Sacramento --

Among the revenue that will strengthen California's general fund this year is cash from the state's new cap-and-trade program to limit greenhouse-gas emissions - about half a billion dollars - but officials may be legally barred from spending much of that money.

The nonpartisan Legislative Analyst's Office says lawmakers and the governor will probably be able to use only $100 million or so of the $500 million they were counting on spending in this year's budget.

That's because the money comes from a fee, and state law requires fee-generated revenue to be spent on state programs that relate to the collection of the fee. For example, entrance fees collected at state parks must be spent on parks.

Under cap and trade, the state began collecting the new revenue by auctioning "carbon credits" on Nov. 14 that essentially permit businesses to release extra carbon dioxide into the atmosphere. Credit holders who do not emit carbon dioxide beyond a cap set by the state can sell them to businesses that are exceeding the cap.


Hunt to cut deficit

Included in the current budget is an assumption that the state will spend $500 million on greenhouse-gas-related programs, although the legislative analyst found only a few that qualify. Those programs would account for about a fifth of the $500 million.

"We scoured the budget, and what we said is that you could potentially find maybe $100 million," said Tiffany Roberts, senior fiscal and policy analyst for energy and climate change.

That finding was included in the legislative analyst's calculation of the state's $1.9 billion deficit through June 2014. So if additional qualified programs are found, the deficit would be reduced.

Officials assume the cap-and-trade auction will raise $1 billion in state revenue per year. Half would go to programs now paid for through the general fund, and the rest is slated for new, but yet to be defined, state initiatives to reduce greenhouse gases.

Additionally, the state is giving away carbon credits to investor-owned utility companies that are expected to sell the credits. On Nov. 16, the California Public Utilities Commission proposed using that money to give residential utility customers a "climate dividend," worth an estimated $30, twice each year.

Chamber objects

The notion of raising so much money is controversial in itself, and the California Chamber of Commerce filed a lawsuit in an attempt to block the first auction. The chamber argued that the state can't collect more in fee money than is needed to run the cap-and-trade program.

The first auction proceeded despite the suit.

Meanwhile, the California Air Resources Board and the Department of Finance are working to create a list of general fund programs they believe are eligible to be paid for with the $500 million.

The eligible programs that the legislative analyst has identified so far include an energy efficiency initiative at the University of California, water use efficiency programs that cut down the amount of electricity required to move water, and a forest resource program.

Some at the Capitol have wondered whether the cost of building the state's $68 billion high-speed rail system would qualify. Legislative Analyst Mac Taylor said he didn't think so.

He noted that construction of the project will actually increase carbon emissions and that reducing greenhouse gases is not the main purpose of high-speed rail.

"It's a little hard for us to justify how you can use huge sums of money to pay the large capital costs when that's a relatively small reason of why you're doing it," Taylor said.

Environmental groups said they would like to see the money used, at least in the near term, for greenhouse gas reduction programs.

Alex Jackson, an attorney for the Natural Resources Defense Council, said state officials should proceed with caution.

"First and foremost," he said, "what we're concerned about is this revenue being spent in a legally sound manner."
