Comment Log Display

Response to ARB Request for Public Input on Cap-and Trade Auction
Proceeds Investment Plan

Thank you for this opportunity to comment. Our comments address two
major topics, dividends and investment.

Dividends – The Best Use of Proceeds

Since 2006 when our organization became involved with AB32
Implementation, we have consistently encouraged the California Air
Resources Board (ARB) to auction allowances to upstream emitters,
include a rising price floor, and return auction proceeds to the
public as dividends. Returning auction proceeds to the public on a
per-capita basis as dividends following the Alaska Permanent Fund
model is the best use of revenues under the AB32 cap-and-trade
program.

Benefits of dividends are:
• Making Californians whole – AB32 revenues don’t materialize out
of thin air. Ultimately they come from Californians paying higher
prices.
• Addressing equity – Economic analyses project that about 80% of
Californians will come out ahead with dividends, and that those in
the lower economic brackets benefit proportionately more. Thus,
dividends help meet the SB535 requirement that the investment plan
allocate a minimum of 25% of revenue to projects that provide
benefits to disadvantaged communities and a minimum of 10 percent
of the available moneys to projects located within such
communities.
• Building durable support for California’s bold climate protection
legislation. When Californians receive their climate dividend and a
ka-ching in their bank account, they will directly experience the
benefit to them of climate protection.

Dividends accomplish the AB32 goals relating to equity, and
maximizing additional environmental, economic, and overall societal
benefits.

 
 
The AB32 Economic and Allocations Advisory Committee recommended
that “the largest share (roughly 75%) of allowance value should be
returned to California households… through lump-sum payments…” and
“roughly 25% of this value used to finance socially beneficial
investments and other public expenditures.”

The California Public Utilities Commission recently adopted a
climate dividend policy for revenue generated in the electricity
sector. In announcing its decision, the Commission wrote,
“Returning revenues equally to all residential customers is more
equitable and comports with the idea of common ownership of the
atmosphere given that residential ratepayers will ultimately bear
the increased costs as a result of the Cap-and-Trade program.”

The need for dividends will become more pronounced in California in
2015 when the transportation sector enters the program. Consumers
will feel more pain in their wallets and lives from higher fossil
fuel prices. The best way to defuse a potential political backlash
is to give Californians a dividend and make them whole.

The State of California is desperate for revenue. But so are the
people of California. The good news for the State is if it is done
in the right order, both will benefit if the money is sent directly
to the people with dividends, and dividends are made taxable. This
would result in a portion of funds coming back to the State through
taxes, and those funds would now be free of the Sinclair
restrictions.

However, if the money is spent on programs first, then the public
will see climate change as one more budget item, floating in a sea
of eroding social services. The State can still seize this prime
opportunity to create a revenue-neutral program that reimburses the
public for their share of revenues from the Commons. At the same
time, it would create a new psychological, economic, justice
framework for understanding that the solution to climate change is
a carbon price that rewards the people of California. The
Investment Plan can provide a template for national and
international climate policy by providing equal dividends or shares
to all Californians.  

Although rebates are part of the adopted policy for the electricity
sector, additional costs will be passed to consumers as additional
sectors come under AB32.  Electricity sector rebates will not
compensate consumers for costs from transportation, and indirect
costs from other goods and services that are passed through as
energy costs rise. When the transportation sector enters the
program in 2015, consumers will see a very visible hit to their
pocketbooks. The best way to defuse a potential political backlash
is to include a dividend for transportation sector and indirect
costs in the Investment Plan.

Spending billions of dollars of revenues on infrastructure projects
that offer long-term emission reductions but short term costs to
taxpayers is a risky political gamble that could jeopardize the
entire AB32 effort.

AB1532 Considerations
While dividends are not specifically named in AB1532 (Perez), the
bill says that the Air Pollution Control Fund expenditures “may
include” the categories named “but are not limited to” them, so
dividends are still a viable option. 

The State could fund research into dividend distribution and the
potential for resulting behavioral change. For example, the State
could fund an effort to determine how the California Public
Utilities Commission can best accomplish its stated goal of moving
from on-bill dividends toward off-bill dividends.   The State could
pilot a debit card system, or work with existing debit card
programs to assess how dividends could be best delivered at low
cost to recipients. This may also include incorporating dividends
from a future national carbon price or from other “feebate”
programs.

Political Backlash If No Dividends
In 2009-10, Congress came close but ultimately failed to pass a
climate bill. An in-depth analysis  places blame on proponents’
insider game that failed to align stakeholders and failed to
counter opponents who blasted the bill for foisting more costs onto
citizens and businesses. 

Excerpts of the analysis by Skocpol, author:
The cap and dividend approach makes it possible to speak with
average citizens about what they might gain as well as pay during
the transitional period of increasing prices for energy from carbon
sources. Cap and dividend is simple to spell out and it is also
relatively transparent. Citizens could understand and trust this
policy. Like Social Security, taxes or proceeds from auctions are
collected for a separate trust fund – and the revenues are used to
pay for broadly valued benefits for each citizen and every family.
No opaque, messy, corrupt insider deals. The dividend payments also
deliver a relatively greater economic pay-off to the least-well off
individuals and families, precisely the people who, as energy
prices rise, would have to spend more of their incomes as home
heating, electricity, and gasoline.

Popularly rooted organizations like labor unions, churches, and old
people’s associations might rally behind such an approach, because
it is economically just in its impact. Indeed, for some years after
it started, a cap and dividend system would reduce the expanding
income inequalities that have plagued American society and politics
in recent decades. Environmentalism has a reputation for appealing
mostly to white, upper-middle-class educated citizens, even as
stagnating wages for less privileged Americans have made it easy
for right-wing forces to demonize carbon-capping as a new tax that
will burden already hard-pressed families. Cap and dividend would
allow antiglobal warming advocates to say – loud and clear, and
very truthfully – that promoting cleaner energy will also boost the
economic fortunes of average Americans. Reformers who want to
remake energy use in the United States need to deliver concrete
economic help to ordinary families along the way, and ideally they
should do it in easy-to-understand, transparent ways. (pgs.
125-126)

It may be tempting to ignore Skocpol’s political warnings given
California’s current Democratic majority in the legislature.
However, a program that spends most if not all funds on new
government programs with few dividends may be quite vulnerable,
especially if political winds shift.

The withdrawal of New Jersey from the Regional Greenhouse Gas
Initiative (RGGI) is a cautionary tale for what could happen if
allowance value is used for well-intentioned efficiency programs
that are invisible to most consumers. Funds that were supposed to
be set aside for energy and environmental uses were raided to plug
state budget deficits. Because consumers did not see a direct
connection to the use of revenues, the lack of consumer support
failed to prevent New Jersey’s Governor from withdrawing his state
from the program. A per capita dividend could help California avoid
this fate.

Dividends are beginning to take a larger role in the national
climate debate. A recent bill announced by Senators Barbara Boxer
(D-CA) and Senator Bernie Sanders (I-VT) would impose an upstream
fee on carbon emissions, with three-fifths of revenues refunded to
residents as a Family Clean Energy Rebate.   Republican Senator
Susan Collins (R-ME) co-sponsored a bill called the CLEAR Act with
Senator Maria Cantwell (D-WA) in 2009 that would have returned 75
percent of revenues to consumers as a dividend.

Climate change is a multi-decade, multi-generational challenge.
Rather than spending revenues on projects that attract support from
only one party, California needs a bi-partisan approach that
attracts public support from non-environmental constituencies. 

Investments

Challenges
As noted in the Draft Concept Paper, “One of the planning
challenges is drafting an investment plan when the amount of
auction proceeds to the State each year is unknown.” RGGI recently
reduced its number of auctioned permits by 45 percent.  The
European Trading System (ETS) is proposing to withhold 1.4 billion
permits due to an oversupply.  Such ongoing fluctuations of supply
and demand in a tradable permit system make it an inappropriate
source of funding for long-term large-scale projects.

Multi-billion dollar infrastructure projects such as high-speed
rail are problematic investments because they could easily swallow
up all the revenues from cap and trade, yet still be unable to
contribute significantly to the state’s GHG reduction goals by
2020.  Investing solely in such projects will not broaden
bipartisan public support for a continuously increasing price on
carbon. Big projects will not counter the attack that a carbon
price is a regressive tax.  

Panelists at the May 24, 2012, ARB workshop on this topic expressed
support for a long list of programs. Suggestions often conflicted
as one speaker recommended focusing on "shovel ready" programs and
the next on long-term research and development. The extensive
laundry list of pet projects is a result of the perception that
this is “free money” which can substitute for needs being de-funded
by budget cuts.

Once politicians see revenues being spent, it will be tempting to
borrow from those funds. What looks like free money to legislators
will be a visible target for opponents to make the entire AB32
program vulnerable to an anti-tax backlash. High-speed rail is the
most egregious of these, because the anticipated boondoggle attack
would be tough to fight during the years or decades until it is
fully operational.  

Better sources of funding for investments in renewables and
efficiency, exist including shifting fossil fuel subsidies or
existing subsidies for activities that cause emissions. The
transportation sector in California invests millions of dollars in
policies and programs that increase fossil fuel use and GHGs, for
example, parking structures, new highway lanes and widening roads.
Such funds could go toward investments described in the Concept
Paper, reserving auction proceeds for per capita dividends.

When choosing among these options, questions ARB should ask are: 
• Are these investments already being made by other funding
sources?  
• Can investment opportunities be evaluated and selected using the
amount of GHG reduction per dollar spent as a criterion? (We
recommend that they are.)
• How will ARB’s choices impact the potential renewal of the Public
Good Charge that the Legislature let expire?  
• How do these public funds relate to private sector investment for
research or product development (i.e. Silicon Valley venture
capital)?  
• Will these funds choose technology winners and losers, or
dissuade private firms from investing in R&D?

Positive Investment Opportunities
Using 25% for investment as the EAAC recommended, we offer the
following to be prioritized.
1. Financing programs that leverage private capital. We distinguish
financing from funding: Financing is a sustainable structure that
enables access to funds currently spent on fossil fuels to
efficiency and renewables; funding is a one-time allotment given by
an external source for a program. Three financing programs that we
have or are working on Sonoma County are:
• PACE – Property Assessed Clean Energy
• Pay As You Save - Using water bills to finance energy and water
efficiency projects.
• Community Choice Aggregation –The most powerful measure under
local control for reducing GHG emissions. One of the big first
things we need is a state revolving loan fund to help communities
launch local CCA programs.
2. Offering access to funds for non-profits like ours. Often
funding opportunities exist for which non-profit organizations are
ineligible despite a proven track record of development and
implementation of innovative, effective solutions. Although our
organization has largely driven Sonoma County climate protection
activities and innovations since 2001, we often have to plead with
local governments to apply for funds because only they are
eligible.
3. Investment in innovation, research, and competitive grants for
bold ventures. Transportation solutions are especially challenging.
We strongly recommend investing in developing solutions that use
pricing, one of the most effective measures to impact mobility
choices.  Other exemplary transportation programs that we are
implementing in Sonoma County are:
• ECO2school - A high school service learning program that enables
students to reduce the GHG emissions associated with the student
commute. Participating schools have seen as much as a 21 percent
GHG reduction.
• WeGo Ridesharing – A program that matches and incentivizes
ridesharing using smartphone technology. We see a great opportunity
for effective, local Transportation Demand Management programs that
currently lack funding.

Please feel free to contact me about our comments or projects.

Sincerely,                                                  
 
Ann Hancock, Executive Director, Climate Protection Campaign