Ten years ago, on a simple majority vote, California legislators approved AB 32, the California Global Warming Solutions Act – groundbreaking legislation to reduce our state’s greenhouse gas emissions.
Once the act became law, a regulatory agency took charge and developed a “cap-and-trade” system, where the amount of carbon emissions is capped and those who emit more carbon must buy credits in state-run auctions.
So far, the cap-and-trade auction program has netted more than $3.38 billion in revenue. This is money paid by carbon emitters, including drivers who pay into the fund at a rate of approximately 12 cents per gallon of gas. The cap-and-trade auctions will generate about $2.4 billion in 2015-16 and $2.3 billion in 2016-17.
This year, the Legislature and governor have proposed spending this money on myriad projects around the state, including projects that would affect electricity costs, our driving trends, and the basic cost of goods and services.
The California Tax Foundation, a research entity established by the California Taxpayers Association in 1980, recently released a study to quantify these proposals. Our report, “Cap-and-Trade Auction Spending Proposals,” found that lawmakers have proposed 35 bills that cumulatively would spend more than $7.5 billion in auction revenue – much more than the $3.09 billion proposed by Gov. Jerry Brown.
Our report shows that the Legislature has yet to develop a comprehensive spending plan, including a thoughtful analysis of whether the proposals are legal, and whether they would reduce greenhouse gas emissions. In an April 4 hearing by the Assembly Natural Resources Committee, an assemblyman said lawmakers have taken the approach that all the money is “up for grabs, and let’s do a bill here or there.” In other words, lawmakers are treating this revenue like tax revenue.
But there is a problem with that approach. AB 32 passed with just a majority vote of the Legislature. For auction revenue to be treated like tax revenue – and used on programs that serve the general public – the cap-and-trade auction program must be approved by a two-thirds vote, as is required by the California Constitution for any tax increase.
The state’s nonpartisan legislative analyst has cautioned the Legislature about using this money as a slush fund. In his most recent report on auction funds, the analyst suggested that legislators may want to remove the legal risk currently associated with spending the revenue by passing, with a two-thirds vote, a bill authorizing the cap-and-trade auctions.
The legislative analyst is right – cap-and-trade auctions must be approved by a two-thirds vote, or the revenue cannot legally be spent on the programs currently proposed.
AB 32 was never intended to be a revenue generator – in fact, the revenue-raising auction component of the cap-and-trade program was not even necessary to establish a regulatory program to reduce greenhouse gas emissions.
Teresa Casazza is president and chief executive officer of the California Taxpayers Association. Contact her at firstname.lastname@example.org.