BILL ANALYSIS                                                                                                                                                                                                    

                                                               AB 2037

                        Senator S. Joseph Simitian, Chairman
                              2009-2010 Regular Session
           BILL NO:    AB 2037
           AUTHOR:     V.M. Perez
           AMENDED:    April 13, 2010
           FISCAL:     Yes               HEARING DATE:     June 28, 2010
           URGENCY:    No                CONSULTANT:       Randy Pestor
           SUBJECT  :    

            SUMMARY  :    AIR POLLUTION
            Existing law  :

           1) Requires the Public Utilities Commission (PUC) to establish  
              a greenhouse gas (GHG) emission performance standard by  
              February 1, 2007, for all baseload generation of load  
              serving entities, and requires the State Energy Resources  
              Conservation and Development Commission (CEC) to establish  
              the standard by June 30, 2007, for local publicly-owned  
              electric utilities.  Enforcement of the standard must begin  
              immediately upon establishment of the standard.  (Public  
              Utilities Code 8340 et seq.).

           2) Provides the California Air Resources Board (ARB) with  
              primary responsibility for control of mobile source air  
              pollution, including adoption of rules for reducing vehicle  
              emissions and the specification of vehicular fuel  
              composition.  (Health and Safety Code 39000 et seq. and  
              39500 et seq.).  The ARB must coordinate efforts to attain  
              and maintain ambient air quality standards.  (39003).  ARB  
              must also issue guidance to air pollution control districts  
              (APCDs) and air quality management districts (AQMDs) on  
              permitting or certifying electrical generation  
              technologies, which must provide guidance for addressing  
              best available technology (BACT) technology determinations.  

           3) Provides that APCDs and AQMDs have primary responsibility  
              for controlling air pollution from all sources, other than  
              emissions from mobile sources, and establishes certain  


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              powers, duties, and requirements for those districts.   
              (40000 et seq.).

           4) Requires every air pollution control district in a federal  
              nonattainment area for any national ambient air quality  
              standard to establish by regulation a system by which air  
              contaminant emission reductions that are to be used to  
              offset future emission increases can be banked prior to use  
              to offset future emission increases.  The system must  
              provide that only those emission reductions not otherwise  
              required by any federal, state, or district requirement are  
              approved by the district before they may be banked and used  
              to offset future emission increases.  (40709).  The system  
              must meet certain requirements (e.g., identification of  
              tracking sources possessing emission credit balances,  
              periodic analysis of increases or decreases in emissions  
              occurring when credits are used, procedures for emission  
              reductions credited to the bank or accruing to internal  
              accounts).  (40709.5).

            This bill :

           1) Prohibits a load-serving entity or local publicly-owned  
              electric utility from entering into, and the PUC from  
              approving, a long-term financial commitment for a new  
              electrical generating facility constructed in California or  
              in a shared pollution area if that facility does not meet  
              the following requirements:

              a)    If the facility was constructed in California, the  
                 facility was constructed to meet BACT standards to  
                 control air pollution that applied at the time  
                 construction began in the air basin in California in  
                 which the facility was constructed.  Offsets to mitigate  
                 air pollution from operation of the facility must have  
                 been obtained for any pollutant determined to be  
                 nonattainment of federal ambient air quality standards  
                 by the United States Environmental Protection Agency  
                 (USEPA) in the air basin where the facility was  
                 constructed, at the time construction began.

              b)    If the facility was constructed outside of California  


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                 in a shared pollution area, the facility was constructed  
                 to meet BACT standards to control air pollution that  
                 applied at the time construction began in the air basin  
                 in California adjacent to the facility.  Offsets must be  
                 obtained based on the federal ambient air quality  
                 standards in the air basin in California adjacent to the  
                 facility at the time construction began.

              c)    Prohibits offsets under the above provisions if air  
                 pollution emissions are otherwise fully mitigated by  
                 other measures.

           2) Requires the PUC, CEC, APCDs, AQMDs, and ARB to explore  
              with federal agencies and other governments, methods to  
              encourage recognition by all relevant agencies of offsets  
              achieved anywhere in a shared pollution area and the use of  
              cross-border trading of offsets, emission reduction  
              credits, and available mitigation funds. 

           3) Provides definitions for certain terms, including a "shared  
              pollution area" (an area encompassing California and  
              another state or country, determined by USEPA to share air  
              pollution if the air pollution emitted in that area, but  
              not within California, affects public health in  

            COMMENTS  :

            1) Purpose of Bill  .  According to the author, "Air emissions  
              produced by power generation plants on the other side of  
              the CA border create negative impacts on the air quality in  
              the adjacent air basins/air sheds, affecting public health  
              and the quality of life for the residents of the region.   
              Current law does not prohibit a domestic utility company  
              from importing power from power plants sited in locations  
              that do not conform to our state's strong air quality  

           The author notes that Imperial County officials are concerned  
              over air pollution and public health impacts associated  
              with power plant siting, and the officials have sought to  
              maintain a dialogue with domestic and foreign partners  


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              about how to mitigate air pollution from the other side of  
              state and national borders.  According to the author,  
              "Efforts by Imperial County officials and U.S. Federal  
              officials have resulted in retrofits and the installation  
              of best available control technology (BACT) on the La  
              Rosita facility.  SEMPRA, the owner of Termoelectrica,  
              agreed to construct that plant with BACT.  However, neither  
              of these companies procured the emissions offsets that  
              would have been required had the plants been built in  
              California.  AB 2037 is intended to address adverse air  
              pollution impacts by only authorizing the approval of  
              energy contracts to out-of-state power plants that meet  
              California emissions and offsets standards.  Specifically,  
              this bill would require facilities sited near the  
              California border regions to meet best available control  
              technology standards."

            2) Opposition and support concerns  .  According to opponents,  
              some have "recently sued the United States Environmental  
              Protection Agency in an effort to get the Imperial County  
              [APCD] to adopt more strict rules on particulate pollution.  
               This bill would allow the county to offset particulate  
              pollution by simply purchasing cheap and completely  
              unverifiable credits from Mexico, completely undermining  
              efforts by the public health community to get actual  
              pollution reductions in the county with the worst asthma  
              hospitalization rate in the nation."

           According to the Imperial County board of supervisors, in  
              supporting AB 2037, "The [USEPA] holds this region  
              responsible for the quality of our air, yet they have not  
              given us any tools to deal with American companies who  
              build facilities just south of the border in an effort to  
              escape our more stringent standards.  With this proposed  
              law in place, it would be difficult for new power plants to  
              be built with the intent to export power into California  
              unless they are constructed to meet all California  
              standards, including the procurement of offsets."

            3) Outstanding issues  .  First, AB 2037 references new  
              electrical generating facilities and provides a definition  
              for that term to be an electrical generating facility  


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              constructed after January 1, 2011.  However, other  
              provisions of this bill apply "if the facility was  
              constructed."  To avoid confusion, amendments are needed to  
              simply reference "new electrical generating facility" and  
              clarify that this term refers to an electrical generating  
              unit permitted after that date.

           Second, AB 2037 includes a definition for "shared pollution  
              area" as an area encompassing California and another state  
              or country determined by USEPA to share air pollution  
              emitted in that area, but not within California, that  
              affects public health in California.  However, other  
              provisions of this bill apply to an "air basin in  
              California adjacent to the facility."  To ensure consistent  
              terms, the definition of "shared pollution area" needs  
              clarification, (e.g., air sheds).  Also, the USEPA  
              Administrator has authority under the federal Clean Air Act  
              to designate an "air quality control region" for an  
              interstate area (42 U.S.C. 7407) (the Act also includes  
              provisions for interstate pollution abatement (42 U.S.C.  
              7426), international air pollution (42 U.S.C. 7415), and  
              international border emissions (42 U.S.C. 7509a)), so it  
              may be appropriate for USEPA, ARB, and affected local  
              governments to address these international air quality  
              issues through those provisions of federal law.

           Third, offset provisions in AB 2037 are unclear and appear to  
              allow offsets to be obtained in California for a facility  
              constructed in another state or country, or obtained in  
              another country for a facility constructed in California.   
              Since it is uncertain how these offsets could be verified  
              under federal and state law, provisions relating to offsets  
              should be stricken from this bill.

           Fourth, since current law already addresses requirements for  
              facilities in California, AB 2037 should focus on BACT for  
              facilities permitted in another state or country (any  
              reference to a facility in California, if needed, should  
              ensure that the facility meets all air pollution control  
              district, state, and federal requirements, and that  
              definitions are consistent with those laws).


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            SOURCE  :        Imperial County  

           SUPPORT  :       American Lung Association, Breathe California,  
                          California Air Pollution Control Officers  
                          Association, California Rural Legal Assistance  
                          Foundation, Clean Air Initiative, Economic  
                          Research Institute - Imperial County,  Imperial  
                          County Board of Supervisors, Imperial  
                          Irrigation District, San Joaquin Valley Latino  
                          Environmental Advancement Project, Seeley  
                          Citizens United, Sierra Club California, South  
                          Coast Air Quality Management District, The  
                          Institute for Socio-Economic Justice and  
                          Progressive Community Development, Inc., Union  
                          of Concerned Scientists  

           OPPOSITION  :    Californian Communities Against Toxics,  
                          California Environmental Rights Alliance,  
                          California Safe Schools, Coalition for a Safe  
                          Environment, Comite Pro Uno, Del Amo Action  
                          Committee, Greenaction, Just Transition  
                          Alliance, Pacoima Beautiful, Society for  
                          Positive Action