LAO 2006-07 Budget Analysis: Resources

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Governorís Climate Change Initiative

The budget proposes funding across several state agencies to begin implementation of the Governorís Climate Change Initiative, which focuses on reducing greenhouse gas (GHG) emissions. In this analysis, we describe the Governorís proposal, consider the stateís existing GHG reduction efforts, and make recommendations to assist the Legislature in evaluating the policy choices inherent in the Governorís proposal.

Governorís GHG Reduction Targets

In June 2005, the Governor issued an executive order that established ambitious greenhouse gas emission reduction targets for the state. In response, a multiagency Climate Action Team was formed to develop strategies to meet the Governorís targets. The budget proposes $7.2†million and 23.4 positions across several state agencies to begin implementation of Climate Action Team recommendations.

Californiaís Emissions of GHGs. Greenhouse gases trap solar heat within the earthís atmosphere, thereby warming the earthís temperature. While both natural phenomenon (mainly water evaporation) and human activities (such as the burning of fossil fuels) produce GHGs, increasing concern has been placed on concentrations of GHGs resulting from human activities and their relation to the increase in mean global temperatures over the past century.

On a per-person basis, California emits fewer GHGs than most other states. Nonetheless, California, as a populous state, is a significant emitter of GHGs. For example, the state is the second largest emitter of GHGs in the United States and one of the largest emitters of GHGs in the world, when compared to other countriesí emissions. While many human activities contribute to Californiaís GHG emissions, the largest sources in recent years, in order of magnitude by sector, have been transportation, industry (including industrial burning of coal and petroleum, cement and lime production, and mineral extraction), electricity production, agriculture, and forestry. Figure†1 shows estimates by the California Energy Commission, based on federal data, of Californiaís annual human-produced GHG emissions since 1990. (Data are not readily available prior to this period.) From our review of commission reports, it appears that the acceleration in the amount of GHG emissions since 1995, as shown in Figure†1, is largely attributable to an increase in economic activity in the state during that period.

Governorís Executive Order. On June 1, 2005, the Governor issued an executive order that established the following GHG reduction targets for the state, as a guide for state action to address the economic, social, and health impacts of global warming:

In response to the executive order, the Secretary for Environmental Protection formed the Climate Action Team (CAT) made up of representatives of the stateís environmental protection, agricultural, transportation, housing, and utility agencies. The CAT then developed strategies in support of the order, which it published in December 2005 as a draft report to the Governor and the Legislature. The draft CAT report recommended four actions ďessentialĒ to meeting the Governorís GHG emission reduction goals: (1)†require climate change emissions reporting from all emitters of GHGs, starting with the largest emitters (such as electricity generators and cement producers); (2) levy fees on gasoline and diesel sales to reduce demand for these fuels and to fund promotion of alternative, cleaner fuels; (3) coordinate state investment funds, such as public pension systems and the Public Interest Energy Research fund, to reward industry development of emission reduction technologies; and (4) encourage companies to take early action to reduce their climate change emissions in anticipation of subsequent state, federal, or international emissions reduction programs.

Budget Proposal. The budget proposes funding for the Governorís Climate Change Initiative, a collection of strategies intended to begin implementation of CAT recommendations and the GHG reduction targets identified in the executive order. The budget proposes $7.2†million ($135,000 General Fund, $7†million various special funds) and 23.4 positions across a number of agencies in support of the Climate Change Initiative. Figure†2 lists those agencies included in the Climate Change Initiative, as well as the funding proposed for each agency and the specific strategies assigned to them.


Figure 2

Governorís Climate Change Initiative

Air Resources Board—$5.2 Million/14.8 Positions

Regulatory Control Measures. Develop regulatory control measures to encourage use of biofuels and refrigeration technologies; and to reduce or eliminate emissions from the semiconductor industry, stockyards, diesel engines used at ports, and light- and heavy-duty vehicles.

Economic Analysis. Evaluate the economic effects of greenhouse gas (GHG) emission reduction strategies.

Climate Change Research. Identify links between air quality and climate change.

Incentives. Expand the Innovative Clean Air Technologies grant program to
include technologies to reduce GHG emissions.

Secretary of Environmental Protection—$900,000/1.9 Positions

Coordinate Efforts; Foster Crosscutting Research. Coordinate statewide
efforts to meet the Governorís GHG reduction targets; contract for crosscutting research and public outreach.

Energy Commission—$612,000/3.8 Positions

Evaluate Potential GHG Reductions. Evaluate and verify potential GHG
reductions for electricity generation and from other key industries.

GHG Emission Inventory. Update and improve methods and data of the
existing statewide GHG inventory.

Economic Research. Design and develop research projects relating to the
economics of climate change.

Public Utilities Commission—12 Positionsa

Renewables Portfolio Standard. Plan for an acceleration of the Renewables Portfolio Standard from the current goal of 20 percent renewable energy by 2017 to: 20 percent by 2010, and 33 percent by 2020.

California Solar Initiative. Add 3,000 megawatts of solar energy by 2017.

Energy Efficiency. Expand utility energy efficiency programs and increase
energy efficiency in state buildings; develop and implement a program to
support combined generation of heat and electricity in industrial settings.

Policy Development. Analyze carbon policy options for the electricity generation industry.

Integrated Waste Management Board—$466,000/2.9 Positions

Methane Conversion. Increase capture of methane emitted from landfills for use as an alternative fuel.


a  Redirected positions within the commission.


Efforts Underway to Curb GHG Emissions

Many efforts are currently underway to reduce Californiaís emissions of greenhouse gases, several of which were initiated by the Legislature.

As the draft CAT report notes, there are numerous strategies currently being implemented in the state to address GHG emissions. In many cases, these existing strategies are the result of legislative action. The Legislature declared GHG reduction a policy priority when it enacted Chapter†769, Statutes of 2001 (SB 527, Sher), which declared it to be ďin the best interest of the State Ö to encourage voluntary actions to achieve all economically beneficial reductions of greenhouse gas emissions from California sources.Ē Figure 3 highlights a number of the stateís existing GHG emission reduction strategies, both voluntary and mandatory, as well as applicable enabling legislation.


Figure 3

Selected Existing Greenhouse Gas
Emission Reduction Strategies




Secretary for Resources


      California Climate Action Registry. Register voluntary reporting of greenhouse gas (GHG) emissions to establish baselines against which future GHG emission reduction requirements may be applied.

Chapter 1018, Statutes of 2000 (SB 1771, Sher); Amended by Chapter 769, Statutes of 2001
(SB 527, Sher)

Air Resources Board


      GHG Vehicle Emission Standards. Require board to regulate GHG emitted by passenger vehicles and light-duty trucks to achieve maximum feasible reductions.

Chapter 200, Statutes of 2002 (AB 1493, Pavley)

      Anti-Idling. Require board to develop regulations to prevent diesel truck engine idling at ports.

Chapter 1129, Statutes of 2002 (AB 2650, Lowenthal)

Public Utilities Commission


      Renewables Portfolio Standard. Require the stateís retail sellers of electricity to achieve at least 20 percent of energy sales from renewable sources.

Chapter 516, Statutes of 2002 (SB 1078, Sher)

      California Solar Initiative. Provide financial incentives to
encourage residential and commercial installation of solar energy technology.


      Investor-Owned Utility Energy Efficiency Programs.
Establishes energy-savings targets for investor-owned utility
energy efficiency programs.


Energy Commission


      Energy Efficiency Standards. Issue standards that reduce the energy demands in buildings and household appliances.

Chapter 329, Statutes of 2000 (AB 970, Ducheny)

      Tire Replacement and Inflation. Ensure that replacement tires sold in the state are at least as energy efficient as the originals, and encourage energy-efficient inflation.

Chapter 654, Statutes of 2003 (AB 844, Nation)

      Alternative Fuels. Develop and adopt by June 30, 2007, a state plan to increase the use of alternative transportation fuels that, among other things, reduce the emission of GHGs.

Chapter 371, Statutes of 2005 (AB 1007, Pavley)

State Consumer Services/Cal-EPA


      Green Buildings Initiative. Site, design, construct, renovate, operate, and maintain state buildings that are models of energy efficiency.



The Governorís Climate Change Initiative contains a number of proposals that are conceptually consistent with legislative policy direction on particular strategies to reduce GHG emissions. For example, a number of strategies included in the budget proposal have been approved by the Legislature: promoting use of cleaner, alternative fuels; regulating emissions from motor vehicles; offering incentives to clean air technology developers; inventorying GHG emissions by source; attaining renewable energy portfolio standards; and setting energy efficiency standards.

Despite this level of conceptual consistency, the Governorís initiative differs in some respects from legislative direction in terms of the specifics of how a strategy is to be implemented. For example, in some instances, the Governorís proposal expands an existing GHG reduction program beyond the parameters set by the Legislature. Such is the case with the Governorís proposal to extend to heavy-duty vehicles the GHG emission reduction methods applied under current law only to light-duty vehicles. Also, the Governorís initiative would accelerate the statutory timeline for the renewable energy portfolio standard. As another example, the Governorís initiative proposes to expand the use of biofuels through regulatory control measures, though the Legislature has authorized only the development of a plan to encourage use of such fuels and has not specified a regulatory role.

Legislature Needs to Set Overall Policy Direction

There are a number of major policy choices inherent in the Governorís Climate Change Initiative that should be evaluated by the Legislature. These include setting greenhouse gas emission reduction targets, setting implementation priorities, balancing regulatory and voluntary strategies, and determining state versus local responsibilities. It is also important to ensure that efforts among state agencies are coordinated to prevent duplication and unnecessary costs. We recommend that the Legislature provide its direction for an overall climate change policy for the state in statute.

Despite similarities between legislatively endorsed GHG-reduction strategies and those proposed in the Governorís budget, the Governorís Climate Change Initiative raises a number of major issues for legislative consideration. We discuss below a number of the significant policy choices inherent in the Governorís proposal that we think particularly merit legislative review.

GHG Emission Reduction Targets. Under the Governorís proposal, the GHG emission reduction targets will drive the development, organization, implementation, and evaluation of the stateís GHG reduction efforts. Accordingly, there are major policy and fiscal impacts from adopting the targets. The Legislature therefore should evaluate the Governorís proposed GHG reduction targets-reduction of GHG emissions to year 2000 levels by 2010, to year 1990 levels by 2020, and to 80†percent below year 1990 levels by 2050. For example, the Legislature should clarify the basis for the targets, ask whether the targets are too ambitious to be achieved or too low to make a difference, and determine whether the targets strike an appropriate balance between GHG reduction and the Legislatureís other policy priorities. How does the administration assess the costs and benefits of its target levels? There is much precedent for the Legislature setting goal-based targets in statute for the implementation of its policies. For example, the Legislature set a target of 50†percent of waste being diverted from landfills by the year 2000. Similarly, the Legislature has set targets for the amount of energy consumed from renewable sources by set dates. The Legislature should consider placing GHG reduction targets in statute, following its evaluation of the issue.

Setting Priorities for Implementation. As mentioned previously, the draft CAT report identifies four actions it considers essential to meeting the Governorís GHG reduction targets. As with the setting of GHG reduction targets, the identification of priority actions will drive Californiaís climate change policy. The Legislature should determine whether the Governorís priorities are consistent with its own priorities.

Balancing Regulatory and Voluntary Strategies. The Governorís budget proposes development and eventual implementation of a mix of regulatory and voluntary measures to realize GHG reductions from numerous sources. The Legislature should evaluate the costs, effectiveness, and efficiency of applying regulatory and voluntary measures to different GHG-emitting sectors, as well as the need for additional statutory incentives or mandates. The Legislature should also consider who should pay for the implementation of these strategies, including the role of public versus private funding. We note that the Air Resources Board (ARB) in particular has a long history of using both regulatory (ďcommand and controlĒ) measures and voluntary measures (such as incentive payments for the replacement or retrofit of older, dirty diesel engines in vehicles and equipment) to improve air quality. When evaluating proposed voluntary measures, the Legislature should be provided with evidence that such or similar measures have worked in the past to achieve their desired results and have created outcomes that justify the level of state investment.

Lead Responsibilities for GHG Reduction Program. The Governorís budget places coordination of the stateís GHG-reduction efforts with the Secretary for Environmental Protection, assigning other state agencies the responsibility to carry out specific GHG-reduction activities. While we think that the choice of the Secretary for Environmental Protection as the lead, coordinating agency for the Climate Change Initiative is one option, the Legislature may want to consider alternatives. For example, it may be administratively practical to consolidate responsibility for the stateís GHG-reduction efforts under the ARB, which already has primary statutory responsibility for the stateís air quality and the technical expertise from administering air quality programs for many years. Additionally, ARB is allocated the bulk of the funding under the Governorís proposal.

State Versus Local Role in GHG Regulation. The ARB, along with 35 local air pollution control and air quality management districts, protects the stateís air quality. Responsibility for regulation of air pollution is generally divided between state and local governments by source of the pollution: local districts regulate stationary sources of pollution while ARB regulates mobile sources of pollution. Even though stationary pollution sources, subject to the jurisdiction of local air districts, are significant contributors to GHG emissions, the role of local air districts in implementing the Climate Change Initiative is unclear. Therefore, the Legislature should consider the role, if any, the stateís local air districts should play in the statewide GHG reduction efforts.

Effect of Initiative in the Context of Other State Activities Affecting GHG Emissions. The GHG reduction strategies proposed in the Governorís budget are not the only state-level activities or policy choices affecting the amount of GHGs emitted in California. First, as mentioned previously, there are numerous efforts currently underway in various environmental protection and other state departments that are designed to reduce GHG emissions. While these current efforts appear to generally align with the Governorís proposal in concept, it is not clear how the day-to-day practical implementation of the strategies in the Governorís proposal will be coordinated and/or consolidated with these existing efforts. Without such coordination or consolidation, there is a risk of duplication, administrative inefficiencies, and weakened program performance.

Second, state-level policy choices made outside of the context of GHG reduction efforts can affect GHG emissions, and this impact can be positive or negative. For example, state actions related to transportation facilities, energy production, and land use can impact the stateís GHG emissions. Accordingly, in developing an overall climate change policy for the state, it will be important for the Legislature to consider the totality of the stateís activities and policy choices affecting GHG emissions.

Recommend Secretary Advise Legislature on Issues Raised. In order that the Legislature may fully evaluate the GHG emission reduction strategies and policy choices inherent in the Governorís budget proposal, we recommend that the Secretary for Environmental Protection advise the policy committees charged with evaluating the set of issues that we have raised above. Specifically, the Secretary should advise the committees on:

We think that the Secretaryís reporting on these issues will assist the Legislature in developing an overall climate change policy to guide state action that we recommend be put into statute.

Summary. Figure†4 summarizes the key issues and decisions we think the Legislature should consider in placing its climate change policy preferences into statute.


Figure 4

Establishing Climate Change Policy:
Key Issues and Decision Steps for the Legislature



   Establish performance targets in terms of greenhouse gas (GHG) emissions reductions.

Implementation Actions

   Determine what actions should take priority, considering the costs and the
impact of the actions on GHG emissions reductions.

   Set time frame for achieving goals.


   Determine appropriate mix of regulatory and voluntary strategies.

   Compare cost-effectiveness, and efficiency of the strategies.

   Consider who should pay to implement strategies—including the role of public versus private funding.

Oversight and Operation

   Decide which agency will oversee the stateís GHG reduction programs.

   Determine the appropriate role of, and relationship between, state and local agencies.

   Consider how the stateís GHG reduction efforts will be coordinated and how they will interact with the stateís other programs and activities.


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