California Transit Association

Advocacy

Background

Since the passage of Assembly Bill 32 (AB 32), the California Global Warming Solutions Act of 2006, the California Transit Association (Association) has been advocating for a new, dedicated source of state funding for transit using revenues generated from California’s Cap and Trade program. California’s Fiscal Year 2014-15 Budget Act provided the first expenditure program for auction revenues generated from the Cap and Trade program. The Association has worked with other stakeholder groups, the Legislature, and Governor Brown’s Administration to ensure funding from Cap and Trade was made available for transit and intercity rail capital projects, as well as operational improvements that reduce greenhouse gas (GHG) emissions, and was successful in securing a dedicated portion of Cap and Trade revenues for these purposes. 

What did AB 32 do?

Assembly Bill 32 (AB 32), the California Global Warming Solutions Act of 2006, declares that global warming poses a serious threat to the economic wellbeing, public health, natural resources, and environment of California and charges the California Air Resources Board (CARB) with “monitoring and regulating sources of emissions of greenhouse gases that cause global warming in order to reduce emissions of greenhouse gases.” AB 32 calls for the state to reduce California’s GHG emissions to1990 levels by 2020. In order to achieve this goal, California must remove approximately 80 million metric tons of GHG emissions. The Cap and Trade program accounts for about 18 million metric tons of the 80 needed to get down to 1990 levels. The remaining reductions will be achieved through a combination of other regulatory actions, including increasing the state’s renewable energy portfolio and implementation of the state’s low-carbon fuel standard. 

Subsequent legislation was passed (AB 1532 (Perez) and SB 535 (de Leon)) requiring the California Department of Finance and CARB to develop an initial three-year investment plan (to be updated every three-years thereafter) and compelling the state to spend 25 percent of Cap and Trade revenues to benefit disadvantaged communities. 

How Cap and Trade works

Under the state's Cap and Trade program, an overall limit (or cap) on GHG emissions is set each year. In 2012, the first year in which emitters were authorized to purchase allowances, the Cap was determined from previous surveys of greenhouse gas emissions from covered sectors. The Cap was initially set in 2013 at two percent below the emissions-level forecast for 2012 (approximately 162 million tons) and will decrease between two and three percent each year thereafter (it should be noted that it increased significantly at the start of 2015 when fuels were covered). An emitter of GHG emissions subject to the Cap must surrender one compliance instrument, either an allowance or an offset, for each metric ton of carbon it will emit during the year. They can either purchase allowances from State-run auctions or other entities in the program, or they can purchase offset credits generated by offset projects that reduce GHG emissions from sectors outside of the cap. Regulated entities can use offset credits to meet up to 8% of their carbon emissions.
 
As mentioned above, the number of allowances available is equal to the Cap and over time, the Cap decreases along with the number of available allowances, thus reducing GHG emissions. Between 2012 and 2015, the emitters subject to the Cap included electrical utilities and large industrial facilities, including oil refineries, food and drug plants, dairies, cement manufacturers, mining operations, iron & steel processing plants, and breweries. Additionally, emissions from the combustion of fuels, including transportation fuels, came under the cap and fuel suppliers must begin purchasing allowances in 2015, although they have had the option beginning in 2012 to purchase future vintage allowances that are valid for 2015, 2016, and 2017 in advance. The addition of fuels increases the number of available allowances (and the Cap) by approximately 230 million. In total, covered emitters are responsible for approximately 85 percent of GHG emissions statewide.
 
The state auctions allowances on behalf of electrical and natural gas utilities and the proceeds from the sale of those allowances are returned to the utilities, who are required to spend them on programs that benefit ratepayers. The remaining State-owned allowances, minus those directly allocated to industry for transition assistance or to prevent emissions leakage are sold at auction and the State receives the proceeds.

For detailed program information, see "Cap and Trade Program Information."