California’s Legislative Session Ends With An Important Step Forward for AB 32 – The Stage is Now Set for a Carbon Price and Wise Investment of Permit Auction Proceeds

Like most legislative sessions in California’s recent history, the session that ended last Friday at midnight included a flurry of activity up until the final minute. For California’s AB 32 though, Friday’s closing moments were not just exciting, they were groundbreaking for climate policy.

After nearly 2 years of deliberation – the Legislature charted a clear path toward full implementation of the state’s landmark cap-and-trade regulation by resolving a contentious debate over whether and how to wisely invest the proceeds of the regulation’s permit auction. That debate, whether cap-and-trade should raise money in a greenhouse gas (GHG) permit auction process, was brought back to life when a letter from 56 prominent economists to Governor Brown urging him to not delay or scale back the auction was met with a similar letter from several state legislators taking the opposite position. Friday’s legislative action appears to have resolved that issue – meaning all signs are go for launch of the state’s comprehensive climate change regulation in November.

The legislature passed two bills, AB 1532 and SB 535, establishing a framework for deciding how to distribute the proceeds from the state’s upcoming auction of GHG permits. A core part of the approach, laid out in detail in AB 1532, is ensuring that all money raised in the auction be used to further the goals of the law (to reduce climate change pollution), and that spending decisions be made transparently, and in consultation with state agencies. SB 535 stipulates that some of the money must be used to the benefit of disadvantaged communities who already share the large brunt of California’s degraded air quality.

Though any legislative proposal is potentially subject to veto by the governor, EDF expects and is actively urging Governor Brown to sign both AB 1532 and SB 535 into law as quickly as possible.

By passing a comprehensive bill package that sets out how expenditure decisions are developed and made, and also ensuring that those decisions be in compliance with established legal standards, the legislature has put to rest the question over whether to move forward with the program as planned. Now, with AB1532 and SB535, the legislature has decided how to move forward with the program – giving a clear signal that cap-and-trade is intended to proceed in November 2012.

More detail on AB 1532, SB 535 and use of AB 32 auction proceeds:

AB 1532, sponsored by Assembly Speaker Perez, establishes a 3-year investment plan process for investing auction proceeds in projects that reduce GHGs through activities like renewable energy and energy efficiency, advanced vehicles, water and natural resource conservation, and waste reduction. These investments are scheduled to start in the 2013-14 fiscal year. The bill requires the investment plan be developed though a specified agency consultation process that includes public participation.

SB 535, sponsored by Senator De Leon, requires a minimum of 25% of CARB’s auction proceeds to be used in ways that benefit disadvantaged communities, either directly or indirectly. It also requires a minimum of 10% of auction proceeds directly fund projects within those communities.

Use of AB 32 auction proceeds – Wise investment of cap-and-trade auction proceeds can be an integral part of achieving these AB 32 emission reduction goals. As detailed in our June 2012 report, Invest to Grow, targeted investment of AB 32 proceeds can bolster California’s green energy economy, creating jobs and providing a new wave of customers to California businesses operating in sectors providing clean energy solutions. In addition, investment of auction proceeds into energy efficiency and clean energy will reduce air pollution, thereby improving health and air quality, fill gaps created by reduced state and federal funding, accelerate energy independence, and save businesses money by reducing energy demand.

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