BILL ANALYSIS Ó AB 638 Page 1 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 AB 638 Page 2 488, 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: AB 638 Page 3 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 AB 638 Page 4 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 AB 638 Page 5 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. AB 638 Page 6 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