Senate Democrats Challenge Administration's AB 32 Regulations
California Political Desk
March 14, 2008
(SACRAMENTO) – Five Democratic state Senators sent a letter to Governor Arnold Schwarzenegger Wednesday protesting decisions by the Public Utilities Commission and the California Energy Commission to move forward with controversial "cap-and-trade" proposals as a way to limit greenhouse gas emissions.
In the letter, the senators said the Administration has failed to take the preliminary steps required by AB 32 as a precondition to pursuing market-based compliance mechanisms. The full text of the letter follows:
The Honorable Arnold Schwarzenegger
Governor, State of California
State Capitol First Floor
Sacramento CA 95814
RE: Concerns with CPUC Proposed Decision on "Cap and Trade" under Global Warming Solutions Act of 2006
Dear Governor Schwarzenegger:
We are writing to express our strong concerns with the proposed decision recently issued by your Public Utilities Commission (CPUC) and California Energy Commission (CEC) regarding implementation of a so-called "cap and trade" proposal under the Global Warming Solutions Act of 2006 (AB 32 Chapter 488 Statutes of 2006)
As you know, AB 32 requires the state Air Resources Board (ARB) to adopt and implement a comprehensive program for the reduction of greenhouse gas emissions to 1990 levels by the year 2020.
The board is required to adopt and implement all technologically feasible and cost-effective measures to reduce GHG´s (Health and Safety Code Section 38560).
However, it effectively is prohibited from adopting market-based compliance mechanisms such as "cap and trade" unless it first takes detailed policy and process actions required for such mechanisms (Health and Safety Code Section 38570 et seq).
As we have noted in the past, these limitations on the use of "cap and trade" were carefully negotiated with your Administration and were a sine qua non for the Senate´s approval of the law in 2006.
In the past year or so, there have been disagreements over executive orders and other actions that seemed to contravene the plain language of the statute. Those problems culminated the ARB debacle of last summer.
At that time, you wrote to the Senate saying your administration understood the concerns, agreed that the law established these requirements, and pledged that your Administration would faithfully adhere to them. Since then, we generally have been pleased with the Administration´s progress in implementing AB 32 and commend you and your agencies for the work they have done.
Last year, the ARB, CEC, and CPUC made an administrative decision to allow the CPUC and CEC to review and make recommendations to the ARB on actions it should take under AB 32 to reduce emissions in the electricity and natural gas utility sectors.
While there was no explicit direction in AB 32 to do so, we did not object to this action. We assumed that the CPUC and CEC would perform the detail work needed to understand all options to reduce GHG emissions from the energy sector, and that they would couch their recommendations within the AB 32 framework to ensure the requirements of the law were met.
However, based on the CPUC´s proposed decision, we are concerned, once again, that the Administration is ignoring the requirements of AB 32 and is proceeding with a "cap and trade" system while ignoring the requisite considerations and processes required under law.
If the CPUC´s proposed decision is any indication, the Administration appears to be reverting to the view that "cap and trade" is an end in itself, rather than assuring the Legislature and the public that it is the most effective way to reduce GHG´s to protect the environment.
The proposed decision also has had the regrettable effect of engendering active political opposition from an unlikely cross section of interests, from publicly owned energy utilities to environmental justice groups. These groups have raised legitimate questions over the important details of cap and trade design that are not reviewed or discussed in any detail in the proposed decision.
In our view, in order to maintain the bi-partisan consensus on implementation of AB 32, the CPUC decision should be withdrawn, re-written, and revised to comply with the law.
Our specific concerns with the proposed decision are as follows:
1. Decision fails to give consideration, or even to reference, the substantive and process requirements for adoption of market-based compliance mechanisms like "cap and trade" under AB 32. As noted above, AB 32 establishes detailed policy and process requirements that must be met before market-based compliance mechanisms like "cap and trade" may be adopted. The CPUC´s decision completely ignores those requirements. For example, any such system must:
a. Be found to be "necessary or desirable" to meet AB 32 goals (Health and Safety Code Section 38561(b))
b. Be verifiable and enforceable by state board (Health and Safety Code Section 38562(d)(1)).
c. Must achieve emission reductions that are "in addition to other GHG reductions (Health and Safety Code Section 38562(d)(2))
d. Must achieve emission reductions that take place over same time period as would otherwise occur from direct emission reductions (Health and safety Code Section 38562 (d)(3))
e. Must consider the mechanism´s effect on communities already adversely impacted by air pollution (e.g. environmental justice communities) (Health and Safety Code Section 38570(b)(1))
f. Must prevent any increase in air pollution and toxic air contaminants (Health and Safety Code Section 38570 (b)(2))
g. Maximize "additional" environmental and economic benefits for CA (Health and safety Code Section 38570(b)(3))
Most, if not all of these requirements appear to have been ignored by the commission.
2. Decision does not meet statutory requirements for "cap and trade" inclusion in ARB scoping plan. The CPUC decision advises the ARB to adopt "cap and trade" as part of the scoping plan required to adopted by the board by the end of this year. However, Health and Safety Code Section 38561 requires the scoping plan ensure actions related to the utility sector are complementary and non-duplicative of existing activities, and can be implemented in an efficient and cost-effective manner. The decision provides little information to suggest that a "cap and trade" system proposed by the commission meets any of those tests.
Decision fails to demonstrate "cap and trade" can be enforced as matter of state law by the ARB. Health and Safety Code Section 38562 requires that any market-based compliance mechanism like "cap and trade" must be enforceable by the ARB as a matter of state law. The proposed decision suggests that its proposal is the foundation for a multi-state trading system in the west. Yet, the decision contains no discussion or details over how any such system in which trading transactions take place outside of CA jurisdiction would meet the state enforceability test under law.
3. Decision fails to consider "all relevant information from localities" such as Cities of Los Angeles and Sacramento in recommending "cap and trade." Under Health and Safety Code Section 38561(c) elements of the scoping plan such as "cap and trade" are required to take into account information from relevant jurisdictions (such as the cities of Los Angeles and Sacramento) as well as the economic and environmental costs and benefits of any such proposal. Based upon the comments sent to the Senate on the impacts of the CPUC´s proposals on municipal utilities, such as Los Angeles Department of Water and Power and Sacramento Municipal Utility District as well as from environmental justice concerns, it would appear that the commission gave little or no consideration to those concerns.
4. Decision does not perform evaluation of "cap and trade´ as compared to other methods of reducing GHG´s and their impacts on the state´s economy, environment, and public health. Health and Safety Code Section 38561 (d) requires the various elements of the scoping plan to include evaluation of their costs and benefits, as well as their environmental and public health benefits using best available economic models and emissions estimates. There is virtually no actual examination of these issues in the proposed decision, nor any analysis which buttresses the view that "cap and trade" should be pursued in lieu of other approaches to emissions reductions.
Decision provides little additional specificity on direct actions that should be taken in the energy sector to reduce GHG´s under AB 32. Along with recommending a ´cap and trade" scheme, the CPUC´s proposed decision lists other policies that should be pursued as part of the implementation of AB 32 in the electricity and natural gas sector. Yet, the decision provides almost no specificity, analysis, or details on how those policies should be pursued.
For example, it is widely assumed that a more aggressive and long term renewable energy development program is needed in the state to meet the AB 32 goals (indeed, the commission, and other state energy agencies, have formally adopted a 33% renewable energy goal). Yet, the commission makes no specific recommendations as to what an enhanced renewable energy program would look like nor what steps would be taken to achieve that goal. It simply states that those issues should be reviewed by the commissions and legislation should be sought.
Similarly, the proposed decision makes reference to the major new investments in energy efficiency that will be needed to meet the 2020 limit and provides little detailed direction on those actions that could be taken to strengthen EE programs beyond current baselines.
5. Decision fails to address concerns with "cap and trade" from environmental justice communities. AB 32 was strongly supported by segments of the environmental justice community because there are detailed requirements in the law to ensure environmental justice concerns were considered under the program. There appears to have been no serious analysis of, or response to, environmental justice concerns regarding "cap and trade." (As far as we can see, the words ´environmental justice" do not appear anywhere in the 119 page proposed decision).
As both a policy matter, and a political matter, environmental justice issues are an important aspect of the AB 32 program implementation. Moreover, under current law, all CAL-EPA agencies, including the ARB, are required to take EJ issues into account in their activities.
6. Numerous important "detail" questions on "cap and trade" left unanswered in proposed decision. The proposed decision recommends "cap and trade" as the option of choice to reduce GHG´s from the energy sector. Yet, other than saying that the program should use a "first seller" approach, the decision provides little guidance on the key questions over how the program should be structured. For example, the decision says nothing about whether a cap should be imposed on each source, or whether an overall energy sector cap should be imposed. It says little on the matter of how the cap should be calculated or how the state can ensure that it is not set at a level that "over-allocates" pollution.
In closing, we reiterate our interest in ensuring AB 32 is implemented in a bi-partisan fashion, and our commitment to ensuring that the law results in measurable and enforceable pollution reduction in the state.
We hope your Administration will follow the law and ensure these concerns are addressed before final action at state energy or environmental agencies.
Sincerely,
DON PERATA ALEX PADILLA
Senator 9th Senate District Senator 20th Senate District
DARRELL STEINBERG SHEILA KUEHL
Senator 6th Senate District Senator 23rd Senate District
CHRISTINE KEHOE
Senator 39th Senate District
In the letter, the senators said the Administration has failed to take the preliminary steps required by AB 32 as a precondition to pursuing market-based compliance mechanisms. The full text of the letter follows:
The Honorable Arnold Schwarzenegger
Governor, State of California
State Capitol First Floor
Sacramento CA 95814
RE: Concerns with CPUC Proposed Decision on "Cap and Trade" under Global Warming Solutions Act of 2006
Dear Governor Schwarzenegger:
We are writing to express our strong concerns with the proposed decision recently issued by your Public Utilities Commission (CPUC) and California Energy Commission (CEC) regarding implementation of a so-called "cap and trade" proposal under the Global Warming Solutions Act of 2006 (AB 32 Chapter 488 Statutes of 2006)
As you know, AB 32 requires the state Air Resources Board (ARB) to adopt and implement a comprehensive program for the reduction of greenhouse gas emissions to 1990 levels by the year 2020.
The board is required to adopt and implement all technologically feasible and cost-effective measures to reduce GHG´s (Health and Safety Code Section 38560).
However, it effectively is prohibited from adopting market-based compliance mechanisms such as "cap and trade" unless it first takes detailed policy and process actions required for such mechanisms (Health and Safety Code Section 38570 et seq).
As we have noted in the past, these limitations on the use of "cap and trade" were carefully negotiated with your Administration and were a sine qua non for the Senate´s approval of the law in 2006.
In the past year or so, there have been disagreements over executive orders and other actions that seemed to contravene the plain language of the statute. Those problems culminated the ARB debacle of last summer.
At that time, you wrote to the Senate saying your administration understood the concerns, agreed that the law established these requirements, and pledged that your Administration would faithfully adhere to them. Since then, we generally have been pleased with the Administration´s progress in implementing AB 32 and commend you and your agencies for the work they have done.
Last year, the ARB, CEC, and CPUC made an administrative decision to allow the CPUC and CEC to review and make recommendations to the ARB on actions it should take under AB 32 to reduce emissions in the electricity and natural gas utility sectors.
While there was no explicit direction in AB 32 to do so, we did not object to this action. We assumed that the CPUC and CEC would perform the detail work needed to understand all options to reduce GHG emissions from the energy sector, and that they would couch their recommendations within the AB 32 framework to ensure the requirements of the law were met.
However, based on the CPUC´s proposed decision, we are concerned, once again, that the Administration is ignoring the requirements of AB 32 and is proceeding with a "cap and trade" system while ignoring the requisite considerations and processes required under law.
If the CPUC´s proposed decision is any indication, the Administration appears to be reverting to the view that "cap and trade" is an end in itself, rather than assuring the Legislature and the public that it is the most effective way to reduce GHG´s to protect the environment.
The proposed decision also has had the regrettable effect of engendering active political opposition from an unlikely cross section of interests, from publicly owned energy utilities to environmental justice groups. These groups have raised legitimate questions over the important details of cap and trade design that are not reviewed or discussed in any detail in the proposed decision.
In our view, in order to maintain the bi-partisan consensus on implementation of AB 32, the CPUC decision should be withdrawn, re-written, and revised to comply with the law.
Our specific concerns with the proposed decision are as follows:
1. Decision fails to give consideration, or even to reference, the substantive and process requirements for adoption of market-based compliance mechanisms like "cap and trade" under AB 32. As noted above, AB 32 establishes detailed policy and process requirements that must be met before market-based compliance mechanisms like "cap and trade" may be adopted. The CPUC´s decision completely ignores those requirements. For example, any such system must:
a. Be found to be "necessary or desirable" to meet AB 32 goals (Health and Safety Code Section 38561(b))
b. Be verifiable and enforceable by state board (Health and Safety Code Section 38562(d)(1)).
c. Must achieve emission reductions that are "in addition to other GHG reductions (Health and Safety Code Section 38562(d)(2))
d. Must achieve emission reductions that take place over same time period as would otherwise occur from direct emission reductions (Health and safety Code Section 38562 (d)(3))
e. Must consider the mechanism´s effect on communities already adversely impacted by air pollution (e.g. environmental justice communities) (Health and Safety Code Section 38570(b)(1))
f. Must prevent any increase in air pollution and toxic air contaminants (Health and Safety Code Section 38570 (b)(2))
g. Maximize "additional" environmental and economic benefits for CA (Health and safety Code Section 38570(b)(3))
Most, if not all of these requirements appear to have been ignored by the commission.
2. Decision does not meet statutory requirements for "cap and trade" inclusion in ARB scoping plan. The CPUC decision advises the ARB to adopt "cap and trade" as part of the scoping plan required to adopted by the board by the end of this year. However, Health and Safety Code Section 38561 requires the scoping plan ensure actions related to the utility sector are complementary and non-duplicative of existing activities, and can be implemented in an efficient and cost-effective manner. The decision provides little information to suggest that a "cap and trade" system proposed by the commission meets any of those tests.
Decision fails to demonstrate "cap and trade" can be enforced as matter of state law by the ARB. Health and Safety Code Section 38562 requires that any market-based compliance mechanism like "cap and trade" must be enforceable by the ARB as a matter of state law. The proposed decision suggests that its proposal is the foundation for a multi-state trading system in the west. Yet, the decision contains no discussion or details over how any such system in which trading transactions take place outside of CA jurisdiction would meet the state enforceability test under law.
3. Decision fails to consider "all relevant information from localities" such as Cities of Los Angeles and Sacramento in recommending "cap and trade." Under Health and Safety Code Section 38561(c) elements of the scoping plan such as "cap and trade" are required to take into account information from relevant jurisdictions (such as the cities of Los Angeles and Sacramento) as well as the economic and environmental costs and benefits of any such proposal. Based upon the comments sent to the Senate on the impacts of the CPUC´s proposals on municipal utilities, such as Los Angeles Department of Water and Power and Sacramento Municipal Utility District as well as from environmental justice concerns, it would appear that the commission gave little or no consideration to those concerns.
4. Decision does not perform evaluation of "cap and trade´ as compared to other methods of reducing GHG´s and their impacts on the state´s economy, environment, and public health. Health and Safety Code Section 38561 (d) requires the various elements of the scoping plan to include evaluation of their costs and benefits, as well as their environmental and public health benefits using best available economic models and emissions estimates. There is virtually no actual examination of these issues in the proposed decision, nor any analysis which buttresses the view that "cap and trade" should be pursued in lieu of other approaches to emissions reductions.
Decision provides little additional specificity on direct actions that should be taken in the energy sector to reduce GHG´s under AB 32. Along with recommending a ´cap and trade" scheme, the CPUC´s proposed decision lists other policies that should be pursued as part of the implementation of AB 32 in the electricity and natural gas sector. Yet, the decision provides almost no specificity, analysis, or details on how those policies should be pursued.
For example, it is widely assumed that a more aggressive and long term renewable energy development program is needed in the state to meet the AB 32 goals (indeed, the commission, and other state energy agencies, have formally adopted a 33% renewable energy goal). Yet, the commission makes no specific recommendations as to what an enhanced renewable energy program would look like nor what steps would be taken to achieve that goal. It simply states that those issues should be reviewed by the commissions and legislation should be sought.
Similarly, the proposed decision makes reference to the major new investments in energy efficiency that will be needed to meet the 2020 limit and provides little detailed direction on those actions that could be taken to strengthen EE programs beyond current baselines.
5. Decision fails to address concerns with "cap and trade" from environmental justice communities. AB 32 was strongly supported by segments of the environmental justice community because there are detailed requirements in the law to ensure environmental justice concerns were considered under the program. There appears to have been no serious analysis of, or response to, environmental justice concerns regarding "cap and trade." (As far as we can see, the words ´environmental justice" do not appear anywhere in the 119 page proposed decision).
As both a policy matter, and a political matter, environmental justice issues are an important aspect of the AB 32 program implementation. Moreover, under current law, all CAL-EPA agencies, including the ARB, are required to take EJ issues into account in their activities.
6. Numerous important "detail" questions on "cap and trade" left unanswered in proposed decision. The proposed decision recommends "cap and trade" as the option of choice to reduce GHG´s from the energy sector. Yet, other than saying that the program should use a "first seller" approach, the decision provides little guidance on the key questions over how the program should be structured. For example, the decision says nothing about whether a cap should be imposed on each source, or whether an overall energy sector cap should be imposed. It says little on the matter of how the cap should be calculated or how the state can ensure that it is not set at a level that "over-allocates" pollution.
In closing, we reiterate our interest in ensuring AB 32 is implemented in a bi-partisan fashion, and our commitment to ensuring that the law results in measurable and enforceable pollution reduction in the state.
We hope your Administration will follow the law and ensure these concerns are addressed before final action at state energy or environmental agencies.
Sincerely,
DON PERATA ALEX PADILLA
Senator 9th Senate District Senator 20th Senate District
DARRELL STEINBERG SHEILA KUEHL
Senator 6th Senate District Senator 23rd Senate District
CHRISTINE KEHOE
Senator 39th Senate District