(Jessica Kirshner, a 2L at the University of San Diego School of Law, wrote this post.  It was minimally edited for publication.)

AB 398 and AB 617 are the latest push by the legislature to meet SB 32’s greenhouse gas (“GHG”) reduction goals to reduce the statewide GHG emissions 40% below the 1990 level by 2030.  AB 398 – passed Monday by the Senate (28 to 12) and Assembly (55 to 22) – extends the GHG Cap-and-Trade Program (“Program”), through 2030 and provides for cap-and-trade revenue appropriations to fund specified priorities.  AB 617 – also passed Monday in the Senate (27 to 13) and Assembly (50 to 24) – imposes stricter emissions monitoring standards and increases air district penalty authority over emitters of toxic and criteria air-pollutants, particularly for stationary emissions sources near disadvantaged communities (“DAC’s”).  These bills are enrolled and await the signature of Governor Brown to become law.  If signed, AB 398 will take effect immediately as an urgency statute.

AB 398

AB 398 required 2/3 majority to pass, and its success proves a level of bipartisan support for California’s 2030 reduction goals and the state’s position as the nation’s leader for climate change policy.  Because AB 398 required a supermajority, legislators conceded on some provisions to garner necessary support, even from organizations and industries generally at odds with one another’s’ climate policy agendas.  For example, the bill includes a tax-credit extension for certain emitters, which many criticize as sympathetic to businesses and utilities.  Still, the Natural Resources Defense Council, CalStart, and San Francisco Asthma Task Force backed the bill, alongside oil industry representatives and state electric utilities SDG&E, PG&E, and SCE.  Compromises were likely necessary to secure what EDF Director for California Climate, Quentin Foster, called the, “package [that] ensures the signature feature of the cap-and-trade program remains in place: a cap that places a firm limit on carbon pollution and holds the state accountable for achieving the climate targets set in law.” 

Opposition to AB 398, including environmental groups Sierra Club and Earth Justice, criticize the bill for moving too quickly through the Senate without consideration for proposed amendments that would make the Program tougher on emissions producers.  Others, including State Senator Patricia Bates (R), criticize AB 398 for creating economic uncertainty about appropriations of funds produced by the Program, because the bill does not include a continuous expenditure plan (i.e., to fund the High-Speed Rail Project and specified environmental projects).  Finance Committee representatives responded to Senator Bates’s criticism by stating that a separate bill is necessary to address the expenditures.  Despite AB 398’s silence on Program appropriations, it passed on Monday in the Senate Appropriations Committee by a vote of 5-2.

Most air districts also opposed AB 398 because, though it prioritizes air districts’ climate change regulation, it prohibits, until January 1, 2031, any air district from adopting emission reduction rules for carbon dioxide from stationary sources that are subject to the Program.  The Bay Area Air Quality Management District voiced opposition in Monday’s hearing because it previously requested that AB 398 impose additional emissions limits on certain sources in its jurisdiction, as existing law neither expands nor restricts air district authority in this regard.  Instead, the approved version of AB 398 is silent on the Bay Area issue and, from the Bay Area’s AQMD’s perspective, restricts air districts’ authority to deal with local issues.  This result boosts skepticism by air districts and environmental groups about business interests and motivations behind the bill.  The air districts may be able to garner the desired authority over industrial facilities subject to the Program when AB 378 is taken up in the 2018 legislative session.

Additional notable provisions of AB 398 include:

• Establishes the “Independent Emissions Market Advisory Committee” to provide progress reports on the Program to CARB and the JLC on Climate Change Policies
• Establishes the “Compliance Offset Protocol Task Force” to advise CARB on the board’s approval of new offset protocols with the goal of increasing offset projects with environmental benefits to the state in prioritized communities.
• Requires CARB to set: 1) price ceilings (current bill provides none – only factors CARB must consider in setting it); 2) price containment points set below the price ceiling (CARB must offer a specified number free compliance allowances–GHG emissions permits–at the containment points); 3) offset credit compliance limits for regulated entities’ compliance obligations (from 8% now to 4% in 2021-25, and to 6% in 2026-30. It requires half of all combined offsets used between 2021-30 to come from projects with “direct environmental benefits” in California);
• Requires CARB to maintain for the 2020-30 Program the same standards set in the current Program for: 1) industry assistance factors used by CARB to determine free allowance allocation as under the current Program, and 2) a declining cap for allowance allocation (with goals to reduce free allowances by 40% in 2030);
• Repeals the fire prevention fee previously imposed on certain manufacturers and industry polluters.

 AB 617

Despite being a companion bill, AB 617 does not directly alter cap-and-trade.  Instead, it aims to improve air quality and health safety in DAC’s and communities most affected by pollutants by amplifying emissions monitoring standards and imposing stricter penalties for violations of identified limits for criteria air pollutants and toxic air contaminants.  It will also require CARB to create an archive of the best available retrofit control technology (“BARCT”) for criteria air pollutants and the same for toxic air contaminants, and it requires stationary sources subject to the Program to expedite implementation schedules for BARCT.

Additional notable provisions of AB 398 include:

• Creation of a statewide emissions reporting system for certain stationary sources to annually report their annual emissions of toxic and criteria air pollutants;
• Implementation of community-level monitoring plans for areas most affected by toxic and criteria pollutants to reduce emissions from mobile and stationary sources. Plans must be submitted to the State Air Resources Board for approval and must include reduction targets and deadlines, regulatory measures, and enforcement measures;
• Enhancement of fence-line monitoring in high-priority communities in the state, as selected by the state board;
• Requiring the State Air Resources Board to prepare a statewide strategy and emissions reduction plans for communities with high-exposure burdens to specified air pollutants at least once every 5 years; and
• Providing grants to community-based organizations in high-priority communities for technical support and assistance implementing emissions reduction programs.