I recently attended a conference where a speaker discussing California’s known as Assembly Bill 32, was interrupted several times with variations of the phrase, “…but what are you guys going to do with the money?” California holds a strong reputation as a pioneer for eco-friendly legislation and its aggressive climate change legislation, AB32, is a shining example of that. AB32 allows California to use market mechanisms to reduce the state’s greenhouse gas (GHG) levels to those of 1990 by the year 2020, which includes a cap-and-trade program. The California government will institute what it deems to be an acceptable emissions level for GHG emissions every year, and therefore, current emissions must be “capped” to ensure that this level is not exceeded. The cap-and-trade program enforces this cap through market incentives that is tradable permits which are given away pretty much for free Major producers of GHGs are then are supposed to purchase “allowances” (their allowed GHG emissions), which is synonymous to these tradable permits. But they dont have to because they were given more than they need for free. Do a little research on the chairman who owns millions of dollars in Chevron and her husband known as Dr. Delay for being the attorney for Exxon in the Valdez spill in Alaska. Just saying Producers must buy the number of permits equivalent to their emissions and allowances must add up to the annual set cap (which decreases every year). Major producers must therefore trade, i.e., buy permits from those who are able to decrease their emissions. This is great for the environment?, but for sure a boon for California’s wallet. While the cap-and-trade program is really meant to be a regulatory market mechanism, incentivizing polluters to think before emitting (unless you have really deep pockets and can purchase allowances easily, but that’s a discussion for another time), let’s make no mistake in realizing that it is also creating a significant new revenue stream for the fiscally troubled state. If California were a country, it would have the 9th largest economy in the world. An economy which has struggled to balance its books, having declared a deficit years upon years in a row. In January 2011, California’s total debt was at least $265 billion but the state balanced its budget for the first time in decades in June 2013, conveniently after Governor Jerry Brown borrowed $500M from AB32 revenue to put into the general fund. This loan came with the stipulation that the funds would be returned but many doubt that the promise will come into fruition. The result? A major lawsuit. Which isn’t surprising. Some companies feel like they are being bamboozled – penalized for their business-as-usual for the state to increase their funds under the guise of sustainability. Meanwhile, environmentally-conscious groups are up in arms at the potential that this might be a trend. The most recent permit auction in August 2013, the third held this year, brought in $169 million. Overall, there have been four auctions since the first in November 2012 with the total revenue totaling approximately $781 million. These revenues are only slated to increase as both the number of obligated participants and the prices for allowances are scheduled to increase. Many expected these revenues to be funneled into sustainability-minded projects in keeping with the overarching goals of the program, but there has been some contention of where the funds are headed. While AB 1532, California Global Warming Solutions Act of 2006: Greenhouse Gas Reduction Fund, was passed recently to ensure that funds indeed go towards projects that reduced emissions, it has not been implemented. It follows that when Governor dipped into the AB32 funds to manage the budget, the uproar was not unexpected. So, where should the money go? As one can imagine, there is a slew of environmentalist groups chomping at the bit for much-needed money. One of the best ideas that I’ve heard so far is using some of the AB32 revenue for sustainable projects within disadvantaged communities, which is included AB 1532. Ironically, social injustice and environmental degradation go hand-in-hand more often than one might realize. For example, poorer people tend to suffer the most from industrial air pollution. Another troubling statistic: California also has 12 percent of the U.S. population and one-third of the nation’s welfare recipients. This makes it even more important to ensure that this new income funds sustainable projects that include a component of job growth. California (especially Southern California) also is known to be a little too car friendly, which translates into mindbending traffic jams (as an east coaster who just moved to Los Angeles, this is easily the worst aspect about living here) but also a poor public transportation system. This money can fund better transportation opportunities, which in turn decreases social injustice by increasing access. Overall, this new revenue stream is an opportunity to fund innovation. We have seen that the new wave of entrepreneurs have wholeheartedly embraced the inclusion of sustainability – whether that means social or environmental consciousness – into their business plans. It’s also not even about “being green,” it’s really about, what’s the next best thing. CA is poised to lead in research with these funds, and overhaul some of their least attractive systems. While I do see why some of these funds should be contingency funds for the General Fund, the state needs to draw a line to ensure that AB32 funds are not always used as “backup funds” for balancing deficit budgets. This is really an opportunity to bolster their economy by keeping in line with the goals that they outline in AB32.
Posted on: Tue, 29 Oct 2013 19:55:34 +0000
Trending Topics
Recently Viewed Topics
© 2015