June 16, 2014

By David Zisser

There are complex issues involved in allocating Cap-and-Trade revenues in a way that truly benefits California’s most vulnerable communities. This primer should help.

How do Cap-and-Trade and the Greenhouse Gas Reduction Fund work?

Cap-and-Trade establishes a statutory “cap” on emissions for individual companies by distributing a limited number of carbon credits to the company. If a company will not use its full allotment, it may “trade” its credits to a party that will exceed its allotment. Thus, Cap-and-Trade incentivizes those who can reduce emissions most inexpensively to do so. The state also holds additional credits, which it sells at “allowance auction” or “reserve sales” to create Cap-and-Trade auction proceeds.

The Greenhouse Gas Reduction Fund (GGRF) was established in 2012 by AB 1532 (J. Pérez), SB 535 (de León), and SB 1018 (Budget and Fiscal Review Committee). The GGRF receives Cap-and-Trade auction proceeds and defines how the auction proceeds are administered.

The legislature passed, and the governor signed, a budget that projects $872 million in Cap-and-Trade revenues in 2014-15. Once transportation fuels come under the cap in 2015, the GGRF is projected to administer $2.5 billion to 5 billion annually from Cap-and-Trade auction revenue.

How will the GGRF funds be administered?

This has been the focus of a lot of attention and advocacy from interest groups across the state, but on Thursday, June 15th, the Legislature passed a budget for both 2014-15 and ongoing expenditures (see pages 23-24).

Previously, the Assembly, Senate, and Governor all had their own 2014-15 proposals, and Senators Darrell Steinberg and Kevin de León had proposed a joint long-term proposal that goes beyond the 2014-15 budget. These chartscompare the competing proposals and the final budget approved by the Legislature.


What has been Public Advocates’ role?

Public Advocates is a leading partner in two key coalitions working hard to ensure that the GGRF is used to fund programs that both reduce greenhouse gas (GHG) emissions and benefit low-income communities and communities of color: the Sustainable Communities for All coalition (SC4A) and the SB 535 Coalition.

SC4A supports funding for high-quality transit and biking and walking opportunities, energy efficient homes near transit that are affordable to lower-income households, innovative waste reduction, and enhanced urban greening and open spaces. All of these priorities help our communities meet the goals of SB 375 and AB 32. In addition, SC4A believes all projects funded with GGRF funds should achieve measurable GHG reductions, prioritize co-benefits outlined in AB 32 and AB 1532, and exceed the disadvantaged communities requirement of SB 535. Among other things, SC4A has submitted comments regarding the Governor’s proposal.

The SB 535 Coalition, with leadership from the “Quad,” which includes Public Advocates, the Asian Pacific Environmental Network, the Greenlining Institute, and the Coalition for Clean Air, has been strategically advocating in Sacramento to ensure that GGRF investments comply with the requirements of SB 535. SB 535 requires that 25% of GGRF moneys be used to fund projects that benefit disadvantaged communities and 10% be used for projects located within disadvantaged communities.

SC4A and the SB 535 Coalition came together with two other coalitions to develop a “Mega-Coalition” proposal for how the GGRF moneys should be spent in 2014-15.

Why is affordable housing near transit an appropriate GGRF investment?

The California Housing Partnership Corporation and TransForm recently released a comprehensive study showing that affordable homes near transit result in significant GHG reductions. The study concludes that low-income households who live near transit drive less than high-income households who do and less than low-income households who live far from transit. This reference summarizes the key reasons affordable transit-oriented development is a particularly effective use of GGRF funds.

For some of the same reasons, preventing displacement must be a priority for GGRF investments. As investments are made in communities, rents will likely rise. As a result, the very families intended to benefit from these investments will no longer live in these communities. Moreover, as low-income families are priced out of neighborhoods near transit, GHG emissions will increase. This proposal provides four recommended anti-displacement strategies.

How do we determine what is a “disadvantaged community?”

Public Advocates and its partners have developed a 4-step tool to determine which projects should count toward the GGRF program meeting or exceeding SB 535 requirements and ensure that investments targeting disadvantaged communities provide meaningful and tangible benefits.

CalEnviroScreen 2.0 is a screening methodology that can be used to help identify California communities that are disproportionately burdened by multiple sources of pollution. The SB 535 Coalition recently submitted a letter supporting a statewide science-based methodology like CalEnviroScreen while recommending some potential changes to the current methodology.

What is the key legislation?

AB 32 (Pavley/Nuñez), also known as the California Global Warming Solutions Act, passed in 2006 and requires the reduction of GHG emissions to 1990 levels by 2020. The law authorizes the California Air Resources Board (CARB) to use a wide range of methods to achieve this target while also maximizing additional environmental and economic “co-benefits.” These key strategies are laid out in CARB’s Scoping Plan.

SB 375 (Steinberg), passed in 2008, directs CARB to set regional targets for reducing GHGs and requires Metropolitan Planning Organizations to include a Sustainable Communities Strategies in the regional transportation plan that demonstrates how the region will meet the GHG emission targets.

AB 1532, passed in 2012, establishes the Greenhouse Gas Reduction Fund and specifies that “[m]oneys shall be used to facilitate the achievement of reductions of greenhouse gas emissions … and to the extent feasible: [m]aximize economic, environmental, and public health benefits to the state.” In addition, it requires the Department of Finance to develop a 3-year investment plan and to submit the plan to the Legislature.

SB 535, also passed in 2012, requires that 25% of the GGRF funds be used for projects that “provide benefits to disadvantaged communities” and that 10% of the funds go “to projects located within disadvantaged communities.” CalEPA is charged with identifying disadvantaged communities and has developed the CalEnviroScreen for this purpose.

What happens next?

Even though Governor Brown has signed the budget, the advocacy isn’t over yet. There may be opportunities to weigh in on proposed trailer bill language (implementing language of the state budget), state agency regulations and guidelines, and local and regional transit agency plans for spending GGRF money. For instance, the trailer bill language must require policies that prevent displacement of existing low-income populations from investment areas and provide funding for transit passes for students and low-income residents.

Public Advocates and its partners will continue to carefully monitor these processes and advocate for meaningful guidance to promote programs and projects that benefit disadvantaged communities and reduce GHG emissions.

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