Bloomberg News

California to Borrow $500 Million From Carbon Fund in Brown Plan

May 14, 2013

California would borrow $500 million in carbon allowance auction proceeds, required by law to be spent on emissions-cutting efforts, to cover general expenses under Governor Jerry Brown’s latest budget.

The loan would be “short-term” and paid back with interest, Matthew Rodriguez, California’s secretary for environmental protection, said in a conference call today. Lending the money to the general fund is “fiscally prudent” and will give the state more time to better estimate how much revenue its carbon sales will generate and how best to spend it on emissions-reducing projects, he said.

“We’re trying to figure out frankly how much money we’re going to be dealing with and figure out priorities for spending,” Rodriguez said in a telephone call with stakeholders. Brown’s proposal “emphasizes that stability may be short-lived unless we exercise fiscal discipline.”

California has in the past patched its $96.4 billion budget by taking redevelopment and vehicle-license revenue from cities, borrowing from a disability insurance fund and redirecting money from a fund supplied by a 1 percent income tax on millionaires intended for mental-health programs. States in the U.S. Northeast, including New Jersey, New York and New Hampshire, have drawn fire from environmentalists for using carbon allowance proceeds to help cover budget deficits.

The state wouldn’t set a schedule for returning the money, Karen Finn, program budget manager for the California Department of Finance, said in the call.

“Repayment will be done according to when the fund needs it,” Finn said.

‘Dangerous Game’

The Greenlining Institute, a Berkeley, California-based public policy group, described Brown’s proposal as a “a dangerous game that could wreck California’s push toward clean energy.”

“Seizing these funds for other uses will hurt our state’s neediest communities,” Ryan Young, legal counsel for the group, said by e-mail. “It’s simply not necessary.”

Carbon market traders may see the loan as a sign of stability, Jon Costantino, executive director of the Sacramento-based Association of Carbon Market Participants, said by phone.

“The governor’s ability to stop the cap-and-trade program because of economic considerations was a possibility,” said Costantino, who is also a senior adviser at Manatt, Phelps & Phillips LLP. “Now, if the governor pulls that lever, it’s a $500 million hole he has to fill.”

Under the program, the state is limiting emissions from power generators, oil refineries and other industrial plants, and reducing that limit gradually to reduce emissions to 1990 levels by 2020. The system will eventually cover 85 percent of the greenhouse gases released in the state.

The air board is issuing carbon allowances, each permitting the release of 1 metric ton, through quarterly auctions and free allocations. The permits can be bought and sold.

To contact the reporters on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net; James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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