Proposition 10 - Bond for Vehicle Rebates

What it does

Proposition 10 would authorize the state to sell $5 billion in general obligation bonds to provide rebates to reduce the consumer cost of purchasing alternative fuel vehicles. The bonds also would provide financial incentives for research, development, design and demonstration of alternative fuel vehicles and renewable energy technologies, and provide grants to some local governments and universities to conduct demonstration projects and public education. Approximately $3.4 billion is allocated for rebates on new vehicles and development and production of alternative-fuel vehicles. Prop. 10 designates $1.25 billion for renewable energy research and development, with $800 million specifically for solar technology. It designates $325 million for local government and university grants.

The largest account created by the bond—$2.875 billion—is designated for alternative fuel rebates, a program to be administered by the state Board of Equalization. The rebates would encourage the purchase of alternative fuel vehicles and fueling appliances that are presumably more expensive than those consumers would purchase in the absence of the rebates. The rebates could be used for the purchase of new vehicles or "repowered" vehicles, which are modified to use alternative fuels. Approximately 235,000 vehicles would be eligible for rebates, roughly split between rebates for passenger cars and light-duty vehicles, and for medium- to heavy-duty trucks. Rebates range from $2,000 for light-duty vehicles that achieve a 45 mpg standard, up to $50,000 for heavy-duty vehicles weighing more than 25,000 pounds.

In addition to the rebates, Prop. 10 would allocate $550 million under the Clean Alternative Fuels Account for the research and development of low-carbon fuels, production of alternative fuel vehicles, and alternative fuel vehicle testing and certification. The Air Resources Board would be responsible for administering these incentives. There is no provision in the measure to retire older, polluting vehicles "replaced" by the rebates, or to fund the retrofit of vehicles that already have been purchased.

The other major component of Prop. 10 is the Solar, Wind and Renewable Energy Account, which would provide $1.25 billion for research, development and production of electric-generation technology to reduce greenhouse-gas emissions. Of this total, $800 million must be spent on solar technology, though the measure does not specify why solar should receive 80 percent of the funds. The California Energy Commission is responsible for administering these incentives, as well as $200 million in additional funding provided by the measure for local governments to promote and demonstrate alternative fuel and renewable energy use in recreational and cultural venues. Eight cities are eligible for these funds: Los Angeles, San Diego, Long Beach, Irvine, San Francisco, Oakland, Fresno and Sacramento. Finally, the measure would provide $125 million in grants to California universities, colleges and community colleges for public outreach and educational programs dealing with renewable energy, alternative fuels, and tuition assistance for low-income students.

The total cost of Prop. 10 would be approximately twice the value of the bond, or $10 billion, with an average payment from the state's General Fund of $325 million per year for 30 years.

Why it is on the ballot

Proposition 10 is an initiative state statute put on the ballot through a signature petition drive. The sole financial backer of the campaign is Clean Energy Fuels Corp. of Seal Beach.

California has made great progress in improving air quality, in spite of our population doubling over the last 30 years. Still, today more than 90 percent of Californians live in areas that have unhealthful air at times, exceeding air quality standards for ozone and particulate matter.

The state administers a number of programs through regulation and financial incentives to promote air quality, clean alternative fuels, energy efficiency and renewable energy. Funding for these programs has come primarily from fee revenues. One such program, the Carl Moyer Memorial Air Quality Standards Attainment program, administered by the California Air Resources Board, is funded at $141 million annually through 2015. This program provides grant funding to encourage the voluntary purchase of cleaner than required engines, equipment and emission reduction technologies. It also is used in some air districts to fund the voluntary retirement or buy back of older light-duty vehicles. In 2006, voters approved Proposition 1B, which provided $1 billion to reduce emissions from school buses and the movement of goods. Of this program, $760 million was allocated for replacing heavy-duty trucks. CARB has guidelines to ensure these two programs complement each other.

California also leads the nation in creating policies designed to reduce carbon emissions, fight global warming and redirect energy production toward renewable and alternative-energy resources.

The Global Warming Solutions Act of 2006, Assembly bill 32, put climate change on the national agenda and has spurred action by many other states. In June 2008, CARB released the Climate Change Draft Scoping Plan, crafted to implement the mandate of AB 32 to reduce greenhouse-gas emissions to 1990 levels by 2020. The measures in the draft that are adopted by CARB will be further refined over the next three years and should be in place by 2012. One of the principal ways emissions will be reduced under this plan is through a market based cap-and-trade program, which strives to reduce emissions for the lowest possible cost. In 2007, Gov. Arnold Schwarzenegger signed Executive Order S-01-07 to adopt a low carbon fuel standard, which will produce a 10 percent reduction in the carbon content of all passenger vehicle fuels sold in California. This is expected to replace 20 percent of the gasoline cars consume with lower-carbon fuels. It also is predicted to more than triple the size of the state's renewable fuels market and place more than 7 million alternative fuel or hybrid vehicles on the roads (20 times more than are on California's roads today).

In 2007, the California Assembly also passed Assembly bill 118, creating the Alternative and Renewable Fuel and Vehicle Technology Program to be administered by the California Energy Commission. AB 118 authorizes the commission to award approximately $120 million annually as grants, revolving loans, loan guarantees and other appropriate measures to develop and deploy innovative fuel and vehicle technologies that attain the state's goals for the use of alternative fuels and reduction of petroleum use in a manner consistent with climate-change policies.

California also has the most aggressive targets in the country for renewable electricity production. Our Renewable Portfolio Standard requires investor owned and privately owned utilities to meet a goal of generating 20 percent of their electricity from renewable sources by 2010. Pending legislation would raise the target to 33 percent by 2020, a goal Schwarzenegger supports.

According to climate scientists, California and the rest of the developed world must cut emissions by 80 percent from today's levels to stabilize the amount of carbon dioxide in the atmosphere and prevent the most severe effects of climate change. This long-range goal is reflected in Executive Order S-3-05, which requires an 80 percent reduction of greenhouse gases from 1990 levels by 2050. The measures and approaches in the scoping plan for AB 32 are designed to accelerate this necessary transition, promote the rapid development of a cleaner, low carbon economy, create vibrant livable communities, and improve the ways we travel and move goods throughout the state.

In 2006, voters rejected Proposition 87, which would have raised $4 billion via a state oil production tax of 6 Percent. The revenues would have been used to fund renewable-energy development.

Pros

Arguments in favor of Prop. 10:

• Californians should invest early in research and development, public information, and programs to implement technologies that reduce global warming. This initiative would further bolster California's position as a global leader on climate change, and would attract investment and clean technology businesses to the state.
• While California leads the nation with laws and regulations to curb global warming and accelerate the use of alternative fuels, funding for clean energy research and development has been chronically underfunded. This measure makes an aggressive public investment to speed the transition to cleaner fuels and renewable energy. The bond amount of $5 billion is more than double the amount of money annually expended on clean-energy research and development by the federal government.
• Reducing the price of cleaner cars and trucks would make them more attractive to consumers. In the short term, this would slightly improve the average efficiency of California's vehicle fleet as a whole.
• The state cannot wait for the slow process of implementing our landmark climate change legislation, AB 32, over the next several years. Voters must act now to address global warming. Special interests may weaken the AB 32 legislative objectives as the implementation plan is codified, but ballot initiatives can be implemented quickly and without a lengthy public review or consensus building process.
• Heavy-duty diesel trucks are highly polluting and very expensive, and this measure would provide funding to make it more affordable for buyers to choose cleaner vehicles. The amount of funding for new, clean heavy-duty trucks—$1 billion—is a significant addition to the amount California invests annually in the replacement of heavy-duty vehicles.
• Rebates for heavy-duty trucks would decrease pollution at the state's ports. Air pollution from diesel emissions around these ports is a significant health hazard. The proponents of the successful state 2006 Transportation Bond, Proposition 1B, successfully presented the same argument, earmarking $1 billion for projects to improve transportation in and around ports.

Cons

Arguments against Prop. 10:

• It is premature to obligate the state to emissions reduction strategies before a comprehensive "road map" is in place. Voters should wait until the state has adopted the implementation plan for its landmark Global Warming Solutions Act, AB 32, before adopting any bond measure. The Prop. 10 program has not been technically analyzed against the implementation plan, or scrutinized by the public. The allocation of bond resources may not fulfill AB 32 mandates, and may skew the state away from the most productive, lowest cost approaches to energy conservation and the reduction of climate change. It is essential that scarce state financial resources are targeted toward technologies and economic incentives that will produce the most effective results. A more comprehensive, strategic approach to subsidies and rebates should be part of the AB 32 implementation plan.
• Prop. 10 provides a great deal of money to buy clean vehicles, without any provisions for retiring the dirtier vehicles that the clean vehicles presumably would replace. As a result, it simply makes putting more cars on the road less expensive. Taxpayer financing is more appropriately spent on public goods that would not be privately provided, such as public transportation or buying down emissions from existing sources. The measure does not provide anything either for transit projects or for cleaning existing vehicles.
• It is possible to subsidize low-emission vehicles without taxpayer financing through a "feebates" program: in other words, by adding a surcharge to the sale of inefficient vehicles and using it to finance the purchase of vehicles meeting a higher fuel efficiency standard. One such program, a Clean Car Discount program, is expected to be developed through the implementation of AB 32. Many environmental, public health and labor organizations support such a program.
• The measure would pay a high price for a change that could be accomplished by regulation alone. The Low Carbon Fuel Standard is expected to add 7 million new clean and alternative fuel vehicles to California's roads by 2020, far surpassing the 235,000 vehicles that would be added through Prop. 10's rebate program.
• Since the measure would not provide any revenues to repay the general obligation bonds, the principal and interest would be taken from the already strained General Fund, thereby reducing monies for other state programs not protected by their own dedicated fund.
• A 30-year term to pay for rebates that would be expended within 10 years is inappropriate, especially since the vehicles bought with the rebates would no longer have value before the state finishes paying them off.
• Implementation of the measure would likely cost the state about $10 million annually through 2018, money that would not be covered by the 1 percent limit the measure allows for administrative costs. These funds would be an additional draw on the General Fund.
• The State of California is not necessarily the beneficiary of the bond expenditures. The proposal allocates $1 billion for renewable-energy research and development. There is no provision for the state to financially benefit from technologies developed with bond funds. The companies or universities developing these technologies are not required to be located in California. California taxpayers should not subsidize technological development outside of the state.

SPUR’s analysis

Clean energy and alternative fuels are important, and must be further developed and deployed to help fight global warming. The intent of Prop. 10 is fundamentally good, and the $1 billion it obligates for renewable electricity generation projects could help with the challenge of meeting our renewable energy portfolio goals. The measure might attract cleantech businesses and investment to California, similar to the way the stem cell bond (2004's Proposition 71) attracted the biotech industry and much more private investment than the state expected.

However, a $5 billion bond is not needed to accomplish the objectives of the measure. The intent of the bond could be accomplished in other ways, through regulation and "feebate" programs. The bond is separate from the package of strategies recently proposed to implement the state's landmark global warming legislation, AB 32, and could throw a wrench into the comprehensive planning process for global warming that the state is leading. Implementing AB 32 will require regulations, incentives, voluntary programs and financing strategies that will all be subject to public and environmental review, which the mix of strategies encompassed in this bond do not. The bond also provides no funding for some of the most important ways to reduce vehicle emissions over the long term: improving public transportation and changing land use to provide incentives for less driving. The bond would continue to obligate taxpayers long after the new vehicles it finances are retired from the road. Finally, the bond has no provision for retiring existing vehicles as it helps pay for new ones.

SPUR recommends a "No" vote on Prop. 10.