New Job Killer Bill Will Increase Energy Costs

(August 29, 2012) Recent amendments to a CalChamber-opposed bill have turned the measure into a “job killer.”

AB 1186 (Skinner; D-Berkeley) is an illegal tax hike that increases energy costs, including fuel prices, on consumers and businesses by allocating funds from an illegal tax to various programs that are not necessary to cost-effectively implement the market-based trading mechanism under AB 32.

The bill specifically directs the expenditure of auction revenues raised by the California Air Resources Board (CARB) from the cap-and-trade program to a newly created School Energy Efficiency and Greenhouse Gas Reduction Fund.

This is the fifth “job killer” bill aiming to use funds raised by the cap-and-trade auction program. Three bills—AB 1532 (John A. Pérez; D-Los Angeles), SB 535 (De León; D-Los Angeles) and SB 1572 (Pavley; D-Agoura Hills)—await action by the full Senate or Assembly. AB 2404 (Fuentes; D-Los Angeles) was held on the Assembly Appropriations Committee Suspense File on May 5.

Lacks Authority

CARB lacks authority and has been unable to justify the need to raise billions of dollars in revenue for purposes anticipated in AB 1186. There is nothing in AB 32 that expressly grants CARB the authority to raise and distribute revenue in the cap-and-trade program.

In fact, AB 32 explicitly provides CARB with the authority to raise revenue only for direct costs incurred in administration of the program. In a letter to the journal, then-Assembly Speaker Fabian Núñez (D-Los Angeles), author of the bill, clarified that the fee authority in AB 32 is “solely” for the purpose of administrative costs. The inclusion of a “market mechanism” in AB 32 was intended to allow consideration of market dynamics to find the most cost-effective emission reductions.

The definition of “market mechanism” alone does not grant revenue-raising authority and without such authority, the imposition of an auction is legally questionable. Similar trading programs, such as the European Union Exchange Trading System (EUETS) and the Regional Greenhouse Gas Initiative (RGGI), were granted auction authority through enabling legislation that included specific policy details about the auction and revenue use. No such legislative authority was ever granted for the auction in California’s cap-and-trade program.

In 2009, SB 31 (Pavley; D-Agoura Hills) sought to grant CARB auction authority, demonstrating that legislators and a principal AB 32 author did not believe such authority already existed. SB 31 failed passage in the Senate.

Not Necessary

AB 1186 is not necessary: customers of California’s investor-owned utilities already pay $1.3 billion a year into energy efficiency programs. Numerous other programs at the local, state and federal levels already specifically provide funding for retrofitting school buildings, making AB 1186 unnecessary and duplicative.

For example, Sacramento voters approved $195 million Measure E in 1999 and $225 million Measure I in 2002 to pay for retrofitting buildings, upgrading HVAC and other improvements in the Sacramento City Unified School District. Similar bond measures have provided funding for Murrieta Valley Unified School District (a $120 million Measure E approved in 2006).

Additionally, the Office of Public School Construction under the State Allocation Board administers a $35 billion voter-approved program that provides funding for school building projects at the state level. A myriad of other private grants and federal programs fund energy-saving upgrades at schools. These existing programs provide a more appropriate funding source for California schools that seek to retrofit inefficient classrooms.


CARB’s plan to impose a “cap-and-tax” will hurt jobs, and raise costs to the state and consumers. AB 32 was not intended to be a revenue source. The decision to move forward with a billion-dollar auction will have devastating impacts on the state’s economy. Entities subject to the tax include manufacturers, public agencies, universities, refineries, food processors and others.

Raising “upward of $3 billion” in 2012–2013 alone as estimated by the Legislative Analyst’s Office (LAO) for purposes of funding various state programs is well beyond CARB’s authority and runs contrary to the requirements expressly stated in AB 32, which is that of maximizing benefits and minimizing leakage risks and costs.

“Leakage” concerns identified by LAO include firms relocating jobs outside the state, reducing jobs here or closing “due to a competitive disadvantage resulting from the cost to comply with cap-and-trade.”

AB 1186 provides for the unjustified use of revenue and goes beyond the economic and environmental harm that will arise from CARB’s imposition of a cap-and-tax on state employers.

Action Needed

AB 1186 is awaiting action by the full Senate. Urge your senator to oppose AB 1186.