BILL ANALYSIS SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1527 SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: lieu VERSION: 6/1/09 Analysis by: Jennifer Gress FISCAL: yes Hearing date: June 30, 2009 SUBJECT: Motor vehicle emission reduction projects DESCRIPTION: This bill makes it easier to use funds from multiple state programs to fund an emission reduction project. ANALYSIS: Existing law establishes several programs designed to reduce emissions associated with motor vehicles. Some programs are intended to reduce emissions of criteria pollutants, which are six common pollutants that harm human health and the environment. Criteria pollutants include particle pollution (often referred to as particulate matter or PM), ground-level ozone, carbon monoxide, sulfur oxides, nitrogen oxides, and lead. The United States Environmental Protection Agency has established National Ambient Air Quality Standards for each of these pollutants that regions throughout the U.S. must attain. Other motor vehicle emission reduction programs focus on the problem of climate change and seek to reduce greenhouse gas emissions. The emission reduction programs pertinent to this bill are described below. Goods Movement Emission Reduction Program (GMERP) In November 2006, voters approved the Highway Safety, Traffic Reduction, Air Quality and Port Security Bond Act of 2006, also known as Proposition 1B, that, among other things, provided one billion dollars to reduce emissions associated with the movement of freight along California's trade corridors. SB 88 (Committee on Budget and Fiscal Review), Chapter 181, Statutes of 2007, provided guidance to ARB to implement the program, referred to as the Goods Movement Emission Reduction Program AB 1527 (LIEU) Page 2 (GMERP). The GMERP provides incentive grants for projects that reduce goods movement-related emissions. SB 88 defined "emissions" as including, but not limited to, diesel particulate matter, oxides of nitrogen, oxides of sulfur, and reactive organic gases, which are criteria pollutants or precursors to them. Projects eligible for funding include the replacement, repower, or retrofit of heavy-duty diesel trucks, locomotives, harbor craft, and cargo handling equipment, and the provision of on-shore electrical power (i.e., cold-ironing) for cargo ships, portable shore-side power generation projects, or electrification infrastructure to reduce engine idling and the use of internal combustion auxiliary power systems. Projects are awarded on a competitive basis and ranked according to a combination of two factors: the total amount of emissions reduced by the project and the project's cost-effectiveness, which is defined as the total pollutant-weighted emission reduction measured over the life of the project, per state dollar invested. Carl Moyer Memorial Air Quality Standards Attainment Program (Carl Moyer) The Carl Moyer program provides incentive grants for engines, equipment, and other sources of pollution that exceed the standards established by law or regulation, thereby providing early or extra emission reductions. The program is designed to reduce emissions of oxides of nitrogen (NOx), particulate matter (PM), and reactive organic gas (ROG), which are necessary for the state to attain the National Ambient Air Quality Standards. Eligible projects include on-road, off-road, marine, locomotive, and stationary agricultural pump engines. ARB approves projects on the basis of their cost-effectiveness. The cost-effectiveness for the Carl Moyer program is established in statute, which prohibits grants for projects with a cost-effectiveness that exceeds $13,600 per ton of NOx reduced. For projects that obtain ROG and PM emission reductions, ARB weights those reductions to produce an adjusted cost-effectiveness standard consistent with statute. AB 118 (N??ez), Chapter 750, Statutes of 2007 AB 118 provides approximately $200 million annually through 2015 for three new programs to fund air quality improvement projects and develop and deploy technology and alternative and renewable fuels. The three new programs are: the Air Quality Improvement Program administered by ARB, the Alternative and Renewable Fuel and Vehicle Technology Program administered by the Energy AB 1527 (LIEU) Page 3 Commission, and the Enhanced Fleet Modernization Program administered by the Bureau of Automotive Repair (BAR). The AQIP and the Alternative and Renewable Fuel and Vehicle Technology Program, which are subject to this bill, are described below. Air Quality Improvement Program (AQIP). AQIP will provide about $50 million per year for grants to fund clean vehicle and equipment projects that reduce criteria and toxic air pollutants, as well as research on the air quality impacts of alternative fuels and advanced technology vehicles. AB 118 established eight broad project types that are eligible for AQIP funding: On- and off-road equipment projects; Projects to mitigate off-road gasoline exhaust and evaporative emissions; Research on the air quality impact of alternative fuels; University of California research to increase sustainable biofuels production and improve collection of biomass feedstock; Lawn and garden equipment replacement; Medium- and heavy-duty vehicle/equipment projects including lower emission school buses, electric or hybrid vehicles/equipment, and regional air quality programs in the most impacted parts of California; Workforce training related to advanced technology to reduce air pollution; and Projects to identify and reduce emissions from high-emitting light-duty vehicles. Projects will be awarded in the form of competitive grants, revolving loans, or loan guarantees, and will be evaluated on the basis of the potential to reduce criteria or toxic air pollutants, cost-effectiveness, contribution to regional air quality improvement, and the ability to promote the use of clean alternative fuels and vehicle technologies. Alternative and Renewable Fuel and Vehicle Technology Program. This program is administered by the Energy Commission and provides competitive grants and other financial incentives to help the state achieve its climate change goal, primarily by reducing greenhouse gas emissions. AB 118 establishes 11 criteria by which to evaluate projects and provides a broad list of eligible projects, including: Alternative and renewable fuel projects to develop and improve AB 1527 (LIEU) Page 4 alternative and renewable low-carbon fuels; Demonstration and deployment projects that optimize alternative and renewable fuels for existing and developing engine technologies; Projects to produce alternative and renewable low-carbon fuels; Projects to decrease the overall impact of an alternative and renewable fuel's life cycle carbon footprint and increase sustainability; Alternative and renewable fuel infrastructure, fueling stations, and equipment; Projects to develop and improve light-, medium-, and heavy-duty vehicle technologies that provide for better fuel efficiency and lower greenhouse gas emissions, alternative fuel usage and storage, or emission reductions; Programs and projects that accelerate the commercialization of vehicles and alternative and renewable fuels; Programs and projects to retrofit medium- and heavy-duty on-road and nonroad vehicle fleets with technologies that create higher fuel efficiencies; Infrastructure projects that promote alternative and renewable fuel infrastructure development connected with existing fleets, public transit, and existing transportation corridors, including physical measurement or metering equipment and truck stop electrification; Workforce training programs related to alternative and renewable fuel; Block grants administered by not-for-profit technology entities for education and program promotion, and the development of alternative and renewable fuel and vehicle technology centers; Analyses performed by a state agency to determine the impacts of increasing the use of low-carbon transportation fuels and technologies and to assist in program implementation. This bill : Requires ARB and the Energy Commission to revise their project guidelines by January 1, 2011 to allow funding from federal sources, the AQIP, and the Alternative and Renewable Fuel and Vehicle Technology Program to be used for a project also funded by the GMERP or the Carl Moyer program without those other funds being factored into the cost-effectiveness calculations for criteria pollutants under the GMERP or Carl Moyer program. AB 1527 (LIEU) Page 5 Provides that GMERP and Carl Moyer projects that receive funding from those other sources must still meet all requirements provided under existing law. COMMENTS: 1.Purpose . According to the sponsor, CalStart, this bill is designed to promote better coordination between state funding programs for clean transportation. The bill allows federal and AB 118 funds to be paired with Carl Moyer or Proposition 1B funds to "upgrade" projects to achieve even greater air quality benefits and greenhouse gas emission reductions. Current program guidelines require that funds from all public funding sources are summed when calculating cost-effectiveness. The higher the state subsidy, the less cost-effective a project is. Because of this, using state funds from multiple programs makes it difficult or impossible to demonstrate the cost-effectiveness of the project and thus be awarded a grant. According to the sponsor, ARB is in the process of amending its guidelines for the GMERP in order to allow for limited co-funding. These new guidelines have not yet been adopted, however, and they do not apply to the Carl Moyer program. Furthermore, the sponsor notes that the draft guidelines do not include natural gas vehicles. The sponsor explains that the emissions of criteria pollutants are the same for both a 2010 diesel truck and a 2010 compressed natural gas (CNG) truck, but that the CNG truck provides a more significant reduction in greenhouse gas emissions. CNG trucks, however, are more expensive than diesel trucks and thus require greater subsidy in order to incentivize their purchase. Clarifying the state's preference for projects that achieve multiple policy goals would provide clear direction to ARB and could set a precedent for future coordination. The need for these changes is particularly acute given today's economic climate. In better times, fleets may have chosen to pay a bit more for cleaner alternative fuel or hybrid vehicles. Today, however, the economics of fleet purchase decisions are likely to steer fleets toward diesel vehicles. Every diesel vehicle purchased is a missed opportunity for greenhouse gas and petroleum reductions, and possibly even additional criteria pollutant reductions. 2.Undermining efforts to reduce emissions of criteria AB 1527 (LIEU) Page 6 pollutants . Because some federal funds, AQIP, GMERP, and the Carl Moyer program all focus on the reduction of criteria pollutants, and in particular the reduction of oxides of nitrogen and diesel PM, allowing AQIP funds, as well as some federal funds, to be excluded in cost-effectiveness calculations for projects funded by the GMERP and Carl Moyer could result in less money being available to fund other projects intended to reduce criteria pollutants. Furthermore, to achieve the goals of reducing both criteria pollutant emissions and greenhouse gas emissions, funds permitted to be co-mingled for purposes of calculating cost-effectiveness should be derived from programs designed to serve these different purposes. For these reasons, the author or committee may wish to consider the following amendments: Delete AQIP funds from the list of funds to be excluded from cost-effectiveness calculations for GMERP and Carl Moyer projects. Specify that federal funds used in conjunction with, but excluded in cost-effectiveness calculations for, GMERP and Carl Moyer projects, should be derived from programs focused on climate change and designed to reduce greenhouse gas emissions. 3.Fear of the unknown . The concept of achieving multiple policy objectives with a single emission reduction project enjoys broad support. Because this approach is somewhat new, there is concern that it would be implemented in a manner that compromised the effectiveness of individual programs. How exactly will this idea be implemented? To help address these concerns, the author or committee may wish to consider amending the bill to state clearly that allowing funds from one program to be excluded from the cost-effectiveness calculation for a project from another program shall not reduce the emission reduction benefits expected to be achieved from those programs individually. 4.Consistent with other efforts to coordinate funding . As noted, ARB is in the process of revising its guidelines to make it easier to use funding from multiple state programs for a project that aims to achieve multiple policy goals. Additionally, in its funding plan for the AQIP, ARB acknowledges that there may be some overlap between vehicle projects that can be funded in both the AQIP and the Alternative and Renewal Fuel and Vehicle Technology Program AB 1527 (LIEU) Page 7 because some technologies achieve both greenhouse gas and criteria pollutant reductions. According to the AQIP Funding Plan, ARB and the Energy Commission are coordinating on source categories where potential overlap exists and have discussed the possibility of joint funding projects in future years in cases where demand exceeds each agency's available funding. By requiring ARB and the Energy Commission to revise its guidelines for the GMERP and the Carl Moyer program, this bill is consistent with efforts currently underway by ARB and the Energy Commission to provide opportunities to support projects that achieve multiple policy objectives. 5.Double-referral . This bill is double-referred to this committee and the Committee on Environmental Quality. If this bill passes this committee, it will be re-referred to the Environmental Quality Committee. Assembly Votes: Floor: 77-0 Appr: 17-0 Trans: 11-0 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 24, 2009) SUPPORT: CALSTART (sponsor) California Dump Truck Owners Association California Natural Gas Vehicle Coalition OPPOSED: None received.