BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1021 HEARING: 6/26/13
AUTHOR: Eggman FISCAL: Yes
VERSION: 5/8/13 TAX LEVY: No
CONSULTANT: Miller
ALTERNATIVE ENERGY: RECYCLED FEEDSTOCK
Adds "recycled feedstock" to the list of eligible criteria
for the sales & use tax exemption under CAEATFA.
Background and Existing Law
The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) provides
financing through conduit or revenue bonds, loan
guarantees, loan loss reserves and a sales and use tax
exemption for facilities that use alternative energy
sources and technologies. CAEATFA also provides these
financing mechanisms for facilities needed to develop and
commercialize advanced transportation technologies that
conserve energy, reduce air pollution, and promote economic
development and jobs. CAEATFA's board, composed of the
Treasurer, Controller, Director of Finance, Chairperson of
the Energy Commission, and President of the Public
Utilities Commission, decides which projects to assist. On
March 24, 2010, Governor Arnold Schwarzenegger signed SB 71
(Padilla) which authorizes the CAEATFA to provide eligible
projects financial assistance in the form of a sales and
use tax exemption on property used for the "design,
manufacture, production, or assembly" of either advanced
transportation technologies or alternative energy source
products, components or system. Prior to the passage of SB
71, Governor Schwarzenegger used CAEATFA to assist a joint
venture between Tesla Motors and Toyota Motors to purchase
the NUMMI assembly plant in Fremont, California where the
two companies focus on manufacturing hybrid and electric
vehicles, including the TESLA brand.
The SB 71 program promotes the creation of California-based
manufacturing, California-based jobs, and the reduction of
greenhouse gases, air and water pollution, or energy
AB 1021 -- 5/8/13 -- Page 2
consumption. To date, CAEATFA has approved financial
assistance for private entities in the following fields:
electric vehicle manufacturing, solar photovoltaic
manufacturing, landfill gas capture and production, biogas
capture and production (dairies and waste water treatment
plants), demonstration hydrogen fuel production, electric
vehicle battery manufacturing, biomass processing and fuel
production, and others. Last year, the Legislature added"
advanced manufacturing" to the list of projects eligible
for the exemption, and capped the amount of exemptions
awarded annually to $100 million (SB 1128, Padilla).
Eligibility Criteria . Applicants must show the property to
be purchased will be used to design, manufacture, produce
or assemble an eligible advanced transportation technology
or alternative source product - including energy efficiency
- component or system. Each applicant must pass the "net
benefits test," by showing that the new project's
environmental and economic benefits exceed the fiscal loss
of granting the exemption. Applicants are awarded the
sales and use tax exemption by CAEATFA and are all publicly
disclosed on their website and in annual report documents.
This definition includes manufacturers of alternative
source electricity generation equipment such as solar
panels or wind turbines, but it excludes the purchase of
that equipment for power generation.
Recycling . According to California Air Resources Board
(CARB_, a total reduction of 80 million metric tons or 16
percent compared to business as usual, is necessary to
reduce statewide greenhouse gas (GHG) emissions to 1990
levels by 2020. CARB intends to achieve approximately 78
percent of the reductions through direct regulations. CARB
proposes to achieve the balance of reductions necessary to
meet the 2020 limit (approximately 18 MMT) through a
cap-and-trade program. The first two quarterly auctions of
allowances in the cap-and-trade program were held in
November 2012 and February 2013. The next auction (the
last of the current fiscal year) is scheduled for May 16,
2013. The Department of Finance and CARB have developed a
draft three-year investment plan for the auction proceeds.
The draft identifies the state's GHG emission reduction
goals and priority programs and identifies three sectors as
investment priorities: sustainable communities and clean
transportation; energy efficiency and clean energy; and,
AB 1021 -- 5/8/13 -- Page 3
natural resources and waste diversion.
Traditional recycling and organics management provide
significant GHG reductions over landfilling. Recycling
materials avoids the GHG emissions generated by extracting
raw materials, primary processing, and the transportation
of those materials. Recycling has also been shown to
create local jobs in California, rather than importing raw
materials from overseas. Recycling is extremely
cost-effective. For example, for every one percent
increase in recycled content used in glass manufacturing,
there is a corresponding one percent decrease in air
emissions from glass manufacturing plants, as well as
related reductions from the reduced need for raw materials.
Composting and other organics processing technologies,
including anaerobic digestion, reduce GHGs by avoiding the
emissions that would be generated by the material's
decomposition in a landfill. Landfill gas is generated by
the decomposition of organic materials such as food, paper,
wood, and yard waste. Fifty percent of landfill gas is
methane, a GHG 21 times more potent than carbon dioxide.
While most modern landfills have systems in place to
capture methane, significant amounts continue to escape
into the atmosphere. According to CARB's GHG inventory,
approximately 7 million tons of carbon dioxide equivalent
are released annually. That number is expected to increase
to 8.5 million tons of CO2 equivalent by 2020. Soil
amendments produced by organic waste have been shown to
improve soil health and structure, increase drought
resistance, and reduce the need for water, chemical
fertilizers, and pesticides.
In addition to GHG emissions reductions, expanded recycling
(including organic waste processing) is needed to achieve
the state's ambitious 75 percent recycling goal.
Proposed Law
Assembly Bill 1021 adds "recycled feedstock" to the list of
criteria that would qualify for a sales and use tax
exemption.
AB 1021 -- 5/8/13 -- Page 4
State Revenue Impact
Unknown.
Comments
1. Purpose of the bill . According to the author,
"Increased recycling efforts are proven to be an important
job creation tool, play an essential role in diverting
waste from landfills, and have beneficial impacts in
reducing greenhouse gas emissions, and therefore play a
critical role in helping California achieve its greenhouse
gas emission reduction targets under AB 32.
There is more potential to develop the market for recycled
content in California and to generate more jobs for
California. AB 1021 is intended to tap that potential
through expanding the tax exemption program originally
established by SB 71 (Padilla), so that it includes the
purchase of equipment used to process recycled feedstock or
uses recycled feedstock in the manufacturing of a product."
2. Say what you mean . AB 1021 broadens the pool of
applicants to apply for the sales and use tax exemption
under CAEATFA. These applicants will include companies
that crush materials such as plastic and gas, as well as
companies that take crushed materials to make another
product. As such, AB 1021 has the potential to crowd out
other applicants such as advanced manufacturers and
producers of renewable energy technology, especially
because of its broad definition. The Committee may wish to
narrow the definition of "project" and "recycled feedstock"
to apply very specifically to those that would change
behavior and increase productivity in this state with the
sales and use tax exemption.
3. Hold your horses ? In his 2013-14 Budget and May
Revision, Governor Brown proposed a comprehensive reform of
enterprise zones, currently under consideration in the
Legislature. The Governor's proposal would exempt
purchases of qualified manufacturing equipment by specified
taxpayers from the Sales and Use Tax, among other things,
which could overlap with the AB 1021's potential
beneficiaries. While CAEATFA exemptions absolve the
taxpayer from paying the local share of the Sales and Use
Tax, and the Governor's doesn't, should the Committee
AB 1021 -- 5/8/13 -- Page 5
approve a measure that may be quickly superseded by the
Governor's? The committee may wish to consider holding AB
1021 until the Legislature dispenses with the Governor's
Economic Development proposal.
Assembly Actions
Assembly Natural Resources9 -0
Assembly Appropriations 17-0
Assembly Floor 78-0
Support and Opposition (6/20/13)
Support : Californians Against Waste (Sponsor);California
Manufacturers & Technology Association; The Association of
Postconsumer Plastic Recyclers; California Compost
Coalition; Command Packaging; California Refuse Recycling
Council; CarbonLITE; CR&R Waste & Recycling Services;
Envision Plastics; Mojave Desert & Mountain Recycling;
rePlanet; Sims Recycling Solutions; Strategic Materials;
Turlock Recycling; Verdeco Recycling, Inc.; Waste
Management; Western Plastics Association.
Opposition : Unknown.