BILL ANALYSIS Ó
AB 278
Page 1
GOVERNOR'S VETO
AB 278 (Gatto)
As Amended August 5, 2014
2/3 vote
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|ASSEMBLY: |77-0 |(May 28, 2013) |SENATE: |36-0 |August 29, |
| | | | | |2014 |
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|ASSEMBLY: |77-0 |(August 29, | | | |
| | |2014) | | | |
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Original Committee Reference: NAT. RES.
SUMMARY : Requires the Air Resources Board (ARB) to consider
specified sustainability factors when promulgating regulations or
other policies on the carbon intensity (CI) of fuels, such as the
Low Carbon Fuel Standard (LCFS) regulation.
The Senate amendments delete the Assembly version of this bill, and
instead:
1)Add findings regarding the California Global Warming Solutions Act
(AB 32 (Núñez), Chapter 488, Statutes of 2006) and the LCFS
regulation.
2)Provide that the bill's provisions apply to all regulations or
other policies on the CI of fuels, rather than only the LCFS
regulation.
3)Require ARB to consider the following sustainability factors:
a) The full life-cycle carbon emissions from the production
of a fuel.
b) The positive or negative effect of a fuel source on the
global food supply.
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c) The direct and indirect land use changes resulting from
fuel production.
4)Require ARB to consider the state of the fuel market and
technologies.
5)Require ARB, no later than December 2015, to include mechanisms
and policies that favor low-carbon fuels with the highest possible
sustainability based on the sustainability factors and provide
incentives for sustainable fuels produced without food stock or
the displacement of food crops.
AS PASSED BY THE ASSEMBLY , this bill required ARB to:
1)Consider greenhouse gas (GHG) emissions associated with land use
or other significant indirect effects in determining the 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)Pursuant to AB 32, 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.
2)Pursuant to 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. In 2009, ARB adopted the LCFS as a
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regulation. The LCFS attributes CI values to a variety of fuels
based on direct and indirect GHG emissions, including land use
changes caused by production of biofuels.
FISCAL EFFECT : According to the Senate Appropriations Committee:
1)Ongoing costs of $1.6 million from the Cost of Implementation
Account within the Air Pollution Control Fund (special) for nine
positions starting in fiscal year (FY) 2013-14.
2)Initial costs of at least $400,000 for outside contracts for FY
2013-14 and FY 2014-15 and ongoing annual costs of up to $135,000
beginning FY 2015-16 from the Cost of Implementation Account to
assist ARB with modeling a global food supply analysis.
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. In response, ARB adopted
the LCFS regulation in 2009, to be implemented beginning in 2010.
2010 was a reporting year and the first CI reduction requirement of
0.25 percent began in 2011. The target increased to 0.5% in 2012
and 1% 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 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.
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.
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.
LCFS analysis accounts 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 incentivize the production and use of
waste-derived biofuels, limiting any potential for deforestation.
The LCFS currently 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.
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Nevertheless, ARB 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.
It appears the LCFS already considers and accounts for many of the
sustainability factors this bill requires ARB to consider. Further,
CI scores based on iLUC values create an incentive for fuels
produced without food stock or the displacement of food crops.
GOVERNOR'S VETO MESSAGE :
"This bill would require the Air Resources Board to consider several
sustainability factors or other policies on the carbon intensity of
fuels and when promulgating regulations.
"This bill does not add any new analysis to the work that the Air
Board has conducted in developing the state's policies on fuels.
The Air Board will continue to incorporate a life-cycle analysis,
including direct and indirect land use changes, as it moves forward
in implementing AB 32."
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092
FN: 0005631