Capitol Alert Breaking

Growing California cap-and-trade fund attracts surge of spending proposals

Sen. Kevin de Leon,D-Los Angeles, second from left, receives congratulations from other lawmakers after he was elected the new Senate President Pro Tem at the Capitol in Sacramento, Calif.
Sen. Kevin de Leon,D-Los Angeles, second from left, receives congratulations from other lawmakers after he was elected the new Senate President Pro Tem at the Capitol in Sacramento, Calif. AP

With California’s growing cap-and-trade program expected to yield a budgetary bonanza, lawmakers and interest groups have ample ideas for how to spend the money. Floating proposals ahead of a pivotal period for budget negotiations, they say they want to fund port improvements, pay for heavy-duty trucks and ferries, nurture urban rivers, sponge up carbon in soil and provide discounted bus passes.

They are vying for a surge in new revenue that will be available this budget cycle and could continue pouring in for years to come.

“It’s the next big fight,” said Assemblyman Henry Perea, D-Fresno. “It’s going to continue to be a fight as more revenue comes in.”

Seeking to counteract climate change, lawmakers in 2006 authorized California to establish its first-in-the-nation carbon auction program, compelling businesses to purchase allowances for what they pump into the atmosphere.

By this time last year, the system already had generated hundreds of millions of dollars that were parceled out via the budget, including a controversial annual outlay to support high-speed rail. But this year is different: Oil and gas producers have been obligated to buy permits for the first time, likely generating a multibillion-dollar influx.

“With transportation fuels coming under the cap, there will be more money for years to come. That changes the dynamic,” said Senate President Pro Tem Kevin de León, D-Los Angeles. “Because there’s going to be a lot more money, there’s going to be that many more projects competing for dollars.”

Gov. Jerry Brown’s January proposal underestimated the amount available in the coming fiscal year by as much as $3.9 billion and most likely by around $1.3 billion, according to the Legislative Analyst’s Office. The updated numbers will come this week in Brown’s May revision.

Per a formula established in last year’s budget agreement, 60 percent of the auction dollars will flow to areas such as high-speed rail, urban transit and housing. The remaining 40 percent is up for debate in the Legislature.

Lawmakers have introduced a raft of bills trying to direct the money to specific areas or to enshrine broader principles for how it can be spent, such as mandating that more of it be reserved for disadvantaged communities or large-scale transit projects. The bills serve a dual purpose: Even if they do not become law, they lay out members’ priorities ahead of budget talks.

Assemblyman Rudy Salas, D-Bakersfield, last year joined moderate Democrats in opposing the program’s expansion. Now he has a bill requiring 40 percent of the proceeds to flow to disadvantaged communities, up from the current 25 percent mandate – a needed corrective, he said, to aid communities like his that are afflicted by poor air quality.

“Everybody has a cause,” Salas said.

Illustrating that point is a bill from Long Beach’s Assembly member, freshman Democrat Patrick O’Donnell, saying cap-and-trade dollars could pay for energy-efficiency programs at public ports such as those found in his district.

“I am the voice of the ports in the state Assembly,” O’Donnell said. “Our ports are under the gun to address the environmental issues associated with moving those goods in and out, and they need support to meet those goals.”

Interest groups hoping to win funding also have compiled wish lists and pressed their cases with elected officials.

A solar industry group is exploring ways to expand the technology in low-income communities. The California Natural Gas Vehicle Coalition wants to help deploy heavy-duty trucks that burn natural gas. The manufacturing industry’s association is fighting the law in court, but they argue that the money – if it is ruled legal – should help heavy industry make its operations more energy-efficient.

“The Legislature and the administration are hearing a lot of different plans for how to spend the money,” said Coalition for Clean Air policy director Bill Magavern. “There’s really a broad spectrum of interests involved in this debate, and of course it’s because there’s money available.”

The competing proposals raise a larger question about what type of project qualifies. Money spent out of the cap-and-trade fund must verifiably work to curtail the greenhouses gases that fuel climate change.

“It is a fee, and we want to spend it appropriately,” said Sen. Fran Pavley, D-Agoura Hills, who carried the bill establishing the program.

Critics assailed Brown last year for directing revenue to the high-speed rail project, arguing that carbon reductions wouldn’t materialize for years. Legislative leaders are scrutinizing ideas this year and filtering out proposals that don’t pass muster.

At de León’s prodding, a Senate bill seeking to clean up urban watersheds was amended to seek funding from a different source. Another proposal floated by a range of environmental and community activist groups argued for subsidized bus passes.

“We know that the biggest source of greenhouse gas emissions in California is from transportation, so there a number of ways we are addressing that, and one way of getting cars off the road is improving the choices in public transit,” said Magavern, whose organization was among those making the proposal.

In his January budget, Brown proposed using the money over which lawmakers have control on an array of areas, including energy-efficiency upgrades for public buildings, waste diversion and fire prevention (forest fires pour huge amounts of carbon-thick smoke into the air). That largely holds the line on last year’s proposals.

A potential addition would direct dollars to help water resources. As a prolonged drought has prompted extraordinary conservation mandates from Brown, the administration has been studying the ways in which energy and water overlap.

There, too, policymakers have experts working to quantify how much energy is used in transporting and heating water. If they can establish they’re reducing emissions, they can tap into the cap-and-trade money.

“There are a lot of really smart people working on getting this right,” said Pavley, who has a bill directing the state to study the energy footprint of water systems. “I think it opens up an amazing possible win-win for expenditure of auction revenues.”

With a growing pile of money spurring interest, Pavley said, officials must be vigilant about keeping their focus on cutting greenhouse gases. Sacramento suffers from no shortage of ideas for spending money, but not all of them fit that framework.

“No,” Pavley joked, “we can’t (use the auction revenues to) reduce college tuition.”

Call Jeremy B. White, Bee Capitol Bureau, (916) 326-5543.

Related stories from Sacramento Bee