This report examines the Governor's budget proposal regarding the use of revenues expected to be generated from the cap-and-trade auctions that the California Air Resources Board (ARB) will hold in 2012-13. These auctions are part of the state's plan to meet the goals of the Global Warming Solutions Act of 2006 (commonly referred to as AB 32). In this report, we recommend that the Legislature first use the revenues in 2012-13 to offset General Fund costs of existing programs designed to mitigate GHG emissions. Since the Legislature will need to decide which General Fund costs to offset as part of the 2012-13 budget process, such decisions are best made this spring. In addition, the Legislature will need to begin the process of determining how effectively to allocate the remaining auction revenues on new or expanded programs.