Recycling fund may be tapped to help enforce greenhouse laws

Who’s got the money? California’s landmark law to fight greenhouse gases isn’t penciling out, and in the Legislature a political fight is brewing.

The Schwarzenegger administration wants to take $32 million in the form of a loan from the state’s recycling fund and use it to hire dozens of air quality specialists at the state Air Resources Board, the enforcement arm of the carbon emissions law. The plan, which needs legislative approval, would take effect with the new budget year on July 1. It’s not the first time Gov. Arnold Schwarzenegger has tapped recycling funds to balance his books: Since his first budget, for the 2004–05 fiscal year, the Republican governor has shown an affinity for recycling money. The state now owes a total of $350 million to the recycling fund — money that it borrowed to put into the General Fund, the state’s big money pool that includes tax revenue from personal and corporate income taxes.

But the latest loan is different.

The money goes to a special fund created by the greenhouse gas emissions law — and thus far there is no way to get the money back to the recycling fund. “At least the General Fund has a source of revenue to provide the payback. The bottom line is, there is no source of revenue here. The problem of an AB32 (the greenhouse gas emissions law) loan is that there is no source of revenue to achieve the payback schedule. That will be the issue in the Assembly and Senate budget subcommittees when they take the administration on,” said Mark Murray of Californians Against Waste, which spearheaded the 20-year-old law that created California’s statewide recycling effort.

Murray and Capitol staffers say the basic issue is one of money, and not a philosophical divide over the merits of recycling versus curtailing greenhouse gases. But the dispute highlights perhaps the most important piece of AB32, the system by which emitters of carbon gases will pay to keep the program going independently. It is a complex area. The administration says that any borrowed money will be paid back — with interest.

But the fact that the state faces a $14 billion shortage through the end of the next fiscal year at the same time it wants to borrow money to pay for greenhouse gas enforcement is raising questions.

“What we really need is an ongoing source of revenue. The Legislature made it clear that it wants to see this year a fee-funded program. We know who the big emitters are — they had to report. The administration has not proposed it, but they must know that this will be coming in the Legislature,” said the Sierra Club’s Bill Magavern.

There are various proposals to set up a fee schedule. Those include what is known as a “carbon fee” — which AB32 authorizes the ARB to put into effect without legislative approval — which is imposed “on refineries, natural gas producers and others at the well head or at the end of a pipeline. A $20-per-ton fee on carbon dioxide emissions would generate about $2 billion,” said Leonard Goldberg, a lobbyist whose clients include the Utility Reform Network. The fee could also be far lower, providing enough money to finance the program as it gets developed, then increasing the amount later as a way of controlling emissions.

Separate from the carbon fee — and many believe it should be put into effect only after a carbon fee is imposed — is a potential money-producing device now in the market system that targets emitters, who buy credits — called “allowances” — that allow them to operate. One variation is to have the credits sold at auctions; another is to have some allowances given away and others sold.
But however the system is devised, it needs to be done soon, experts say.

The governor’s latest proposal covers two budget years: 2008–09 and 2009–10. The administration said a plan for fees and revenues will be put together before the end of this year, but that actually getting the fees into effect will take longer. “It will take about 18 months to go through the regulatory process to establish fees,” according to budget language provided by the administration. The fees will be structured to pay back other borrowing as well. “We anticipate the repayment period to be three years and repayment will include interest at the PMIA rate,” it said, referring to the state’s Pooled Money Investment Account.

Californians recycle about two-thirds of the 20 billion containers sold annually in California.

Although the law, authored  by former Agoura Hills Assemblywoman Fran Pavley and Speaker Fabian Núñez, allows the ARB to set up the fee system, it is unlikely that the board would take that step without guidance from the Legislature.

The ARB already has quietly taken soundings in the Senate as to the scope and feasibility of a carbon fee, one lobbyist said.
“If they wanted it, it could be in place by 2009,” Goldberg said.