California eyes dividends, deficit cuts from cap-and-trade

Feb 9 (Reuters) - Revenue raised by California's greenhouse-gas emissions trading program could be distributed to state residents to offset higher fuel costs or used to reduce the state's projected deficits, a state budget watchdog agency said on Thursday.

"Our analysis indicates that such revenues could be returned directly to Californians - such as in the form of a check - as a dividend that would be intended to offset their increased expenditures on goods and services that ultimately would become more expensive as a result of the cap-and-trade program," the Legislative Analyst's Office said in a report.

The report added that revenue from the program, which goes into effect next year, could also be used as part of a "multiyear approach to reduce the state's projected General Fund deficit."

"The availability of these revenues could allow the state to avoid other actions, such as cutting governmental programs or increasing state revenues, that could slow the state's economy," the report said.

The report comes as California prepares to implement its Global Warming Solutions Act enacted in 2006. Commonly referred to as AB 32, the law established the goal of reducing greenhouse gas emissions in the most populous U.S. state to 1990 levels by 2020.

To meet that target, California will establish a so-called cap-and-trade program that issues allowances to companies that emit carbon dioxide and other greenhouse gases at facilities such as power plants, refineries and factories and that permits the allowances to be traded.

Revenue from the program is expected to vary annually, from less than $1 billion to nearly $14 billion, according to the Legislative Analyst's Office.

Governor Jerry Brown's state budget plan expects the program to generate $1 billion in revenue in the next fiscal year, including $500 million that will be used to fill the state's general fund, which faces a $9.2 billion deficit.

Brown also wants to put cap-and-trade revenue toward other clean-energy, natural resources and other uses, including toward funding a planned statewide high-speed rail network. The Democratic governor put the idea of funding the rail project that way out recently during a television interview, catching lawmakers by surprise.

Legislators from both parties in the Democrat-led legislature have become increasingly concerned about the planned rail network, which is also under attack from Republicans the U.S. Congress and California's Central Valley, where the U.S. government is insisting the network's first line must be built to receive more than $3 billion federal funds.

At issue for California lawmakers are escalating cost projections for the rail project. Its latest estimated cost nears $100 billion, which eclipses its previous estimate of $43 billion as well as the $10 billion in general obligation debt voters approved in 2008 to help build the rail system.

Lawmakers are also concerned that voters are souring on the ambitious rail plan, which is intended to connect California's far-flung metropolitan areas. Nearly two-thirds of voters want lawmakers to put the bond package back on the ballot, and if given another vote on it, 59 percent would reject it, according to findings of Field Poll released in December.

Brown is enthusiastically behind the rail project. He met with U.S. Transportation Secretary Ray LaHood on Thursday and both men affirmed support for it.

After a tour on Wednesday of a Siemens plant in Sacramento, California where the company light-rail car, LaHood said the Obama administration stands behind putting the rail system's first line in the Central Valley to link the cities of Fresno and Bakersfield.

That idea is not going over well in California's legislature, drawing criticism from lawmakers from both parties. While the farming region's flat terrain may be suitable for running high-speed trains, many lawmakers would prefer to start lines in urban areas -- and many would prefer the state not start the project at all given its costs.

Brown's finance department is preparing a report on rail project that will help guide lawmakers in coming months to decide whether California should issue the first set of bonds to finance construction of the project's first leg. (Reporting By Jim Christie; Editing by Bernard Orr)