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Cap-and-trade fees become key source for high speed rail plan
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SACRAMENTO  (AP) — California's revised plan to build the nation's first high-speed rail system identifies an alternative source of funding if federal and private-sector contributions fail to materialize — fees generated from California's new cap-and-trade program for greenhouse gas emissions.

However, there are legal and logistical questions about whether those fees, which could range from $660 million to $3 billion in the first year of the cap-and-trade program, could be used to build a high-speed rail line.

The revised high-speed rail proposal released Monday puts the cost of a San Francisco-to-Anaheim system at $68.4 billion and targets completion of a 520-mile network stretching from the San Francisco Bay area to Burbank by 2028.

The plan calls for merging the high-speed network with existing commuter rail lines in the Los Angeles region and San Francisco area, which will benefit from at least $1 billion in improvements.

The latest proposal refers repeatedly to the possibility of tapping money from California's new cap-and-trade program. That plan, which is set to begin in November, requires companies to buy permits from the state to offset their annual greenhouse gas emissions. It was part of California's landmark 2006 global warming law, which aims to reduce those emissions to 1990 levels by 2020.

Companies that are able to meet their emission limits — the cap — can sell credits to companies that cannot. Numerous experts have said the money funneled to the state as fees must be used to help reduce greenhouse gas emissions.

High-speed rail officials say they would only seek to use the cap-and-trade money if other funding sources come up short. So far, California has secured $3.5 billion in federal money and $9 billion in construction bonds approved by voters in 2008, which lawmakers must approve selling.

That leaves the project $55 billion short even if it comes in on budget. Republicans in Congress have signaled their desire to end all future funding for high-speed rail, private investors have yet to step forward publicly and it's unlikely California voters will approve additional borrowing for the project.

That increases the likelihood that the California High-Speed Rail Authority could turn to the cap-and-trade fund, or some other source of money, if it is to proceed with the ambitious project.

"This gives us a backstop dedicated funding stream that gives us confidence that we can go forward," said Dan Richard, chairman of the California High-Speed Rail Authority.

He said he did not know how much money the authority eventually might need from the state's cap-and-trade fees.

Rail authority spokesman Lance Simmens said 2015 is the earliest the authority would need to consider asking for cap-and-trade money. The beginning stages of construction are expected to be covered by the voter-approved bond money and the federal contribution.

State Sen. Joe Simitian, D-Palo Alto, a onetime supporter of the high-speed rail project who has questioned the cost and planning, called the idea of using cap-and-trade funds "interesting but speculative."

In his January budget proposal, Gov. Jerry Brown proposed spending about $500 million of an estimated $1 billion in cap-and-trade proceeds for unspecified greenhouse gas-reduction programs in the fiscal year that begins in July. But the nonpartisan Legislative Analyst's Office has cautioned that the governor may be overestimating the amount of money available to offset those costs.

California's cap-and-trade system is likely to face legal challenges, particularly from industry leaders who believe the fees are illegal or that certain utilities are receiving preferential treatment under the system.

If the credit auction proceeds as envisioned under the 2006 global warming law, the governor probably has a sound legal argument in seeking the fees for the rail project, said Rhead Enion, a fellow in environmental law and policy at the University of California, Los Angeles law school.

"The high-speed rail looks pretty good on that scale, assuming that you can make a legitimate argument that this rail could serve to reduce greenhouse gas emissions," said Enion, who co-authored a paper released this week on restrictions of the revenue from cap-and-trade auctions.

Environmental groups appeared supportive of the plan, despite questions about exactly how much money the fee will raise and how much of it could be dedicated to high-speed rail.

"High-speed rail can and should be in the mix" on spending from the cap-and-trade fund, said Alex Jackson, an attorney with the Natural Resources Defense Council in San Francisco. "It's going to be part of California's long-term strategy to account for a reduction in greenhouse gases."