Tuesday, June 14, 2016
Los Angeles Times
California’s cap-and-trade program faces daunting hurdles to avoid collapse
By Chris Megerian and Ralph Vartabedian
The linchpin of California’s climate change agenda, a program known as cap and trade, has become mired in legal, financial and political troubles that threaten to derail the state’s plans to curb greenhouse gas emissions.
The program has been a symbol of the state’s leadership in the fight against global warming and a key source of funding, most notably for the high-speed rail project connecting San Francisco and Los Angeles.
But the legality of cap and trade is being challenged in court by a business group, and questions are growing about whether state law allows it to operate past 2020. With the end of the legislative session in August, Gov. Jerry Brown, lawmakers and interest groups of all stripes are laying the groundwork for what could become a battle royal over the future of California’s climate change programs.
Unless the state acts, “the whole system could fail,” said Senate leader Kevin de León (D-Los Angeles). “If that happens, we could lose an entire stream of revenue to make our communities more sustainable.”
California received an unwelcome reminder of cap and trade’s precarious situation last month.
The program functions by capping how much greenhouse gas can be emitted into the atmosphere and requiring companies to obtain permits, each allowing 1 metric ton of emissions. Those permits can be purchased at auctions or traded in a market, a system intended to provide a financial incentive for businesses such as power plants, oil refineries and manufacturers to reduce emissions.
By selling the permits, the state generates revenue that can be spent on other initiatives that reduce greenhouse-gas emissions, such as weatherizing homes and helping low-income residents buy cleaner cars. The bullet train is the biggest recipient, getting 25% of the cap-and-trade funds.
During the most recent auction in May, only 11% of the permits offered for sale were purchased.
Analysts suggested that legal uncertainty around cap and trade has damaged faith in a system that, like other markets, requires investors’ confidence to operate smoothly. They also said corporations and speculators are holding more permits than currently needed to cover the amount of greenhouse gas emissions in the state, a supply-and-demand problem that has been growing in every auction over the last year and could continue to choke revenue through 2017.
“The market is clearly in a position of cumulative surplus,” said Harry Horner, an analyst at CaliforniaCarbon.info.
Hanging in the balance is funding for the country’s largest infrastructure project, the $64-billion bullet train championed by Brown. Two years ago, as the governor struggled to get construction rolling, he turned to cap and trade to plug a shortfall in funding.
The latest auction produced just $2.5 million of the $150 million expected for the project and drove the price of each permit to the minimum set by the state.
If revenue remains weak, the bullet train could run out of money needed next year to match a federal grant. The state rail authority is depending on annual cap-and-trade revenue of $500 million to build the first operational segment from San Jose to Shafter, a plan that would probably fall apart if the auctions don’t recover.
Officials at the California Air Resource Board, which runs cap and trade, caution against jumping to conclusions that their system is facing major problems.
“One auction doesn’t tell you a lot about the supply and demand over a longer period of time,” said Michael Gibbs, a senior board official.
But there are still uncertainties in the market because companies were encouraged to build up a surplus of permits and no one is entirely sure how many they will ultimately need.
Frank Wolak, a Stanford University economist who has advised the state, suggested an optimistic scenario — polluters might be cutting their emissions more than was expected and don’t need as many permits.
“To the extent that not all the permits are being sold, that is a success of the program,” he said.
Either way, the result is a financial problem. Although the state could tap a $500-million reserve of cap-and-trade funds to keep bullet train construction rolling, it could be hard for the state to show that future revenue will be stable enough to secure bonds, a key part of the plan for financing high-speed rail.
Meanwhile, clean energy businesses and environmental justice groups are counting on cap and trade to provide financial support for their products and their communities. And advocates want to ensure California maintains its reputation as a global leader on climate change.
“Now is a critical time to steady the ship,” said Alex Jackson, a San Francisco-based lawyer for the Natural Resources Defense Council. “There is no reason to jump ship, but the headwinds around the program show there’s a lot of uncertainty.”
One of the people with the most at stake is Brown, who has made climate change central to his political mission. But he has not outlined how he wants to address the issue.
“We’re looking at it very carefully,” he said recently. “There’s more than one way to handle it.”
Brown and his allies are hemmed in by political challenges on multiple fronts. There are Democrats skeptical of environmental initiatives because of potential costs for low-income communities, Some Republicans are opposed to increasing costs on businesses and oil companies seeking leverage for loosening other pollution regulations.
At this point, cap and trade “does not have enough legislative constituencies to continue,” said Assemblyman Sebastian Ridley-Thomas (D-Los Angeles).
Much of the debate over the program has focused on funding, reflecting the degree to which cap and trade has been viewed as a revenue generator rather than just a series of environmental regulations.
The cap-and-trade program grew out of a measure signed by Gov. Arnold Schwarzenegger in 2006. The law set goals for reducing greenhouse gas emissions to 1990 levels by 2020.
“The name of the game wasn’t to raise revenues,” said Dean Florez, a former Democratic state senator who is now a member of the Air Resources Board.
But since then, lawmakers and the governor have relied on the program to pay for a broad swath of initiatives, increasing their reliance on the money. Even Republicans who oppose cap and trade have suggested using the funding to repair dilapidated roads.
That revenue is what’s facing a legal assault from the California Chamber of Commerce. The organization filed a lawsuit nearly four years ago arguing that cap and trade was unconstitutional because it functions like a tax, and the law was not passed by a two-thirds majority in the Legislature needed to approve taxes.
State officials have rejected that argument, saying the program falls within their regulatory power. But the lawsuit received new attention this spring when an appeals court issued a series of pointed questions that led some analysts to suggest they’re preparing to rule against the state.
That would be a blow to climate efforts. Officials have urged other governments to join the market, and the program has been closely studied by Chinese leaders who are launching their own effort.
“If we cease to have [cap and trade], that’s going to send a very loud message to the rest of the world and one we may not want to send,” said Michael Wara, a Stanford law professor.
State Sen. Fran Pavley (D-Agoura Hills), who wrote the 2006 law, said she expected cap and trade to survive a legal challenge, like so many other environmental programs before it.
“Every one of these policies have been sued along the way,” she said. “None of them have been successful.”
But there’s also no consensus on whether a new law is needed to extend cap and trade past 2020. The Air Resources Board said it had the authority to keep going, but the legislative counsel’s office disagrees.
Pavley wants to see a new law passed to make it clear that lawmakers stand behind cap and trade and the state’s environmental goals, and she has started having conversations about pushing the issue before the end of the legislative session in August.
But to protect the program against legal challenges like the one it’s facing now, lawmakers may need to extend it with a two-thirds vote. Hitting that threshold would require Republican help, not to mention support from business-friendly Democrats.
Getting there would probably require trade-offs — ones that environmentalists don’t want to make.
Oil companies and their allies are angling to use the debate around cap and trade to dispense with a different regulation known as the low-carbon fuel standard, which requires the industry to produce cleaner gasoline.
“This issue opens up a door to try and have those discussions,” said Rob Lapsley, president of the California Business Roundtable, which represents the state’s largest corporations.
If concerns tied to cap and trade continue to snowball, lawmakers could find themselves considering a massive piece of legislation to address all of them at the end of the session.
“That’s where the magicians come out and wave their wands,” said state Sen. Bob Huff (R-San Dimas).
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Big steps ahead on regional groundwater management
By Heather Hacking
Chico >> By this time next year a lot of work needs to be done on a regional groundwater sustainability plan. By 2017 the major players in our local plan need to be identified. By 2022, local folks need to create and submit a groundwater plan that will be sustainable and accepted by state water leaders.
Every big task needs to start somewhere, and this week the public is being asked to join the conversation.
About 110 people showed up at the Chico Masonic Hall Monday night to hear more about the Sustainable Groundwater Management Act, which is one of the biggest changes in statewide water management in 100 years.
Another meeting will be held today, 6-9 p.m. at the Durham Memorial Hall, 9319 the Midway. This meeting will include a report on the water inventory analysis, as well as information provided Monday.
Wednesday, a meeting with similar information from Monday will be held 9-11 a.m. at the Gridley Fairgrounds, 199 Hazel Street, in Butte Hall.
Hundreds of groundwater plans are being mapped out throughout the state. Locally we’re in fairly good shape, said Paul Gosselin, director of the county’s Department of Water and Resource Conservation. A grid of 100 wells keeps track of groundwater levels and many smaller groundwater plans are already in place.
Some areas in the in the Central Valley have problems with land subsidence that are causing land to sink and putting infrastructure at risk.
Locally, subsidence is a concern in two areas in Glenn County (see story here, http://tinyurl.com/h889rr3.) Any land subsidence is cause for concern, but the local cases are changes in land elevation of a few inches, not the widespread sinking of land that has gone on for decades in other parts of the state.
Michael Harty, of Kearns and West, is the consultant hired for the Butte County-area SGMA plan. He has already conducted dozens of interviews with people involved with groundwater use, and presented those finding to the county’s Water Commission. Read it here: http://tinyurl.com/gvnyu3r
That was a first step, and there are many steps ahead, he explained during his presentation Monday.
One job will be for local water users to decide what “sustainable” means in terms of groundwater use.
The word sustainable is defined by the absence of undesirable conditions, Harty explained. For example, the absence of the chronic lowering of groundwater levels, the absence of a significant reduction in groundwater storage, absence of significant seawater intrusion and the absence of unreasonable degradation of water quality, Harty said. The absence of “significant and unreasonable” land subsidence is also included.
“Significant” and “unreasonable,” for example, can be interpreted many ways.
The task for June 2017 is to identify groups that will serve as GSAs, groundwater sustainability agencies. The way the rules work, GSAs need to be groups that have authority over land use or water use. Currently, many agricultural water districts, cities and the county have signed up to be a GSA. Within these groups there is much overlap, and some of these groups may be consolidated as the process continues.
Harty explained there are many options, but it will be easier if there are just a handful of GSAs for this area.
California Water Service is governed by the California Public Utility District, and is not allowed to be a GSA.
During the meeting Monday, questions were asked about the role of people with smaller wells. This might be a farmer not linked to a surface water district, or rural homeowners with a well.
Harty said the goal of the county is to let everyone have a voice.
Colusa County, for example, has a private pumpers advisory committee, a presenter said.
Currently there is not an official independent groundwater users group.
After the meeting, Carol Perkins said people are encouraged to learn more and share ideas via Facebook, “Independent Groundwater Pumpers of the Northern Sacramento Valley.” The group will help people “learn more about their rights as SGMA stakeholders,” she said. To join, send a message to be added to a contact list, Perkins said.
Gosselin, of the Water Department, said the Butte County Farm Bureau is playing a role in reaching out to landowners. Also, Gosselin said, anyone can go to the SGMA website, http://tinyurl.com/gqxk4cl, and send in their name to be added to Water Department contact lists.
After the additional two meetings this week, another meeting on SGMA will be held in mid July, Harty said. This will include a gathering of all of the groups that are eligible to be GSAs, he said.
Contact reporter Heather Hacking at 896-7758., email@example.com or follow Heather on Twitter: @HeatherHacking.
Supervisors to consider deals for ag pest control
By Luis Hernandez
The Tulare County Board of Supervisors will consider approving three agreements worth more than $3 million for the control and program management of the Glassy-winged Sharpshooter when they meet in regular session Tuesday morning.
Commissioner Marilyn Kinoshita said the agreements are funded with money from those in the grape industry and are administered by the U.S. Department of Agriculture. Two agreements, worth $1.96 million, are with the California Department of Food and Agriculture, and the third, valued at $1.2 million, is with Tulare-based ResCom Pest control.
The agreements with the state agency are for the management of detection and suppression of the Grassy-winged Sharpshooter and run until 2018. The agreement ResCom is to provide pest control until 2022. The contract is in three, two-year increments.
Konishita said the agreements are essential for the local agricultural industry.
“It comes down to resources,” she said. “We are the number one ag. county in the nation. We wouldn’t be there if we didn’t have the resources.”
The agreements with the state agency will be paid with funds from the next two fiscal year budgets.
The management program has a two-fold purpose. First, the program is designed to reduce the Glassy-winged Sharpshooter in the county, said Tom Tucker, assistant agricultural commissioner. The program detects and identifies new infestations using insect trapping, visual inspections, and surveys.
Second, the program also monitors the presence of Pierce’s Disease in the county’s orchards, vineyards and ornamental plantings, Tucker said.
Pierce’s Disease is a potentially devastating plant disease transmitted by the Glassy-winged Sharpshooter. Kinoshita said Tulare County is a large producer of table grapes.
“If we didn’t have a program, an assortment, we would have a lot of dead grapevines because of Pierce’s Disease,” she said.
The county is considering entering the agreements with state officials because otherwise the agency would take over the local management of the program, Kinoshita said.
The agreement with ResCom means a continued working relationship. Kinoshita said ResCom has provided pest control services since 2002.
How to attend
What: Tulare County Board of Supervisors meeting
When: 9 a.m., Tuesday
Where: board of Supervisors Chambers, 2800 W. Burrell Ave., Visalia.
Online: www.tularecounty.ca.gov/board, click on “Agenda Packets,” then the meeting date.
Redding Record Searchlight
Grand jury finds problems with county water agency
By Nathan Solis
The Shasta County grand jury found numerous problems with the Shasta County Water Agency that led to unsafe water, losses to taxpayers totalling $31,654 and one county service area brought to the brink of insolvency due to the county overcharging it for water.
The 2016 grand jury report placed some of the blame for the problems on a lack of checks and balances brought on by the same employees overseeing and approving their own work. That comes about because the county Public Works Department long ago folded in the Shasta Water County Agency, and public works employees take on dual roles of working on behalf of both the county and the water agency.
The grand jury recommends the Shasta County Board of Supervisors look into forming a new agency to oversee the management of county service areas and, among other recommendations, audit all financial records related to billing.
Titled “Water Matters” the grand jury report reviewed the county’s management of municipal services for Castella, Jones Valley, Crag View and Keswick and how customers are billed by the Shasta County Water Agency.
What the report found was that in the last two summers, the county bought more water than was needed or used from the McConnell Foundation. In one case, it purchased more water from the McConnell Foundation to carry one service area for two months that exceeded what the CSA uses in an entire year. And because the contracts required the service areas to “use it or lose it,” many acre-feet of water were bought but never used nor saved for future use.
Altogether, the over-purchasing of McConnell Foundation water and billing discrepancies — the county undercharged one service area for the water — the county lost about $31,645. That amount includes refunds the grand jury says it owns to two service areas.
Crag View is due a refund of $1,450 for overcharging in 2014 and $7,142 for 2015, according to the grand jury findings. Keswick is due a refund of $16,872 for 2014.
Those overcharges nearly drove Crag View CSA into insolvency, the grand jury found.
Bob Wheeler, Crag View resident, said he hopes the county can refund the approximately 70 customers in his neighborhood for all the overcharges and mishandlings.
“There are a whole lot of issues that have to be identified. They haven’t been treating it right,” said Wheeler.
Wheeler’s neighbor, Colleen Batman, said Crag View residents contested a rate change last year and paid for that with severe water restrictions over the summer.
“We caught on to that and we were punished. Most of the personal gardens were destroyed. At this point those intimidation tactics are not going to work on us. We’re going to fight as long as they’re breaking the law,” said Batman.
Half of the CSAs reviewed had overcharges, billing errors, over-purchases of water and lack of segregation of duties by Public Works, the report found.
The grand jury also found that Crag View water exceeded safe levels of two disinfectants added by the Public Works Department in 2014. Promises to reduce the chemicals in the water were not made, instead levels increased, according to the grand jury report.
The grand jury also questions whether an automatic rate increase is legal if water is being purchased from the McConnell Foundation, a private entity. Current law allows automatic rate increases when water is purchased from another public agency, but is silent on rules regarding purchases from private suppliers. The grand jury tried to run this by the Shasta County District Attorney and the county counsel, but were unable to determine any type of conclusion.
The grand jury called on the county to make the Water Agency independent from Public Works.
In 2013 residents of Jones Valley requested county supervisors look into separating the Water Agency from Public Works, but were denied. Instead County Executive Officer Larry Lees was directed by the board to work with the Jones Valley residents.
That follow-up never happened, said the grand jury report, but cash balances of the Water Agency could cover the cost for employees and expenses for an independent agency.
The county Board of Supervisors is expected to take up the grand jury report at a future meeting.
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Santa Cruz Sentinel
Architect sees flaws in Santa Cruz County flood maps
By Jondi Gumz
SANTA CRUZ >> Local architect Cove Britton is seeking to correct what he contends are inaccuracies in preliminary flood insurance rate maps that could negatively affect his clients and their neighbors in tony Pleasure Point.
Britton has designed 10 homes he believes could be affected, including four on Pleasure Point Drive, an area popular with Silicon Valley tech executives, where homeowners enjoy panoramic ocean views, surfing and eye-popping property values.
The asking price is $4.385 million for 3000 Pleasure Point Drive, a three-bedroom home with French doors from the master suite to an oceanfront deck with a hot tub. The owner of a gated three-bedroom home with a heated pool on a double lot at 4600 Opal Cliff Drive is asking $6.95 million; the listing notes “extensive shoreline work done for protection of the property.”
In a June 6 letter to Bruce McPherson, who chairs the county Board of Supervisors, Britton pointed out two problems with preliminary flood maps from the Federal Emergency Management Agency.
“Many coastal bluff homes will be required to raise the residence five or more feet above the existing grade in areas not historically subject to significant flooding,” Britton wrote, contending the maps “do not recognize existing bluff protection.”
Second, “many coastal bluff homes that own property at the toe of the bluff may be required to pay flood insurance reflecting the assumption that there is development at the toe of the bluff though that area is not developable by county code,” Britton wrote.
County planning staff say the 90-day appeal period ends Friday. Britton says the deadline is Tuesday.
FEMA began the flood map update in 2011.
In a letter to the New York Times, Roy Wright, FEMA’s deputy associate administrator for insurance and mitigation, wrote that the agency’s “flood maps are produced using the best available science to determine high-risk flood zones.”
Three years ago, homeowners from Oregon to Maine complained about map inaccuracies, according to Pro Publica, an investigative journalism nonprofit that found money for FEMA’s map project was cut by Congress.
County Floodplain Administrator Antonella Gentile was out of the office Friday and other officials were preparing for budget hearings that start June 20.
“I know they are aware of the situation and are attentive to it,” county spokesman Jason Hoppin said.
County planning director Kathy Previsich wrote a May 16 memo to supervisors, indicating affected coastal property owners were notified of the flood map changes and directed to a website page that explains how to appeal.
Her memo acknowledges questions have arisen because FEMA “did not give value to existing sea walls.”
She emphasized the county will not be able to issue a building permit for improvements valued at 50 percent or more of the home’s current value if improvements do not comply with the new maps, once they are finalized.
Buying flood insurance before the new maps take effect is one way to save money under the grandfather rule, Previsich pointed out.
FEMA posted preliminary maps for Santa Cruz County on Sept. 28, noting they are subject to change.
The agency recommends property owners review the maps and flood insurance study for their community and provide information to the CEO of the affected communities. McPherson is listed as CEO for the unincorporated areas, Mayor Ed Bottorff for those in Capitola and Mayor Cynthia Mathews for the city of Santa Cruz. Maps are in city permit offices and county Planning Department.
“We did not see major changes so there is no appeal from the city,” said Joe Hall of the Santa Cruz Economic Development Department, noting one change in the flood zone at the mouth of the Santa Cruz Harbor.
In Ocean City, Maryland, new flood maps have been costly for property owners, with insurance through FEMA jumping from $22,000 a year to nearly $500,000 a year, according to The Daily Record, a newspaper covering that city. Ocean City officials are talking with FEMA.
In San Bruno, the City Council hired engineering firm Moffatt & Nichols to review FEMA’s flood hazard documents. That study concluded flood risk in the Belle Air neighborhood was smaller than what FEMA’s analysis found.
Karl Heiman, owner of Mr. Toots Coffeehouse on the Capitola Esplanade, said his lender required he buy flood insurance even though his business is on the second story, which he felt made flooding unlikely.
“I see the flip side,” said Roger Berke, owner of Thunderbird Real Estate, noting homeowners in Cape Hatteras, North Carolina, have been able to buy federal flood insurance inexpensively and rebuild despite frequent flooding. “We all pay for it.”
Kathy Previsich May 16 memo: bit.ly/1WM3Cou
FEMA flood map update for Santa Cruz County: bit.ly/1ttaM5m
Grandfather rule: 1.usa.gov/1OmlsMm
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