AB118

Speaker Nunez's proposal to raise fees to fund research in alternative fuels and for other clean-air programs is getting the expected push-back from Republicans and tax payer groups. They would prefer tax breaks over fee increases to meet the same goals. It is a classic divide. Here is what the money would do:

The proceeds would go toward a variety of programs. For instance, private companies and universities could apply for grants and loans to research vehicle technology and alternative fuels, including ethanol and other biofuels. Also, businesses could get money to replace trucks, lawn mowers and other equipment with cleaner-burning machines.

I could see tax breaks working equally well for the second half of that, since it is basically a one for one transaction. Companies replace specific equipment and get a break from the government. The research on the other hand is a rather different calculation. A tax break structure means that companies would have to meet a certain criteria for being eligible for governmental assistance. The fee and grant/loan structure allows the government to choose the projects they want to fund. Rather than a company choosing a project that they can get the most revenue out of, the government can steer dollars towards research that brings the biggest rewards for the environment and the state. Those two sometimes match up, but not always.

The grants/loans to companies are only a piece of this bill, universities are also eligible for funding. The state could also use this fund to encourage local governments to purchase green technology, creating a demand for products. There is a lot of potential here for great returns for the state.

Speaker Nunez has resurrected Prop. 87 as AB 118, which quietly passed the Assembly last week and is now in the hands of the Senate. The bill would raise fees on motorists to fund the development of cleaner fuels. The lack of a tax increase means that the bill can pass without a 2/3rds vote, which could not have happened with the original provisions of Prop 87. The tax payers groups are not happy, but this bill seems headed for Arnold's desk.

The goals of AB118 are similar to those of the failed Prop. 87. The bill would provide funds for alternative fuel research in universities and private firms; give grants or loans to help companies produce and distribute new fuels that would cut greenhouse gases; and provide subsidies to consumers to buy alternative fuel vehicles. Under AB118, the California Air Resources Board and the California Energy Commission would be responsible for doling out the funds. Prop. 87 would have created a new state agency for that task.

The bill would help California reach the goals of AB 32 of reducing carbon emissions by 25% by 2020. AB118 has the support of a wide range of organizations, from the Alliance of Automobile Manufacturers to the Sierra Club to the Western States Petroleum Association. There is a pretty compelling reason for Arnold to sign this legislation and the fee increases are pretty modest. You can read the bill analysis here.