Business & Real Estate

Carbon auctions help finance West Sac housing project – and lots more

California carbon emissions dollars to help fund infill projects

California's cap and trade program was expected to raise more than $2 billion this year. But the money isn't materializing, putting projects into jeopardy.
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California's cap and trade program was expected to raise more than $2 billion this year. But the money isn't materializing, putting projects into jeopardy.

Christopher Cabaldon, the mayor of West Sacramento, showed up in style last week to help break ground on an affordable housing project in his city: He rode his bicycle.

His entrance fit the occasion. The housing project, known as West Gateway Place, wouldn’t be getting built without money generated by California’s multibillion-dollar crusade against climate change.

Located in the city’s fast-growing Bridge District, West Gateway is one of 28 affordable housing or sustainable communities projects that have recently been awarded funds from the state’s “cap and trade” carbon emissions auction program. The West Sacramento project is the first of the 28 to break ground.

Proponents of the West Sacramento project called it the perfect example of how the state should invest money generated by the cap-and-trade program. “High-density, smart developments ... make it more attractive to get around and bike and walk,” Cabaldon said as he locked up his bike. “The climate benefits from projects just like this.”

California’s cap-and-trade program, in its fourth year, remains controversial as a tool to fight greenhouse gases, angering motorists and business interests alike. But it is unquestionably a financial success.

The state expects to take in more than $2 billion this year alone by auctioning carbon-emissions allowances, with proceeds being funneled into ride-sharing programs, carbon “digesting” machines for dairy farms and a slew of other programs. Some experts on affordable housing say cap-and-trade money could essentially replace local redevelopment agencies, which Gov. Jerry Brown and the Legislature eliminated in 2011.

By state law, 60 percent of the carbon proceeds are split between the high-speed rail project and the state’s affordable housing and sustainable communities program – the pot of cash that helped fund the West Sacramento housing complex. The rest is allocated annually by the Legislature, and the question of how to divide this year’s revenue is one of the issues confronting lawmakers as they close out the session.

The expenditures so far represent a broad spectrum of programs designed, one way or another, to reduce carbon emissions.

Last month, the state Department of Transportation awarded grants totaling $22 million to 86 projects, including the extension of Muni service in San Francisco, construction of new bus shelters in El Cajon and installation of bike racks on Los Angeles buses. Millions have been earmarked to restore the wetlands of Sherman Island in the Sacramento-San Joaquin Delta. Recycling programs up and down the state have received grants.

And then there’s the Sacramento sawmill.

In June, the Sacramento Tree Foundation was awarded a $500,000 grant to buy a portable sawmill. It will be installed at Commerce Business Park in North Sacramento and will be used to carve up diseased and dying trees, said foundation executive director Ray Tretheway.

A sawmill to prevent climate change? Turning dead trees into usable products is better than letting them decompose in a landfill, where they would gradually release naturally occurring carbon into the atmosphere, Tretheway said.

Tretheway said the foundation will partner with woodworkers and craftsmen to build all manner of products, “from picket fences to banquet tables and such.” The foundation also was awarded $1 million to plant trees throughout south Sacramento. Both projects are among 33 grants awarded by Cal Fire last month through a program dedicated to fire prevention and urban forestry.

The virtues of the projects don’t convince critics of cap and trade, who are pursuing a legal challenge to stop the California Air Resources Board, or CARB, to halt its quarterly auctions of carbon-emissions allowances. In a lawsuit, they argue that the auctions are unconstitutional because Assembly Bill 32, the 2006 law that established the cap-and-trade program, passed the Legislature with only a simple majority. Under Proposition 13, the Legislature needs a two-thirds vote to approve any tax increases.

“CARB making billions of dollars for the state of California is unconstitutional,” said attorney Ted Hadzi-Antich of the Pacific Legal Foundation, which is spearheading the lawsuit. A judge dismissed the suit in 2013, but the ruling is being appealed in state court.

The program imposes a statewide ceiling, or cap, on carbon emissions and requires hundreds of food processors, cement manufacturers and other industrial firms to obtain allowances for every ton of carbon they emit. The ceiling declines slightly each year in an effort to reduce overall emissions.

Most of the allowances are given out for free. But to cover all of their carbon emissions, most affected companies have to buy additional allowances, either on the open market or through the state-run auctions. It’s those auctions, the latest of which was held Tuesday, that are generating billions in revenue for the state.

Some $6.7 million found its way to West Sacramento in late June. The Strategic Growth Council, one of several state agencies handing out cap-and-trade money, awarded the city about $4.1 million for bike and pedestrian infrastructure improvements on what is known as the Grand Gateway, the urban infill area adjacent to the riverfront. Another $2.6 million went toward West Gateway Place, the affordable housing complex at the edge of the Bridge District, the fast-growing high-density residential project near Raley Field.

“Here’s this site that’s proximate to tens of thousands of jobs,” said Susan Riggs, acting director of the state Department of Housing and Community Development, which works with the growth council. “Folks can get out of their cars and drive less.”

West Gateway will be built in two phases, with Phase One consisting of 77 affordable units. The cap-and-trade dollars will represent just more than 9 percent of the $28.8 million cost, said developer Jamboree Housing Corp. of Irvine.

Without those state funds, it’s doubtful the project would get built, said Terce Sandifer, senior vice president at Union Bank, the project’s lender.

“That’s how thin the margins are,” he said.

Sandifer said cap and trade could replace redevelopment as an ongoing financing vehicle for affordable housing. Under the old redevelopment program, local agencies issued bonds to finance projects in blighted areas, and then used the resulting tax windfalls to pay off the bonds. The state was required to send money to school districts to compensate for the lost tax revenue. The Legislature killed off the program in 2011 to address the huge budget deficit that existed at the time.

“Words like ‘cap and trade’ may not mean a lot” to most people, Sandifer said at last week’s groundbreaking. “In the affordable housing world, it’s a really big deal.”

California's cap and trade program was expected to raise more than $2 billion this year. But the money isn't materializing, putting projects into jeopardy.

Dale Kasler: 916-321-1066, @dakasler

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