The Question

Should (a) California’s cap-and-trade greenhouse gas reduction disbursements and (b) a related partial sales tax exemption be made subject to a two-thirds vote in the state Legislature in 2024 to continue the program and the exemption?

The Situation

Greenhouse gases (GHGs) including carbon dioxide, arising from sources like gasoline-powered cars and industry, contribute to climate change. One of California’s programs to reduce GHGs is referred to as “cap-and-trade,” beginning in 2012 and continuing until 2030.

The state issues a limited number of permits to emit GHGs, about half to be given away and half to be sold at auction. Companies must obtain a permit for each ton of GHG they emit. Permit auction receipts are deposited in a special Fund and are disbursed for GHG programs through the annual budget process, requiring a majority vote in both houses of the Legislature. The Legislative Analyst’s Office (LAO) estimates that about $3 billion will be disbursed from the Fund in 2017-18.

California charges a sales tax on retail sales of most goods but not on the purchase of certain types of equipment through 2030. The LAO estimates that this exemption currently reduces state revenue by about $250 million annually.

The Proposal

Prop. 70 requires that, beginning in 2024, (a) cap-and-trade disbursements and (b) the sales tax exemption would be suspended until the state Legislature, by a two-thirds vote in both house (rather than by a majority), passes a bill authorizing both to continue. Thereafter, future disbursements would only require a majority vote and the exemption would be reinstated.

Fiscal Effect

The suspension of the sales tax exemption could increase sales tax revenue, by an amount dependent on the length of the suspension period. For a lengthy delay, the increase could be up to a few hundred million dollars annually.

The 2024 two-thirds vote requirement could, temporarily, delay and/or change the mix of state and local programs disbursements compared to what would otherwise occur. The fiscal results are unclear.

A YES Vote Means

Beginning on January 1, 2014, revenue collected from the sale of state greenhouse gas emission permits would be deposited into a new special fund. These deposits would continue until the effective date of a bill that spends money from that fund, passed with a two-thirds vote of each house of the Legislature. The current state sales tax exemption for manufacturing and certain other equipment would be suspended during the same period that auction revenue is deposited into the special fund.

A NO Vote Means

The Legislature could continue to authorize spending state revenue collected from the sale of greehouse gas emission permits with a majority vote. The current state sales tax exemption for manufacturing and certain other equipment would remain in effect until July 1, 2030.

Supporters Say

• Prop. 70 forces two-thirds of the legislature reach agreement in 2024 to evaluate if the cap-and-trade has been beneficial for all Californians. 
• Prop. 70 is part of a historic bipartisan effort to achieve our climate goals, retain good paying jobs to sustain our economy, and protect air quality and public health.

Opponents Say

• The 2024 two-thirds vote requirement is not achievable, undermining clean energy progress, and empowering special interests out of step with most Californians.  
• Prop. 70 was passed in only four days with a single committee hearing and no opportunity for public comment. Why was it passed with such speed and secrecy?

Link to Official Support

Supporters: This Proposition is on the ballot by action of the Legislature and the Governor. At press time, there is no known campaign supporting this Proposition.

Link to Official Opposition

Opponents:  Vote No on Proposition 70, No to Big Oil, a coalition of environmental groups.