In Uncertain Future for Cap-and-Trade, Revenues are Allocated for Greenhouse Gas Reducing Programs

Image courtesy of the American Planning Association.

Image courtesy of the American Planning Association.

The California Air Resources Board, a department within the California Environmental Protection Agency (CA EPA) focusing on reducing air pollution, has conducted 15 cap-and-trade auctions since November 2012, generating over $4 billion to the State. State law requires auction revenues to be used to facilitate the reduction of greenhouse gas emissions and outlines various categories of allowable expenditures. Cap-and-trade auction revenues will fund programs such as clean vehicle rebates, enhanced fleet modernization, heavy-duty and off-road vehicle investments, transit-oriented development and intercity rail, urban greening, methane emission reduction from dairy and livestock operations, urban forestry, and assistance to disadvantaged communities.

While the longevity of the program is in doubt due to legal challenges and a claim that the law only allows the cap and trade system to operate through 2020, newly signed legislation has stimulated interest in how auction revenues are distributed. Assembly Bill (AB) 1613 and Senate Bill 859 direct $900 million of cap-and-trade revenues for fiscal year 2016-17 and reserve $462 million for appropriation in future years, thus providing a defined future allocation amount as auction revenues fluctuate.

In addition, AB 1550 modifies cap-and-trade laws to require that at least 25 percent of auction proceeds funds projects benefitting disadvantaged communities, as defined by the CA EPA, and at least an additional 10 percent funds projects for low-income households and communities specifically. Further, the law makes it easier for communities with major transportation hubs to compete for and receive cap-and-trade monies.

While the long-term future of cap-and-trade auctions is uncertain, the state legislature has taken immediate action to ensure that current auction revenues are directed to the appropriate state agencies.

Written by Tara Matthews, a Principal at RSG