BILL ANALYSIS Ó
AB 278
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Date of Hearing: April 1, 2013
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 278 (Gatto) - As Introduced: February 11, 2013
SUBJECT : California Global Warming Solutions Act of 2006: Low
Carbon Fuel Standard
SUMMARY : Requires the Air Resources Board (ARB) to consider
four specified factors when it determines the "carbon intensity"
(CI) of fuels under its Low Carbon Fuel Standard (LCFS)
regulation.
EXISTING LAW :
1)Pursuant to the California Global Warming Solutions Act (AB
32), requires ARB to adopt a statewide greenhouse gas (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
also requires ARB to adopt early action measures (EAM) to
reduce GHG emissions.
2)Pursuant to Governor Schwarzenegger's Executive Order S-01-07,
sets a statewide goal to reduce the CI of California's
transportation fuels by at least 10% by 2020. The order
required ARB to consider adopting a LCFS to implement this
goal, either as an EAM or in another regulatory proceeding.
In 2009, ARB adopted the LCFS as a regulation. The LCFS
attributes CI values to a variety of fuels based on direct and
indirect emissions, including land use changes caused by
production of biofuels.
THIS BILL requires ARB, in determining CI for purposes of the
LCFS, to consider the following four factors:
1)The life-cycle CI impacts of potential or actual
deforestation.
2)The environmental laws and practices of the jurisdiction from
which the fuel originates.
3)Any disruptions or other effects upon food supply, food costs,
and food shipping that could occur as a result of California
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policy.
4)Changes to the local economy, including job loss or worker
displacement, resulting from changes in the production of a
fuel.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background. In 2007, Governor Schwarzenegger issued Executive
Order S-1-07, calling for a reduction of at least 10 percent
in the CI of California's transportation fuels by 2020. The
Order instructed the California Environmental Protection
Agency to coordinate activities between the University of
California, the California Energy Commission and other state
agencies to develop and propose a draft compliance schedule to
meet the 2020 target.
The Order further directed ARB to consider initiating
regulatory proceedings to establish and implement the LCFS.
In response, ARB identified the LCFS as an early action item
and adopted a regulation in 2009, to be implemented beginning
in 2010. 2010 was a reporting year and the first CI reduction
requirement of 0.25% began in 2011. The target increased to
0.5% in 2012 and 1.0% in 2013. To date, fuel suppliers have
over-complied, predominantly by blending ethanol with
gasoline, which is preferred in the near term because ethanol
blending is required by the federal Renewable Fuel Standard
(RFS) and does not require significant changes in fueling and
vehicle infrastructure. However, natural gas, biodiesel and
electricity have also been used in significant amounts to
comply with the LCFS.
In 2009 and 2010, three lawsuits were filed against the LCFS
by ethanol interests - two in federal court and one in state
court. The federal lawsuits were brought by trade
associations of ethanol producers and refiners who claim that
the LCFS is preempted under the Energy Independence and
Security Act of 2007 and violates the Commerce Clause of the
U.S. Constitution (e.g., by assigning corn ethanol from the
Midwest a CI value above that of corn ethanol made in
California). Plaintiffs claim that corn ethanol will
eventually be excluded from the California market in favor of
more advanced biofuels that have a lower CI value. ARB
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contends that many corn ethanol producers from the Midwest
have in fact registered with ARB with CI values that are well
below gasoline and, indeed, even less than California corn
ethanol. Plaintiffs also claim that California is
impermissibly regulating interstate commerce beyond its
borders by regulating aspects of a fuel's lifecycle that occur
outside of the state's borders. The combined federal lawsuit
(Rocky Mountain Farmers Union v. Goldstene) is before the
Ninth Circuit Court of Appeals, which is considering ARB's
appeal of several adverse rulings and a preliminary injunction
that were issued by the lower federal court in Fresno in
December 2011. In April 2012, the Ninth Circuit granted ARB's
request for a stay of the preliminary injunction, which
allowed ARB to resume enforcement of the LCFS during the
pendency of the lawsuit. On October 16, 2012, the Ninth
Circuit considered oral arguments from the parties. A ruling
from the Ninth Circuit is expected sometime this year.
The state lawsuit (Poet, LLC v. California Air Resources
Board), brought by a major ethanol producer, alleges that ARB
did not fully comply with the Administrative Procedure Act and
the California Environmental Quality Act when adopting the
LCFS regulation. The hearing on that case was held in August
2011, and in November 2011, the Fresno Superior Court ruled in
favor of ARB on all 14 causes of action raised by the
plaintiffs. Plaintiffs have since appealed the case to the
Court of Appeal in Fresno. The court has asked for additional
supplemental briefs and ARB is preparing its brief, due April
2.
2)How the LCFS currently accounts for indirect effects of fuel
production. For the LCFS, ARB staff has identified one
indirect effect that generates significant quantities of GHG
emissions: land use change effects. A land use change effect
is initially triggered by a significant increase in the demand
for a crop-based biofuel. When farmland devoted to food and
feed production is diverted to the production of that biofuel
crop, supplies of the displaced food and feed crops are
reduced. Supply reductions cause prices to rise, which, in
turn, stimulates increased production. If that production
takes place on land formerly in non-agricultural uses, a land
use change effect results. The specific effect consists of
the carbon released to the atmosphere from the lost cover
vegetation and disturbed soils in the periods following the
land use conversion.
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ARB estimates the land use change effects of biofuel crop
production using the Global Trade Analysis Project (GTAP),
which is a computer model developed and supported by
researchers at Purdue University. Within the GTAP's scope are
111 world regions, some of which consist of single countries,
others of which are comprised of multiple neighboring
countries. Each region contains data tables that describe
every national economy in that region, as well as all
significant intra- and inter-regional trade relationships.
The data for this model is contributed and maintained by more
than 6,000 local experts.
As noted above, ARB's efforts to examine the full lifecycle
GHG emissions of fuels have provoked claims that the LCFS
impermissibly regulates interstate commerce. The regulation
assigns a significant penalty to ethanol produced from corn
and an even higher penalty for ethanol produced from sugar
cane in Brazil. In fact, the majority (60 to 80 percent
depending on the source) of the CI value attributed to
Brazilian ethanol is due to indirect effects. These penalties
are directly attributable to land conversion, including
deforestation, associated with the feedstock crops.
Regarding the four factors listed in this bill, ARB has
provided comments to the committee and the author, which are
summarized below.
Deforestation:
ARB staff analysis does account for lifecycle CI impacts
related to potential or actual deforestation. When a
lifecycle pathway is developed for a crop-based biofuel, an
indirect land use change (iLUC) value is developed using the
GTAP model for land that will be converted to agricultural
production as a result of increased demand for that crop. The
approach accounts for land conversions in all regions of the
world based on available land and likelihood of land to be
converted as demand for land goes up. The methodology
attributes new land to come from forests in addition to
pastureland and cropland pasture. A fuel that is more likely
to displace forests will have a higher CI, making it less
attractive for use in complying with the LCFS. Waste-derived
biofuels do not require land (no attendant deforestation) and
are assigned "zero" iLUC values. The LCFS seeks to
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incentivize the production and use of waste-derived biofuels,
limiting any potential for deforestation.
Environmental laws and practices:
The LCFS does not directly mandate complying with local laws
and practices but includes provisions in it to indirectly
score fuels on the basis of compliance with environmental laws
and sustainable practices. These include iLUC and
environmental impacts related to the use of fertilizers,
pesticides and field-burning of crop-related waste. For
crudes supplied from various global sources, existing
provisions account for CI for individual crudes based on local
extraction practices (e.g., flaring). Staff is also
considering a proposal to incent sustainability practices used
in the production of biofuel feedstocks. Fuels produced in
regions and countries that do not adopt environmentally
sustainable practices may not be eligible for sustainability
incentives, which may include reductions to CI values based on
"best practices."
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Effects on food:
The LCFS already incents the production and use of
next-generation biofuels, preferably derived from waste
feedstocks that have no impacts on food shipping, food prices,
or food availability. Nevertheless, staff is working with
stakeholders to further refine the methodology to account for
potential impacts of price effects and related reductions in
food consumption from the diversion of food crops to produce
biofuels. The inclusion of an additional CI to a crop-derived
biofuel further reduces its GHG savings under the LCFS. This
would send a signal that biofuels produced from food crops
would generate lower LCFS credits and discourage the use of
such fuels.
Changes to the local economy:
The implementation of the LCFS will not lead to job losses or
large-scale worker displacement in California. Concerns of
potential job losses in the refinery sector stem from the
assumption that the LCFS will cause refineries to shut down in
response to decreased consumer demand for gasoline and diesel.
As cleaner, alternative fuels displace some petroleum-based
fuels, jobs may shift from the petroleum industry to other
sectors of California's economy, such as agriculture. The
shift in consumer dollars from gasoline and diesel toward
cleaner, more domestically-produced fuels will spur growth in
well-paying jobs in the clean fuels industry.
3)Are the four factors relevant to the LCFS and CI in
particular? Factor 1 (deforestation) is clearly relevant to
CI and currently accounted for in the LCFS. Factor 2
(environmental laws and practices) is not generally relevant
to CI, but may be relevant to the extent laws and practices
affect GHG emissions from production of fuel. However, GHG
emissions from production practices are already accounted for
in the LCFS. Factor 3 (food effects) may be partially
correlated to CI, though the bill should distinguish food
effects that are caused by the LCFS and relevant to CI (such
as increased food shipping from crop displacement) from food
effects associated with other policies, such as the federal
RFS, and broader market forces. Requiring ARB to embark on a
broad analysis of global food dynamics seems infeasible.
Factor 4 (local economic changes) does not appear to be
relevant to CI or practical to translate into a CI value. ARB
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does account for economic impacts in this state when it adopts
any regulation. However, it does not seem appropriate or
feasible to task ARB with analyzing the particular economic
conditions in the dozens of regions and countries from which
California transportation fuel originates, particularly as a
condition of determining CI values.
The author and the committee may wish to consider amending the
bill to remove from the mandatory CI determination those
factors (2 and 4 in particular) that are not related to CI.
To the extent the author and the committee wish to retain
those factors as considerations separate from CI, the bill
should limit ARB's analysis to effects with a demonstrable
correlation to the LCFS, as opposed to broader policies or
market forces.
4)Prior LCFS legislation :
AB 768 (Gatto) required ARB to allow out of state producers of
"renewable natural gas" (i.e. biomethane) to generate credits
for compliance with the LCFS, notwithstanding ARB's adopted
requirement that regulated parties demonstrate a physical
pathway for delivery of the fuels to California. AB 768 was
approved by this committee in April 2011, but was later
amended to bar cities and counties from prohibiting or
restricting the practice of male circumcision.
AB 2311 (Mendoza) codified triennial review and reporting
requirements on ARB for the LCFS regulation. AB 2311 was
approved by this committee in April 2010 and later held in the
Assembly Appropriations Committee.
SB 1240 (Kehoe) required ARB to develop, implement, and
enforce a LCFS to reduce the CI of transportation fuels,
including accounting for GHG emissions on a full fuel-cycle
basis and avoiding or mitigating significant environmental
impacts, including impacts on species, habitat, ecosystems,
land use, biodiversity, air quality, water supply and quality,
and access to and production of food from producing compliant
fuels. SB 1240 was approved by this committee in June 2008,
but was later amended to address real estate brokers.
SB 210 (Kehoe) was nearly identical to SB 1240. SB 210 was
approved by this committee in July 2007 and later vetoed by
Governor Schwarzenegger.
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REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
(AFSCME)
CALSTART
Milk Producers Council
Opposition
Sierra Club California (unless amended)
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092