http://www.mercurynews.com/science/ci_20348096/windfall-cash-could-hit-state-treasury-from-global?source=rssWindfall of cash could hit state treasury from global warming programBy Paul Rogersprogers@mercurynews.comPosted: 04/07/2012 03:03:39 PM PDTUpdated: 04/08/2012 04:26:39 AM PDTFor the past 10 years, California has struggled with huge budget deficits and wrenchingcuts. Suddenly, however, the state is poised to raise billions from an unusual new source:the proceeds from its landmark global warming law.The windfall could come as soon as this fall, when state officials are set to beginauctioning off pollution credits to oil refineries, power plants and other major polluters aspart of a new "cap-and-trade" system.The amounts are potentially enormous: from $1 billion to $3 billion a year in 2012 and2013, jumping to as high as $14 billion a year by 2015, according to the nonpartisanstate Legislative Analysts Office. By comparison, the states current budget deficit is $9billion.But like thirsty castaways on an island surrounded by ocean water they cant drink, Gov.Jerry Brown and state legislators face strict constraints on how they can spend themoney. More than 30 years of court rulings and ballot measures -- dating to Proposition13 in 1978 -- limit its use, probably only to projects that reduce greenhouse gasemissions.To add another hurdle, major business groups are preparing lawsuits, arguing that thestate cannot collect the money at all.Still, Brown and others in the Capitol are cautiously making plans. On Monday, thestates High-Speed Rail Authority slipped into a news release that the money would beused as "a backstop" that could save the struggling bullet-train project.And in a follow-up interview with this newspaper, Dan Richard, chairman of the railauthority, asserted that a large portion of the money could go to fund high-speed rail.Everyone from environmentalists to utility companies are jostling for ways to spend themoney. The wish lists include renewable energy projects, bus systems and forestrestoration."This is a moment of significant historic importance," said V. John White, director of thenonprofit Center for Energy Efficiency and Renewable Technology in Sacramento. "Butwe need to be careful about how we spend it until we know for sure that it is going tobe there."
Business and taxpayer groups contend that the state has no right to auction off thepermits. They argue that AB 32, the states global-warming law signed by Gov. ArnoldSchwarzenegger in 2006, does not specifically authorize auctions and that permits topollute must be handed out free. They say if the state wants to charge money for thepermits, it will need a two-thirds vote of the Legislature -- a political impossibilitybecause Republicans oppose the law and raising any new fees or taxes."This wasnt intended. It wasnt discussed," said Dorothy Rothrock, vice president of theCaliforniaManufacturers and Technology Association. "Its outrageous and probably illegal."However, some legal experts say the state stands a good chance of winning in court.They note that AB 32 requires the California Air Resources Board to reduce emissionsthat contribute to global warming by using "market mechanisms" -- and that auctionsare a common market tool used in places such as Europe and the Northeast with cap-and-trade programs."I think the most fair reading of AB 32 is that it did allow the Air Resources Board tocreate market mechanisms that do include an auction," said attorney Cara Horowitzwith UCLAs School of Law. "The Legislature gave the Air Resources Board very broadauthority."Even if the state wins a lawsuit, expected to be filed this summer, it almost certainlycannot spend the new billions on schools, roads, health care or other needs.Thats because of a 15-year-old state Supreme Court ruling involving paint. In 1991, Gov.Pete Wilson signed a law placing a fee on companies that made lead paint. Themoney was used to fund programs reducing lead poisoning in children.Sinclair Paint sued, arguing that Proposition 13 required a two-thirds vote in theLegislature to approve such fees. But the states high court ruled that California can
charge industries with fees as long as the money is used to offset the health orenvironmental effects of the industrys behavior.The Brown administration argues that spending the global-warming money on bullettrains complies with the ruling because the trains would cut pollution by reducing carand airplane trips."These funds are being raised for reducing greenhouse gases and cannot be spentoutside of that purpose," said H.D. Palmer, a spokesman for the state FinanceDepartment. "Its like the way you cant spend money from school bonds to buildhighways."A similar program in 10 Northeastern states raised $912 million from industry auctionsfrom 2008 to 2011. The most common way the states used the proceeds was to fundprograms to help provide insulation, new windows, efficient appliances and lighting tohomes and businesses.Browns budget for the fiscal year beginning July 1 includes $1 billion from cap-and-trade auction revenues, but doesnt specify exactly how they would be used.The first phase of the bullet-train project, from Merced to Los Angeles, is estimated tocost $32 billion. But the state now has just $12 billion from state bonds and federalgrants. Richard, the rail authoritys chairman, said the global-warming funds couldpotentially make up $10 billion or more. "If its an insurance policy, it needs to be able toinsure the whole thing, and I think it does," he said.The projects critics are fuming that it might be saved by AB 32. "Its the perfect meldingbetween two boondoggles," said Jon Coupal, president of the Howard Jarvis TaxpayersAssociation.Critics also argue that the global-warming fees will be passed on to consumers, raisinggasoline prices and utility bills. But AB 32 supporters note that the law has broad publicsupport: Voters defeated a ballot attempt in 2010 by oil companies to block it.Environmentalists also point out that cap-and-trade was originally a Republican idea,originated by business interests and first put into law by President George H.W. Bush in1990, when it was used to offer incentives to industry to reduce emissions that causeacid rain.Since then, those emissions have been cut by 65 percent."Our goal for the new revenue is to speed and encourage Californias transition tocleaner sources of energy," said Alex Jackson, an attorney with the Natural ResourcesDefense Council. "Theres a lot of things that could fit that mold."IN THE BUDGET$1B
Amount of revenue from the auction of pollution credits that Gov. Jerry Brown includedin his 2012 budget.The problem: Critics argue that the government isnt allowed to sell the credits. And themoney may be restricted to use on environmental issues.HOW CAP-AND-TRADE WORKS » PAGE A8