planning Coalition. We respectfully urge legislature and administration to maintain the long term stability of cap and invest and to avoid the negative impacts to state investments in climate related programs such as habitat conservation. Thank you. Thank you.

Good morning. I'm Wendy Mitchell on behalf of LA Metro. We echo the comments by the Transportation Association. But in addition, LA Metro will be hit twofold. The LC top will be, is used for funding operations of the three new lines that that have we have up and running.

One of which is only two days old. And then the TIRCP, it helps with matching funds, federal matching funds for our new projects. So it would be a devastating impact to us. Thank you.

Thank you.

Mariela Rocha with Leadership Council for Justice and Accountability. We are shocked and deeply concerned by CARB's proposed changes to the cap and invest program. The pro the proposed rule provides multiple giveaways to polluting industry in the vein of hope to reduce cost to help foreigners. On the contrary, the proposed changes will facilitate pollution and result in health cost to disadvantaged and low income communities without addressing affordability challenges to them.

The proposed changes could eliminate funding for critical, equity programs that the legislature has prioritized, SAFER and AP.

Thank you. Thank you.

Good morning, both Chairs. Thank you for holding this committee hearing. My name is Allison Hilliard. I'm with the Climate Center, and we specifically recommend removing the MDI mechanism until it can be better defined and placed under the cap and retire at least a 118,300,000 allowances to protect cap integrity and meet 2030 and 2045 climate goals. We support efforts to make electricity more affordable and accelerate the transfer of fossil fuel auction revenues to electric utilities and, end post 2030 free industry allowances pending upon economic conditions. Thank you.

Thank you.

Good morning. Thank you again also for having this hearing. Steve Wallauch here on behalf of the Golden Gate Bridge District, the Alameda Contra Costa Transit District, the Napa Valley Transportation Authority, Foothill Transit, and the California Association for Coordinated Transportation. It comes down to it's a zero sum game. If we wanna go down this pathway, we we can't expect transit operators to continue to transition to zero emission fleets, using LC TOP for for student bus passes.

These are the trade offs we we need to pick and we need your input on. Thank you.

Thank you.

Good morning, Co-Chairs. Crystal LaTravis on behalf of the California Association of Local Conservation Corps, State of the Redwoods League, Sempervirens Fund, East Bay Regional Park District, Mid Peninsula Regional Open Space District, and California State Parks Foundation. We appreciate your questions and comments. We want to underscore that the GRF is one of the only stable and flexible funding mechanisms for climate beneficial natural resource and community based projects across California.

We respectfully urge the administration and legislature to maintain long term stability in the cap and invest program to ensure this important work continues.

Thank you.

Well done. Thank you.

Good morning, Co-Chairs. Graciela Castillo-Krings here on behalf of Enterprise Community Partners and the California Housing Consortium. Really appreciate the dialogue that this is gonna how this is gonna impact the larger budget conversations. We are very concerned about the impact that this is gonna have on tier three, especially those programs really impact low income Californians the most, in particular some of our transit programs and the affordable housing and sustainable communities program.

I also wanna note that some conversations happening currently as part of the trailer bill and negotiations are basically with the reorganization and some of the new housing programs that are gonna be created are going to be impacted by AISC dollars.

And so again, just underscore the importance of some of the budget conversations. Thank you.

Thank you.

Good morning. Catherine Chu with APEN, the Asian Pacific Environmental Network. CARB's proposed fifteen day changes busts the emissions cap and undermines the integrity of the entire program. For oil refineries, the proposed changes creates a perverse incentive to pump out even more climate warming greenhouse gases and concentrate more pollution in refinery communities. The state's biggest emission reduction program would go beyond letting refiners off the hook.

Instead, it would actually pay them in excess allowances for every ton of climate warming gases that they pump into our air. Oil companies do not need the subsidy. Since the inception of cap and trade, refiners have received over $6,000,000,000. This proposal shifts a $100 of benefits per Californians out of their pocket. Thank you.

Thank you.

John Cosintino on behalf of CIPA.

Thank you.

Welcome back. Thank you.

Using allowance value to to reduce emissions from industry and hard to carbonize areas is a long time coming and it's a good idea. The disappointment from CIPA is that we are excluded from the majority of the allowance value and when the CARB speaks of additional allowances to industry, that also does not include CIPA on oil and gas producers were left out of this proposal. We want to highlight that. Thank you.

They weren't. Thank you.

Good morning. My name is Chloe Eames and I am a policy advisor with second.

Weren't they added in April? In the April proposal?

So for the MDI, yes. The oil and gas sector was added in there for CCS or SB 905. I think what, the speaker the commenter is referring to is are they getting more additional allowances beyond status quo? Okay. Very good.

Thank you. Thank you. And thank you for that clarification.

Chloe Eames on behalf of NextGen California. Monday, we submitted a comment letter to CARB on behalf of 45 environmental, environmental justice, public transit, and public health organizations expressing our significant concerns about the April proposed cap and invest regulation and that it undermines the integrity of our cap on greenhouse gas emissions and affordability benefits for Californians.

As discussed today, our most significant concern is the MDI, and we are here to request that CARB swiftly amend the program proposed regulation and remove the MDI to implement the program regulation on time this fall. Thank you.

Thank you. And we did receive your your your comments.

Good morning, chairs. Kurt Blackburn here on behalf of the San Diego Association of Governments or SANDAG, here to express concerns with CARB's proposed amendments to its cap and invest, program, which would significantly cut GGR for revenue available to tier three programs. These programs have been have been successfully utilized by SANDAG on affordable housing projects, including transit oriented development, major transit and rail rail corridor improvements, climate resilience projects, and expanded transit service amongst others.

MPOs like Zandag are well positioned to continue using this funding to help the state deliver on its ambitious climate, housing, and transportation infrastructure goals. And as such, we urge the legislature to protect long term funding for these tier three, GGR programs.

Thank you. Thank you.

Good morning. Caitlin Rudner Sutter on behalf of Environmental Defense Fund and fifteen hundred of our California members who signed a petition to carve this week, expressing real concerns about this April proposal. Specifically, that it undermines the integrity of the emissions cap and makes it not be a backstop and jeopardize meeting our 2030 climate goal, but also the differences between the January and the April proposal actually reduce the affordability benefits for the bottom half of California households by about 50%.

So that includes reductions in the climate credit and many of the programs you've heard today. Thank you.

Thank

you. Good morning. Chair Blakespear Chair Reyes, John Kendrick from Cal Chamber. The through line of this program from its inception from AB 32 to SB 32 to AB 398 to AB 1207 has always been significant cost effective emissions reductions over time with cost containment and leakage protection. Two things that I'd like to kind of reframe, you know, we've heard a lot about this as a subsidy.

The industrial allocation is a subsidy. I'd like you to rethink it in in terms of an avoided cost that is not an avoided compliance cost that is not passed down to consumers. The second point that I'd like to raise on with respect to the MDI is you are trading a one time right to emit one metric ton in exchange for long term year after year emissions reductions. It also I think was expressed reduced criteria pollutants as well. So it's a good program.

It will increase the environmental integrity of the program.

Thank you. Thank you.

Chairs, my name is Mikhail Scavarol. I'm here on behalf of Climate Build California. For two decades, the legislature has built one consistent and amplified instruction into our climate policies. AB 32, AB 398, AB 1279, and now 12 o seven have pushed in the same direction. Leakage protection, ratepayer protection, business protection, and leakage minimization.

To keep the covered industries and our citizens viable in the state of California, analysis during reauthorization indicated that GGRF expenditures have a weighted cost average of over 1,200 a ton. That is not cost effective. In closing, affordability is achieved through design and allocations, not through revenue expenditure.

Thank you. Thank you, madam chairs. Jason Igerd on behalf of the Glass Packaging Institute. GPI's members, have four facilities cal in California today producing bottled glass. Ten years ago, I would have been able to say they had five facilities.

Unfortunately, three facilities have closed in the West Coast in the last ten years. That's largely due to competition from imported glass. Chairs, you've teed up a very stark choice for this state today. Are we going to prioritize temporary revenues, or are we going to prioritize a program that is robust, keeps businesses here, and regulated by this program? We think the latter is what climate leadership looks like.