January 19, 2010
Pursuant to Elections Code Section 9005, we have
reviewed a proposed initiative relating to the California Global Warming
Solutions Act of 2006, commonly referred to as "Assembly Bill 32" (A.G.
File No. 09‑0094).
32 establishes the goal of reducing, by 2020, the state's emissions of
greenhouse gases (GHGs) to the level those emissions were in 1990. The
law requires the state Air Resources Board (ARB) to adopt rules and
regulations to achieve the targeted reduction in emissions and to
monitor and enforce this program. As required by law, the ARB in
December 2008 released its scoping plan for AB 32 implementation. This
plan is a blueprint for meeting the statutory GHG emission reduction
goal, and it encompasses a range of GHG emission reduction measures.
These include, as allowed under AB 32, traditional regulatory measures
to directly order reductions in emissions, market-based compliance
measures (namely, a "cap-and-trade" system), and voluntary measures.
Regulations have already been adopted for some of these measures. For
others, regulations are either currently under development or will be
developed in future years.
under AB 32, the ARB has adopted a regulation with a schedule of fees to
be paid by parties that emit GHGs to fund state agency administrative
costs to implement AB 32. Under current law, revenues from the AB 32
administrative fee are also to be used to repay various state special
funds that have made loans totaling $83 million to the AB 32 program.
These loans have staggered repayment dates that run through 2014.
Other Statutes Have Been Enacted That Could
Reduce GHG Emissions. In addition to AB 32, a number of other
state statutes have been enacted that could reduce GHG emissions. In
some cases, the main purpose of the statute is to reduce GHG emissions,
such as in the case of legislation enacted by Chapter 200, Statutes of
2002 (AB 1493, Pavley), that requires the ARB to adopt regulations to
reduce GHG emissions from light-duty vehicles. Other statutes authorized
various energy efficiency programs that could have the effect of
reducing GHG emissions.
Currently Has High Unemployment Rate.
Each month, the state Employment Development Department (EDD) publishes
an estimate of the unemployment rate for California. The preliminary
non-seasonally-adjusted unemployment rate for November 2009, as found in
EDD's Monthly Labor Force Data for Counties report, is
This measure would suspend the implementation of
AB 32 until such time that the unemployment rate in California is
5.5 percent or less for four consecutive calendar quarters. During the
suspension period, state agencies would be prohibited from proposing or
adopting new regulations, or enforcing previously adopted regulations,
implementing AB 32.
Some Regulatory Activities Would Likely Be
Suspended. California's current unemployment rate is much higher
than the 5.5 percent level, and is forecast to remain so for the next
several years. In fact, some economists are concerned that unemployment
could remain a problem even longer. Given this, it is probable that the
measure's suspension mechanism would go into effect immediately and stay
in effect for at least several years thereafter. The specific fiscal
impacts of this measure on state and local governments, therefore, would
depend largely on the particular regulatory activities that would be
suspended during this period. These would likely include:
The proposed cap-and-trade system.
A low carbon fuel standard that would require a
significant reduction in the carbon intensity of, and thus the GHG
emissions from, the state's transportation fuels.
A requirement that all retail sellers of
electricity procure at least 33 percent of their electricity by 2020
from "renewable" sources, such as solar or wind power. (A current
standard that renewable sources constitute 20 percent of the
electricity procured by investor-owned utilities by 2010 would still
The fee to recover state agency costs of
administering AB 32.
However, the majority of activities related to
addressing climate change and reducing GHG emissions would probably not
be suspended by this measure. That is because certain regulations, such
as the light-duty vehicle emission regulations adopted under AB
1493, implement statutes enacted separately from AB 32. We estimate that
more than one-half of the emission reductions intended from implementing
the scoping plan are scheduled to come from programs that derive their
authority outside of AB 32.
As discussed below, the suspension of AB 32
regulatory activities would have several impacts. These include
potential effects on the California economy and related impacts on state
revenues, as well as effects on the administrative costs of state
Potential Impacts on California Economy and
Government Revenues. A suspension of AB 32 would have various
economic impacts. Generally speaking, the suspension of regulatory
activity under the measure means that business would avoid costs
required to comply with the suspended regulations. For example, the
suspension of AB 32 regulations might allow some businesses to avoid
significant investments they might otherwise be mandated to make in new
energy technologies. This could potentially lead to larger net profits
for these firms, at least in the short term, than would otherwise occur.
To the extent that such impacts occurred, the state could collect
greater state corporate tax revenues than would otherwise be the case.
Similarly, the suspension of the proposed
cap-and-trade regulations could result in lower energy prices for
consumers, including state and local government agencies that are large
consumers of energy, than would be the case if AB 32 regulations were
allowed to take effect. These lower energy prices, in turn, also would
have positive economic impacts on the state. As a result, the measure
would likely have a positive impact on state and local government
revenues, at least in the near term.
The longer-term economic impact of the measure is
less certain. This is because the suspension of AB 32 could also have
some negative impacts. For example, it could delay investments in energy
technologies or in so-called "green jobs" reaping longer-run savings or
dampen additional investment in clean energy technologies by private
firms, thereby resulting in less economic activity than otherwise would
be the case.
Administrative Cost Savings.
During the likely suspension of AB
32, state administrative costs to develop and enforce regulations
pursuant to AB 32 would be reduced significantly. We estimate that the
resulting state administrative cost savings—and ultimately lower
fees—could be in the low tens of millions of dollars annually. Once the
suspension was lifted because of an improvement in the state's
unemployment rate, these savings would end. (The state might, however,
incur some additional costs to reevaluate and update work which had been
underway prior to the suspension.)
During any period that AB 32 would be suspended,
the ARB would lack the authority to collect the administrative fee
authorized under AB 32. As a result, there would no longer be a
dedicated funding source to repay loans that have been made from certain
state special funds to support the operation of the AB 32 program. This
would mean that other sources of state funds, potentially including the
General Fund, might have to be used instead to repay the loans. These
state costs could amount to tens of millions of dollars.
Other Fiscal Effects. There are
other potential fiscal effects of the measure that relate specifically
to a suspension of ARB's proposed cap-and-trade regulation. One feature
of this proposed regulation that is currently under discussion relates
to whether, and to what extent, emission allowances are allocated free
of charge or instead auctioned by state government to emitters of GHGs.
The AB 32 scoping plan developed by ARB provides for the auction of at
least some emission allowances initially, with this proportion
increasing over time. Depending upon the specific approach ultimately
determined by ARB, the resulting state revenues from the auction of
emission allowances could be up to billions of dollars annually.
(These revenues could be used to reduce other state taxes or increase
state spending—either related to GHG emissions or not.) If this measure
suspends the future implementation of such a cap-and-trade regulation,
the state would therefore forego these revenues, at least until the
state's unemployment rate dropped to the level specified in this measure
for four consecutive quarters.
In summary, the initiative would likely have the
following major fiscal effects:
Potential positive, short-term impacts on state
and local government revenues from the suspension of regulatory
activity, with uncertain longer-run impacts.
Potential foregone state revenues from the
auctioning of emission allowances by state government, by suspending
the future implementation of cap-and-trade regulations.
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