BILL ANALYSIS Ó
AB 278
Page 1
ASSEMBLY THIRD READING
AB 278 (Gatto)
As Amended April 4, 2013
Majority vote
NATURAL RESOURCES 9-0 APPROPRIATIONS 17-0
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|Ayes:|Chesbro, Grove, Bigelow, |Ayes:|Gatto, Harkey, Bigelow, |
| |Garcia, Muratsuchi, | |Bocanegra, Bradford, Ian |
| |Patterson, Skinner, | |Calderon, Campos, |
| |Stone, Williams | |Donnelly, Eggman, Gomez, |
| | | |Hall, Ammiano, Linder, |
| | | |Pan, Quirk, Wagner, Weber |
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SUMMARY : Requires the Air Resources Board (ARB) to consider
specified factors under its Low Carbon Fuel Standard (LCFS)
regulation. Specifically, this bill requires ARB to:
1)Consider greenhouse gas (GHG) emissions associated with land
use or other significant indirect effects in determining the
"carbon intensity" (CI) of fuels for purposes of the LCFS.
2)Identify, to the extent feasible, the environmental laws and
practices of the jurisdiction from which the fuel originates
that may affect GHG emissions from production and
transportation of fuel.
3)Solicit comments and consider and respond the evidence
regarding:
a) Significant effects upon food supply, food costs, and
food shipping caused by the LCFS.
b) Significant effects upon the local economy, including
job loss or worker displacement caused by the LCFS.
EXISTING LAW :
1)Requires, pursuant to the California Global Warming Solutions
Act (AB 32 (Núñez), Chapter 488, Statutes of 2006), ARB to
adopt a statewide GHG emissions limit equivalent to 1990
levels by 2020 and to adopt rules and regulations to achieve
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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)Sets, pursuant to Governor Schwarzenegger's Executive Order
S-01-07, 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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, significant start-up and on-going annual costs in the
$1 million to $2 million range (special fund) for the increased
workload associated with the expanded analysis for activities
including: the update of fuel pathways and carbon intensity
scores; macroeconomic modeling of LCFS impacts on local
economies; the creation of an inventory of foreign and state
laws and practices, and; a new server and software.
COMMENTS : In 2007, Governor Schwarzenegger issued Executive
Order S-1-07, calling for a reduction of at least 10% in the CI
of California's transportation fuels by 2020. The Executive
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 Executive 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
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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 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.
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
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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.
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% 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 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
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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 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."
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
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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.
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 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.
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092
FN: 0000948