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Builders question how carbon levy will fund California rail project
THE California High-Speed Rail Authority (CHSRA) expects to raise US$500 million a year for the rail line from the cap-and-trade carbon tax, but the companies looking to build the railway expressed doubt it can be done.
Concerns arise in correspondence to the State of California reviewed by Reuters through a public records request, whether such an untested "cap-and-trade" carbon trading levy can stand-alone as a money-generating tool.
Such schemes rely on companies paying taxes to offset their carbon emissions. State rail officials have described the revenue stream as a "game changer" for the project, set to be completed in 2029.
But international firms such as Cintra and Kiewit worry that the unpredictability of such revenue could leave a funding gap.
"There would need to be some assurances," said OHL Group, an international construction firm based in Spain, "that the funding of the construction and future availability payments would be protected from such market fluctuations."
California's carbon market has raised $2.2 billion since auctions began in 2012 and is expected to bring in $15 billion by 2020, according to the California Air Resources Board.
A quarter of the funds are slated for the train project, a priority for Californian Governor Jerry Brown.
CHSRA chief executive Jeff Morales said earlier this year that the cap-and-trade funding "fundamentally changed discussions" with private industry for the better. The authority is interested in "pulling the money forward," by using projected cap-and-trade revenue, for example, to repay an investor's upfront investment.
Plenary Group, an international infrastructure developer, along with other firms, suggested California provide a guarantee to fill the gap if cap-and-trade revenues dropped too low.
"In the event the funds are not available for whatever reason, equity investors and lenders will need comfort that a credit-worthy entity (eg, State of California) will backstop any payment shortfalls," Plenary wrote.
The CHSRA has said it will not seek more public funding for high-speed rail in the near term, after raising about $13.2 billion from state and federal funds plus cap-and-trade money.
High demand for the first cap-and-trade auctions raised enthusiasm among private investors. But limited historical data does "not establish sufficient comfort in the market", wrote Siemens, the German engineering company.
Concerns arise in correspondence to the State of California reviewed by Reuters through a public records request, whether such an untested "cap-and-trade" carbon trading levy can stand-alone as a money-generating tool.
Such schemes rely on companies paying taxes to offset their carbon emissions. State rail officials have described the revenue stream as a "game changer" for the project, set to be completed in 2029.
But international firms such as Cintra and Kiewit worry that the unpredictability of such revenue could leave a funding gap.
"There would need to be some assurances," said OHL Group, an international construction firm based in Spain, "that the funding of the construction and future availability payments would be protected from such market fluctuations."
California's carbon market has raised $2.2 billion since auctions began in 2012 and is expected to bring in $15 billion by 2020, according to the California Air Resources Board.
A quarter of the funds are slated for the train project, a priority for Californian Governor Jerry Brown.
CHSRA chief executive Jeff Morales said earlier this year that the cap-and-trade funding "fundamentally changed discussions" with private industry for the better. The authority is interested in "pulling the money forward," by using projected cap-and-trade revenue, for example, to repay an investor's upfront investment.
Plenary Group, an international infrastructure developer, along with other firms, suggested California provide a guarantee to fill the gap if cap-and-trade revenues dropped too low.
"In the event the funds are not available for whatever reason, equity investors and lenders will need comfort that a credit-worthy entity (eg, State of California) will backstop any payment shortfalls," Plenary wrote.
The CHSRA has said it will not seek more public funding for high-speed rail in the near term, after raising about $13.2 billion from state and federal funds plus cap-and-trade money.
High demand for the first cap-and-trade auctions raised enthusiasm among private investors. But limited historical data does "not establish sufficient comfort in the market", wrote Siemens, the German engineering company.
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