BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 638
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          Date of Hearing:  April 25, 2011

                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES
                                Wesley Chesbro, Chair
                    AB 638 (Skinner) - As Amended:  April 13, 2011
           
          SUBJECT  :  Fuel resources:  State Energy Resources Conservation 
          and Development Commission and State Air Resources Board

           SUMMARY  :  Establishes statewide targets for reducing petroleum 
          and increasing alternative fuels and requires the Air Resources 
          Board (ARB) and the California Energy Commission (CEC) to take 
          specified steps to attain the targets.

           EXISTING LAW  :

          1)Requires CEC and ARB to adopt recommendations for the Governor 
            and Legislature to reduce petroleum dependence (AB 2076 
            (Shelley), Chapter 936, Statutes of 2000).  The 2076 report, 
            "Reducing California's Petroleum Dependence" (August 2003), 
            recommended the Governor and Legislature (1) adopt a statewide 
            goal of reducing onroad gasoline and diesel consumption by 15 
            percent below 2003 levels by 2020, (2) work with the 
            California delegation and other states to establish national 
            fuel economy standards that double fuel efficiency, and (3) 
            establish a goal to increase the use of nonpetroleum fuels to 
            20 percent by 2020 and 30 percent by 2030.

          2)Requires CEC and ARB to adopt a state plan to increase the use 
            of alternative transportation fuels, including setting 
            alternative fuel goals for 2012, 2017 and 2022 (AB 1007 
            (Pavley), Chapter 371, Statutes of 2005).  The AB 1007 "State 
            Alternative Fuels Plan" (December 2007) recommended goals for 
            alternative fuel use of 9 percent by 2012, 11 percent by 2017 
            and 26 percent by 2022.

          3)Requires ARB to adopt regulations that achieve the maximum 
            feasible and cost-effective reduction of greenhouse gas (GHG) 
            emissions from motor vehicles (AB 1493 (Pavley), Chapter 200, 
            Statutes of 2002).

          4)Requires ARB to adopt a statewide GHG emissions limit 
            equivalent to 1990 levels by 2020 and to adopt rules and 
            regulations to achieve maximum technologically feasible and 
            cost-effective GHG emission reductions (AB 32 (Nunez), Chapter 








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            488, Statutes of 2006).  In 2009, ARB adopted a low carbon 
            fuel standard (LCFS) regulation pursuant to AB 32.  The LCFS 
            requires a reduction in the carbon intensity of California's 
            transportation fuels by at least 10% by 2020.

          5)Establishes the Alternative and Renewable Fuel and Vehicle 
            Technology Program (ARFVTP) to support alternative vehicle 
            technologies and fuels as part of the California Alternative 
            and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon 
            Reduction Act of 2007 (AB 118 (Nunez), Chapter 750, Statutes 
            of 2007).  The ARFVTP is administered by the CEC and receives 
            approximately $100 million per year from temporary surcharges 
            on vehicle and vessel fees.  Collection of these fees 
            currently is authorized until 2016.  Projects to improve 
            alternative and renewable low-carbon fuels are eligible for 
            funding.

          6)Requires metropolitan planning organizations to include 
            sustainable communities strategies, as defined, in their 
            regional transportation plans for the purpose of reducing GHG 
            emissions from transportation (SB 375 (Steinberg), Chapter 
            728, Statutes of 2008).

           THIS BILL  requires ARB and CEC to:

          1)Adopt policies and regulations to attain the following 
            targets:

             a)   Reduce onroad petroleum fuel use by at least 15 percent 
               below the 2003 level by 2020, and maintain that level into 
               the foreseeable future.

             b)   Increase alternative fuel use to at least 26 percent of 
               total onroad and offroad vehicle fuel use by 2022.

          2)Coordinate implementation efforts and consider synergies 
            between new or existing programs, projects, investments, or 
            regulations that may accelerate attainment or maintenance of 
            these targets.

          3)Assess how future guidelines, regulations, and investments, 
            where appropriate, affect these targets.

          4)On or before January 1, 2013:









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             a)   Update the economic analysis used in developing and 
               reviewing state regulations to include a range of petroleum 
               fuel prices to more accurately assess the future cost of 
               petroleum-based fuels.

             b)   Develop a specific strategy and target for petroleum 
               fuel use reduction in light, medium, heavy-duty, and 
               off-road vehicles.

             c)   Identify regulatory and statutory barriers to reaching 
               the petroleum reduction and alternative fuel use targets 
               and take any necessary regulatory steps to overcome 
               barriers on which ARB and CEC have the authority to act.

          5)On or before January 1, 2014, and triennially thereafter, 
            submit a report to the Legislature on progress in reaching the 
            targets including:

             a)   Details as to the quantities of petroleum and 
               alternative fuels used in the state during the preceding 
               year in absolute terms and as a percent of the state's 
               overall fuel mix.

             b)   An analysis of the effects on the state economy of 
               increasing alternative fuel usage and reducing petroleum 
               usage, including costs to the state economy if petroleum 
               prices remain at current levels, or rise to higher levels.

             c)   Identification of any new regulatory or statutory 
               barriers to reaching the targets.

             d)   An assessment of the effect of proposed regulations or 
               guidelines on petroleum reduction and alternative fuel use 
               in the state.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  This bill codifies the petroleum reduction target 
          from AB 2076 and the alternative fuel target from AB 1007, and 
          further directs ARB and CEC to adopt regulations to attain the 
          targets.  The particular additional measures that might be 
          necessary, if any, beyond those undertaken under current law, 
          are not specified.  However, the bill gives broad direction and 
          authority to both agencies to focus their regulatory efforts on 
          achieving the targets.  The targets are measured by absolute 








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          fuel use, which is comparable to the state's Renewables 
          Portfolio Standard (33 percent by 2020, based on retail 
          electricity sales).  Although the environmental and other 
          benefits of reduced petroleum consumption are self-evident, the 
          targets stand in contrast to existing measures such as LCFS and 
          AB 1493 in that they are not correlated directly to emission 
          reductions or other environmental performance.

           How do the two targets relate to each other and existing 
          programs?   The two targets set by the bill are likely to require 
          similar measures to achieve, however they may not be consistent 
          with each other.  For example, achieving 26 percent alternative 
          (i.e. non-petroleum) fuel use appears to represent a reduction 
          in petroleum use greater than 15 percent, based on current 
          figures where alternative fuels account for less than 10 percent 
          of consumption.  The 15 percent petroleum reduction target could 
          be achieved via fuel demand reduction as well as alternative 
          supply, but combining it with a 26 percent alternative fuel 
          mandate would appear to value supply over efficiency as the twin 
          goals are pursued.  In addition, existing programs (e.g. AB 
          32/LCFS reductions in fuel carbon intensity, AB 118 funding for 
          alternative fuels and vehicles, AB 1493 vehicle efficiency 
          standards, and SB 375 reduction in vehicle miles traveled) are 
          expected to deliver petroleum reductions between now and the 
          2020/2022 target years, but it's not clear if these existing 
          measures will exceed or fall short of the targets, or how ARB 
          and CEC will account for them to know whether they have to 
          pursue other measures.   The author and the committee may wish to 
          consider  establishing a single, consistent target and requiring 
          existing measures to be accounted for as ARB and CEC determine 
          what measures may be necessary to achieve the target.

           All alternative fuels are not created equal.   Over the past 
          several years, policies increasingly have recognized varying, 
          and in some cases surprising, environmental impacts of fuels 
          based on life-cycle analysis.  Most recently and 
          comprehensively, the LCFS regulation has applied a life-cycle 
          analysis to rate the carbon intensity of transportation fuels.  
          Not only do different alternative fuels (e.g. electricity, 
          natural gas, hydrogen, ethanol) score differently, there are 
          also wide variations within the same fuel type depending on 
          production factors.  On its face, the alternative fuel target in 
          this bill does not recognize these variations, suggesting that 
          any alternative fuel would count the same.  Ethanol is the 
          dominant alternative fuel in California.  It is readily 








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          available, requires little or no infrastructure changes, and is 
          relatively low cost.  However, it also has a higher overall 
          environmental impact than less developed alternatives.  To avoid 
          the bill resulting in a de facto ethanol mandate,  the author and 
          the committee may wish to consider  whether the alternative fuel 
          target should be revised to account for life-cycle emissions.















































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           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Lung Association
          better place
          California Natural Gas Vehicle Coalition
          CALSTART
          Clean Energy
          Codexis, Inc.
          Coulomb Technologies
          CR&R
          Dow Kokam
          Electric Vehicles International
          Mohr Davidow
          Motiv Power Systems
          Pacific Ethanol, Inc.
          Propel
          Quallion
          Simbol Materials
          Solazyme
          South Coast Air Quality Management District
          Tesla Motors, Inc.
          US Hybrid
          Waste Management
           
          Opposition 
           
          California Dump Truck Owners Association
          Western State Petroleum Association

           
          Analysis Prepared by :  Lawrence Lingbloom / NAT. RES. / (916) 
          319-2092