California May Tap Cap-and-Trade to Fund High-Speed Rail

California may use anticipated cap-and-trade revenue to help finance its multi-billion dollar bullet train project, state officials said this week.  

In a revised plan to build the nation’s first-ever high-speed rail system — a 520-mile project with a projected $68.4 billion price tag — the California High-Speed Rail Authority said cap-and-trade auction proceeds will be “available as a backstop against federal and local support.”

The authority has already identified $6 billion to fund the first leg, including $3.3 billion in federal funds and $2.7 billion from state bonds sales, spending that requires legislative approval. 

The cap-and-trade program will allow utility companies to bid on rights to emit carbon dioxide into the air and is expected to generate $660 million to more than $3 billion each year, according to the state’s Legislative Analyst’s Office. Some experts predict the program could yield billions more annually as it expands.

The program was designed to raise money to fund projects that could help the state meet its goals to reduce greenhouse gas, though critics have called it an unnecessary tax on business.

With the first auction set for November, questions have swirled about how the state should spend the money, especially in light of its $9.2 billion deficit.

Some states have raided cap-and-trade funds to plug budget gaps. That’s been the case for the Regional Greenhouse Gas Initiative, in which New York, New Hampshire and New Jersey have all diverted some of their revenue into state general funds. New Jersey has since left the pact.

But a new report suggests California would face legal risks should it also use the funds on projects unrelated to carbon-cutting. “The further the state strays from these principles in spending the allocation money, the more it risks a litigation loss that could set back its cap-and-trade program,” says the report published by the Emmett Center in Climate Change and the Environment at the UCLA School of Law.

Putting money towards the bullet train carries just a “low to medium” legal risk, the report says, if the project is shown to reduce greenhouse gases. The state currently projects the system will cut overall emissions by 3 tons per year after opening in 2029.

Governor Jerry Brown in his budget for next year proposes to use half the auction revenue, which he pegs at $1 billion, for efficiency programs currently funded by the general budget.  The governor proposes to put the remaining $500,000 toward investments in “clean and efficient energy,” “low-carbon transportation,” “natural resource protection” and “sustainable infrastructure development.”

That plan would carry little risk, according to the UCLA study, as long the money remained separate from the state’s general fund.