Business groups, lawmakers accelerate drive to keep fuels out of Calif. cap-and-trade program

Source: E&E News

Anne C. Mulkern, E&E reporter

Correction appended.
State Assemblyman Henry Perea (D) on Friday stripped text out of one of his bills that was sitting in committee and replaced it with language that would put a three-year moratorium on adding fuels to cap and trade.
That followed two weeks of oil companies, business groups and some California lawmakers sending letters to Gov. Jerry Brown (D) and the head of the state’s Air Resources Board, arguing that gas prices will jump when oil refiners are required to buy permits covering all emissions generated by in-state gas and diesel consumption.
“The cap-and-trade system should not be used to raise billions of dollars in new state funds at the expense of consumers who are struggling to get back on their feet after the recession,” Perea said in a statement Friday. “In some areas of the state, like the Central Valley, constituents need to drive long distances and they will be disproportionately impacted by rising gas prices.”
Perea’s move came near the end of the state Legislature’s session and the day before lawmakers left for a monthlong recess. The bill Perea used, A.B. 69, had passed the Assembly on a 53-23 vote in 2013 and was on hold in the Senate. It had been a measure to fund “the development and implementation of sustainable and affordable solutions for disadvantaged communities with nitrate-contaminated drinking water.”
In addition to the three-year ban on adding motor fuels to cap and trade, the bill also was amended to state that “before including transportation fuels in a market-based compliance mechanism, the State Air Resources Board must ensure that the state’s motorists, families, and small businesses are prepared for this carbon price signal with sufficient notice, information, and protection from certain and volatile cost increases for their transportation fuels.”
Unless the law is changed, the Golden State’s cap and trade will be expanded Jan. 1, 2015, to include the transportation sector. At that point, 14 refineries located in the state will need to start buying and submitting allowances to cover emissions tied to all fuel sales. Consumers guzzle about 17 billion gallons of fuels annually in the Golden State. Emissions from transportation account for 38 percent of the state’s greenhouse gas pollution.
California’s carbon counting program, the most expansive now in place in the country, is considered a potential future road map as U.S. EPA requires existing power plants to lower emissions.

Uphill fight ahead

Some legislative aides and green group representatives were skeptical that Perea’s bill could prevail.
Then-Senate Pro Tem Darrell Steinberg (D) earlier this year saw significant pushback when he proposed a carbon tax and exempting motor fuels from cap and trade. He ultimately dropped the measure and said that he wanted cap and trade to become a permanent funding source for helping cut transportation-sector carbon pollution (ClimateWire, April 15).
“Given the existing level of support for AB32 in the legislature, AB69 has a tough row to hoe,” Ann Notthoff, California advocacy director at the Natural Resources Defense Council, said in an email. “But it’s part of an overall effort to pressure [the Air Resources Board] and Governor Brown to derail California’s climate program to cap carbon pollution.”
A group that included the California Chamber of Commerce, California Taxpayers Association and California Independent Oil Marketers Association (CIOMA) has sent Brown a letter urging him to delay expanding cap and trade.
“Starting in January the people of California become direct stakeholders in the cap and trade program and they deserve to be informed about how this proposed expansion of the program will directly impact their pocketbooks and family budgets,” the letter said. “It has become clear that this extension of California’s cap and trade program to fuels will have a serious impact on fuel markets and fuel consumers resulting in impacts that have not been thoroughly studied or understood.
“Large price increases throughout California are inevitably going to have a significant effect on California’s businesses, economy and residents,” it added.
Perea and 15 other Legislature members last month sent a letter to Air Resources Board Chairwoman Mary Nichols, urging her to “reconsider the design” of cap and trade so that it “avoids unnecessarily increasing fuel costs and putting the brakes on our economic recovery.”
The lawmakers who signed it are all Democrats. The party controls both legislative chambers and the governor’s mansion.
A group of 32 Legislature members in response sent Brown a letter supporting keeping fuels in cap and trade.
“California’s most disadvantaged communities … are already bearing the brunt of the impacts” of warming including “a historic drought, wildfires of unprecedented strength and 12 million people breathing air that does not meet federal health standards,” the letter said. “These impacts result in tens of billions of dollars annually in health and economic losses, while every dollar a Californian spends on gasoline creates one-sixteenth as many jobs as a dollar spent on other goods and services.
“Inaction is not an option,” it added. “If we are serious about reducing fuel costs and righting the public health wrongs facing our constituents, we must wean ourselves off fossil fuels by investing in cleaner transportation alternatives as we did in this year’s budget.”
One of Brown’s big priorities would be partly funded by the expanded cap-and-trade program. For fiscal 2015-16 and beyond, permit auctions are estimated to bring in up to $5 billion annually. At Brown’s urging, as part of a deal struck last month, $250 million of that will be spent to fund the state’s beleaguered high-speed rail line connecting Los Angeles and San Francisco (ClimateWire, June 13).
An additional $200 million of the money will support low-carbon transportation, and $130 million goes to “affordable housing and sustainable communities,” with smaller amounts to items that include weatherization projects, energy efficiency for water, sustainable forests and waste diversion.

Dueling lobbyists

Environmental groups condemned Perea’s move.
“Assemblymember Henry Perea’s bill to stall the inclusion of transportation fuels under California’s cap-and-trade program is an eleventh-hour effort to appease Big Oil interests at the expense of his own constituents and all Californians,” said Derek Walker, associate vice president of the Environmental Defense Fund’s U.S. climate and energy program.
He added that “oil companies are standing in the way of innovation by frivolously exhausting every option to block popular policies to fight climate change and protect Californians’ health.”
Notthoff with NRDC also pointed to petroleum interests as the reason for Perea’s change.
“The Big Oil companies are at it again, escalating their scare tactics inside and outside the Legislature,” Notthoff said. “The last time the oil companies tried to delay implementation, over 60 percent of the state’s voters said ‘no.'” She referenced A.B. 23, a failed 2010 ballot measure that would have delayed implantation of the state’s climate law, A.B. 32.
“California’s climate program is already cutting carbon pollution,” Notthoff said. “Providing transportation choices and increasing efficiency is reducing our oil dependence and cuts our transportation fuel costs.”
Perea’s office did not immediately respond to a question about whether oil companies had sought the legislation.
The California Oil Marketers Association said it welcomed Perea’s efforts.
“Fuels Under the Cap,” it said, “will disproportionately affect lower-income Californians and there is no guarantee money generated will go to programs that reduce greenhouse gas emissions. We believe that California needs to find a way to address global warming and climate change in a way that doesn’t hurt those who are already struggling to get by.”
Correction: An earlier version misstated Perea’s first name.