BILL ANALYSIS Ó SB 11 Page 1 Date of Hearing: July 1, 2013 ASSEMBLY COMMITTEE ON TRANSPORTATION Bonnie Lowenthal, Chair SB 11 (Pavley) - As Amended: May 28, 2013 SENATE VOTE : 32-5 SUBJECT : Alternative fuel and vehicle technologies: funding programs. SUMMARY : Extends, until January 1, 2024, various fees and surcharges related to the clean air, fuel, tire recycling, and clean vehicle and replacement programs of the California Air Resources Board (ARB), the California Energy Commission (CEC), local air pollution control districts, and the State Bureau of Automotive Repair (BAR). Directs funding from the programs for the construction of hydrogen fueling stations. Specifically, this bill : 1)Extends, from January 1, 2014 or January 1, 2015, to January 1, 2024, the sunset dates of various clean air and alternative fuels and vehicle programs, and the related fees and surcharges, under ARB, CEC, local air pollution control districts, and BAR, as follows: a) $8 increase, from $12 to $20, in the smog abatement fee, paid to register vehicles that are less than six model years old and therefore exempt from smog check. The revenues are directed equally to the Alternative and Renewable Fuel and Vehicle Technology Program (ARFVTP) and the Air Quality Improvement Program (AQIP). b) $0.75 fee increase on tire sales to the Air Pollution Control Fund for the Carl Moyer Memorial Air Quality Standards Attainment (Carl Moyer) Program and other air emission reduction efforts. c) $3 additional fee on the annual vehicle registration fee ($2 for the ARFVTP and $1 for the Enhanced Fleet Modernization Subaccount). d) $2 surcharge for local air districts on vehicle registrations to fund emission reduction programs, including the Carl Moyer Program. SB 11 Page 2 e) $5 increase of the fee for special identification plates for construction equipment, farm trailers, cotton trailers, logging vehicles, and cemetery equipment. The revenues are directed equally to the ARFVTP and the AQIP. f) $10 or $20 (depending upon the even or odd year of registration) increase for vessel registration. The revenues are directed equally to the ARFVTP and the AQIP. g) $1.00 tire fee that is reduced to $0.75 after January 1, 2015, to fund the Carl Moyer Program and air quality improvement programs through local air districts. 2)Defines "publicly available hydrogen fueling station" to mean the equipment used to store and dispense hydrogen fuel to vehicles according to industry codes and standards that is open to the public. 3)Repeals the authority of ARB, until January 1, 2024, from enforcing regulations related to the Clean Fuels Outlet regulation and the deployment of hydrogen fueling stations. 4)Requires ARB, on or before June 30, 2014, and every year thereafter, to aggregate and make available all of the following: a) The number of hydrogen-fueled vehicles that motor vehicle manufacturers project to be sold or leased over the next three years as reported to ARB pursuant to the Low Emission Vehicle regulations. b) The total number of hydrogen-fueled vehicles registered with the Department of Motor Vehicles (DMV) through April 30. 1)Requires ARB, on or before June 30, 2014, and every year thereafter, based on the information made available, to do both of the following: a) Evaluate the need for additional publicly available hydrogen fueling stations for the subsequent three years. b) Report findings to the CEC on the need for additional public hydrogen fueling stations. SB 11 Page 3 1)Requires CEC to allocate $20,000,000 annually to fund the number of stations identified, not to exceed 20% of the monies appropriated by the Legislature from the ARFVTP Fund, until there are at least 100 publicly available hydrogen fueling stations in operation in California. 2)Allows CEC, in consultation with ARB, upon determination that the full amount is not needed to fund the number of hydrogen stations, to allocate any remaining monies to other ARFVTP projects. 3)Requires CEC, in consultation with the ARB, to award funds based on best available data, in accordance with a strategy that supports the deployment of an effective and efficient hydrogen fueling station network. 4)Authorizes CEC, in consultation with ARB, to cease ARFTVP funding for hydrogen fueling stations upon a determination that the private sector is providing them. 5)Requires CEC and ARB, on or before December 31, 2015, and annually thereafter, to jointly review and report on progress toward establishing a hydrogen fueling network that provides coverage and capacity to fuel hydrogen-fueled vehicles in the state. 6)Authorizes CEC to design grants, loan incentive programs and other forms of financial assistance to assist in deployment of hydrogen fueling infrastructure as rapidly as possible. Authorizes CEC to enter into agreements with the State Treasurer's Office for financial assistance. 7)Specifies that the funds appropriated for hydrogen infrastructure shall be available for encumbrance by CEC for up to four years from the date of appropriation and available for liquidation up to four years after the encumbrance expiration. 8)Requires ARB, in consultation with air districts, to convene working groups to evaluate the policies and goals of the Carl Moyer Program, no later than July 1, 2013. 9)Defines "project" to mean a category of investments identified for potential AQIP funding by ARB, including, but not limited SB 11 Page 4 to, competitive grants, revolving loans, loan guarantees, loans, vouchers, rebates, and other appropriate funding measures for specific vehicles, equipment, technologies, or initiatives. 10)Requires that the ARFVTP and the AQIP incorporate a benefit-cost score preference that reflects the expected greenhouse gas or criteria pollutant emission reduction per dollar awarded expected, when selecting projects on a competitive basis. 11)Requires CEC and ARB to ensure that revenues from specified fees imposed on vehicles that are used for purposes of the ARFVTP and AQIP are expended in compliance with Section 3 of Article XIX of the California Constitution. 12)Specifies that consumer incentives for light-duty vehicles shall not be greater than compensations given to consumers under the Enhanced Fleet Modernization Program (EFMP). 13)Adds intelligent transportation systems as a category of projects eligible for funding under the ARFVTP. 14)Extends the authorization to fund projects reducing oxides of nitrogen, particulate matter, and reactive organic gasses under the Carl Moyer Program, until January 1, 2024. 15)Declares the bill as an urgency measure. EXISTING LAW : 1)Pursuant to AB 118 (Nunez), Chapter 750, Statutes of 2007, establishes various programs to help implement the state's AB 32 greenhouse gas emission reduction goals: a) The EFMP, under which ARB, in consultation with the BAR, permanently removes cars and small trucks from operation due to the voluntary retirement of the vehicle by their owners. The program is funded through a $1 increase in the annual vehicle registration fee that is set to expire January 1, 2015. b) The ARFVTP, administered by CEC to provide incentives to accelerate the development and deployment of clean, efficient, low carbon alternative fuels and technologies. SB 11 Page 5 The program is funded through increases in vehicle registration fees, smog abatement fees, boat registration fees, and special identification plate fees, plus $10 million annually in perpetuity from the Public Interest Research, Development, and Demonstration Fund, which is derived from a portion of electric utility rates. With the exception of the funds from the electric utilities, the authority to collect the fees expires on January 1, 2015. c) The AQIP, administered by ARB in consultation with local air districts, funds projects that reduce criteria air pollutants, improve air quality, and provide research for alternative fuels and vehicles, vessels, and equipment technologies. The program is funded by increases in smog abatement fees, boat registration fees, and special identification plate fees scheduled to expire January 1, 2015. 2)Expands the Carl Moyer Program, pursuant to AB 923 (Firebaugh) Chapter 707, Statutes of 2004, to cover additional pollutants and engines, imposes a $1.00 fee on tire sales to fund the Carl Moyer Program and the California Department of Resources Recycling and Recovery (CalRecycle), and establishes air quality improvement programs through local air districts. All of its provisions sunset on January 1, 2015. 3)Establishes the Carl Moyer Program as administered by ARB that funds the incremental cost of cleaner-than-required vehicles, engines, and equipment. The primary objective of the program is to achieve air quality emission reductions that would not otherwise occur through regulations or other legal mandates. SB 1107 (Budget and Fiscal Review Committee) Chapter 230, Statutes of 2004, adjusted the smog abatement fee from $6 to $12. The additional fee is directed to fund the Carl Moyer Program, securing up to $60 million in annual funding for the program. This legislation and the funding source provided by it does not have a sunset date. 4)Requires ARB to adopt regulations that achieve the maximum feasible and cost-effective reduction of greenhouse gas emissions from motor vehicles, pursuant to AB 1493 (Pavley), Chapter 200, Statutes of 2002. 5)Requires CEC and ARB to adopt a state plan to increase the use of alternative transportation fuels, including setting SB 11 Page 6 alternative fuel goals for 2012, 2017 and 2022, pursuant to 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% by 2012, 11% by 2017, and 26% by 2022. 6)Requires that all hydrogen used for transportation fuel in the state must be at least 33.3% from renewable sources, pursuant to SB 1505 (A. Lowenthal) Chapter 877, Statutes of 2006. 7)Requires ARB to adopt a statewide greenhouse gas emissions limit equivalent to 1990 levels by 2020 pursuant to AB 32. 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. 8)Pursuant to ARB 's Clean Fuels Outlet regulations, requires certain owners and lessors of retail gasoline stations to equip an appropriate number of their stations with clean alternative fuels. ARB's recent amendments to the regulations focused primarily on providing outlets for hydrogen fuels. 9)Restricts, pursuant to Section 3 of Article XIX of the California Constitution, the expenditure of revenues from fees and taxes imposed by the state on vehicles to specified purposes, subject to certain exceptions. FISCAL EFFECT : According to the Senate Appropriations Committee, annual revenues of $180 million for various AB 118 programs until 2024, of which $20 million be directed for the construction and operation of a hydrogen fueling network for three years in FY 13-14, FY 14-15, and FY 15-16 and up to $20 million in the remaining years. Annual tire fee additional revenue of approximately $26 million for the Carl Moyer Program. Annual costs in the hundreds of thousands of dollars to the ARB, CEC, and BAR to continue to administer various air quality and alternative fuel programs and associated reporting requirements which will be fully covered by the surcharge extensions. Annual costs of approximately $225,000 to the Air Pollution Control Fund beginning in 2013 for the evaluation, analysis, review, and reporting aimed to encourage implementation of the state alternative transportation fuels goal. SB 11 Page 7 COMMENTS : California faces significant challenges with air quality. According to the author, "AB 118 and the Carl Moyer Program are set to sunset on January 1, 2016, and January 1, 2015, respectively, just as investments are needed most to meet critical near- and long-term ambient air quality and greenhouse gas reduction requirements." She contends that these fees are necessary to fund incentive programs that ensure the private sector has a minimum assurance of public funding to commercialize the changes need to transform the state's motor vehicle fleet and fuels mix to meet California's rigorous, unprecedented clean air and climate change goals. Fee and surcharge extensions : This bill would extend the sunset dates and the related fees and surcharges of various clean air and alternative fuels and vehicle programs as administered under ARB, CEC, local air districts, and BAR, until January1, 2024. Without the extensions, the temporary fee increases would terminate either January 1, 2015, or January 1, 2016, depending on the authorizing statute. The author has joined together in a single bill the extension of the various programs originally authorized pursuant to AB 118 and AB 923 and the fees that support them. Background on AB 118, Carl Moyer Program, and related programs : In 2007, AB 118 established three new programs intended to promote vehicle and fuel technology that reduces air pollution and greenhouse gas emissions statewide. These programs are the ARFVTP, AQIP, and EFMP (BAR's voluntary vehicle retirement or scrappage program). For additional information, see the preceding "Existing Law" section. Monies appropriated to the ARFVTP come from temporary increases in smog abatement fees, vehicle registration fees, vessel registration fees and certain other vehicle fees. According to CEC, $360 million of ARFVTP funds have been awarded to projects such as the construction of electric vehicle charging stations, the deployment of natural gas-powered vehicles and the production of biofuels. AQIP, administered by ARB, provides financial incentives for public and private groups and individuals to adopt smog and diesel particulate pollution reducing technology that concurrently reduces GHG emissions. Two of AQIP's flagship projects, the Clean Vehicle Rebate Project (CVRP) and the Hybrid and Zero Emissions Truck and Bus Voucher Incentive Program, SB 11 Page 8 represent the program's largest funding commitments. AQIP also provides incentives for biofuels research, hybrid truck testing, lawn and garden equipment replacement, zero-emission all-terrain agricultural work vehicle rebates, advanced technology demonstration and hybrid off-road equipment pilot projects. The Legislature appropriates about $30-40 million annually to AQIP. These funds are derived from fees on smog abatement, vehicle registration, vessel registration and specialty identification plates. Since 2009, ARB has spent approximately $126 million on AQIP programs, with $49.7 million going to CVRP and $64.4 million to hybrid and zero emission truck and bus vouchers. The EFMP supplements BAR's vehicle retirement program known as the Consumer Assistance Program. Through joint administration by local air districts and BAR, eligible consumers may receive financial assistance to voluntarily retire their vehicles and/or replace them with vehicles meeting certain emission and model-year requirements. During fiscal year 2011-2012, approximately $34 million of EFMP funds were expended for the retirement of 25,741 vehicles. The Carl Moyer Program, established pursuant to AB 1571 (Villaraigosa), Chapter 923, Statutes of 1999, is administered by ARB and local air districts. It funds the incremental cost of cleaner-than-required vehicles, engines, and equipment. The primary objective of the program is to achieve air quality emission reductions that would not otherwise occur through regulations or other legal mandates. SB 1107 (Senate Budget and Fiscal Review Committee) Chapter230, Statutes of 2004, adjusted the smog abatement fee from $6 to $12 while extending the newer-vehicle smog check exemption. This additional fee is directed to fund the Carl Moyer Program, securing up to $60 million in annual funding for the program. This legislation (and concomitant fee increase) does not have a sunset date. In 2004, AB 923 expanded the Carl Moyer Program's covered emissions to include reductions in particulate matter and reactive organic gasses. AB 923 also increased the new tire fee to fund the expansion. ARB's Lower-Emission School Bus Program (LESBP), adopted pursuant to ARB's administrative authority, funds the replacement or retrofitting of old school buses to reduce schoolchildren's exposure to toxic air pollutants. From the SB 11 Page 9 program's inception in 2000 until 2007, the Legislature appropriated over $100 million to the LESBP for the replacement of 600 school buses and the retrofitting of about 3,800 diesel school bus engines. After voters passed Proposition 1B in 2006, the LESBP received bond money of approximately $196 million for expenditure until June 30, 2014. Under the new funding scheme, the program has funded 578 school bus replacements and 2,287 retrofits to date. AB 118 and AB 923, however, contained provisions that would sunset the funding sources for the aforementioned programs. Under terms of AB 923, all changes to the LESBP and Carl Moyer Program, from the expansion of covered emissions to the tire fee and registration surcharge increases, will be repealed on January 1, 2015. Meanwhile under AB 118, the fee increases that fund ARFVTP, AQIP, and EFMP are set to expire on January 1, 2016. Amendments to the Clean Fuels Outlet Regulation : On January 26, 2012, ARB considered amendments to the Clean Fuels Outlet regulation as part of its Advanced Clean Cars package. In order for the amendments to be officially adopted, they were required to be submitted to the Office of Administrative Law within one year of the initial rulemaking notice. The amendments were intended to ensure that there was sufficient hydrogen fueling infrastructure necessary to meet forecasted fuel cell vehicle deployment. Under the amendments, this infrastructure would have helped to ensure sufficient availability of hydrogen after fuel cell vehicles had become commercially available (i.e., large volumes). In order to meet the infrastructure needs, the amendments would have required that oil refiners assure that hydrogen fueling stations were available to the public once certain triggers were met (10,000 fuel cell vehicles in a regional air basin or 20,000 fuel cell vehicles statewide). The ARB did not file the amendments with the Office of Administrative Law because, in its view, a better way to achieve the goals of the regulation was developed through legislation, which, they believe, is embodied in this bill. According to ARB, "SB 11 would direct $20 million from the AB 118 program for each of the first three years to develop the hydrogen infrastructure. SB 11 would also authorize additional funding until at least 100 public hydrogen fueling stations are operational in California. The dedication of funding for 100 hydrogen stations in lieu of requiring the development of such SB 11 Page 10 stations administratively as was considered through the Clean Fuels Outlet regulation provides a stronger, more certain path to achieving the state's air quality and climate change goals. Guaranteeing funding for infrastructure upfront will support the initial commercial launch of vehicles, which is in advance of the triggers as was proposed in the regulation. By contrast, the regulation would have only provided for hydrogen fueling stations after a significant volume of vehicles were on the road." Furthermore, ARB contends that adequate funding for hydrogen stations effectively achieves the goal of that proposed regulation, therefore rendering those regulatory changes unnecessary. As a result, this bill also repeals the authority of ARB, until January 1, 2024, from enforcing any element of the Clean Fuels Outlet regulation that requires, or has the effect of requiring, any person to construct, operate, or provide funding for the construction or operation of any publicly available hydrogen fueling station. The Sierra Club California objects to the repeal of ARB's authority of enforcing any element of the Clean Fuels Outlet regulation and contends that it "undermines the integrity of the rulemaking process?It suggests that, if one of the regulated entities is dissatisfied with the outcome, that entity can march over to the Capitol and get the Legislature to simply throw out the rule?" In response, ARB contends that the bill provides greater certainty that the minimum fueling infrastructure will be in place to support the initial commercial launch of fuel cell vehicles, which are necessary for achieving the state's long-term air quality and climate change goals. Furthermore, the amendments to the regulation were controversial and would have been litigated, potentially delaying their implementation. They believe that the bill represents a collaboration among stakeholders and is a more certain and productive way to achieve the goals of the proposed regulation amendments. The need for hydrogen fueling stations : This bill requires CEC to fund enough hydrogen stations to make fueling convenient to the owners of hydrogen vehicles or until the private sector takes over building and operating stations. According to CEC, it currently costs about $1.5 million to construct a hydrogen fueling station. Currently, CEC requires a match of non-state funds, so it provides about $1 million per station. For start-up funding for installation of a preliminary hydrogen SB 11 Page 11 fueling network, this bill directs $20 million per year for three years plus additional revenues as necessary until there are at least 100 hydrogen fueling stations operational. It is ARB's contention that transitioning the vehicle fleet to lower carbon intensity and zero emission fueling technologies requires a portfolio of investments in a variety of fueling and vehicle technologies to achieve near- and long-term goals. They further contend that the bill provides parity to hydrogen when compared to other alternative fueling technologies, and it does so at a critical period in the deployment of hydrogen fuel cell vehicles. They express that "The auto manufacturers have committed to an initial commercial launch of fuel cell vehicles beginning in 2015 and it is critical that a minimum network of hydrogen fueling stations is in place to support those vehicles. Without the deployment of early stations, consumers will not have confidence that fuel will be available, undermining demand for these vehicles. The auto manufacturers have collectively invested several billions of dollars in this important zero emission technology. Only a dedicated, multi-year funding stream will provide the necessary certainty that the fueling infrastructure will be available." Article XIX of the California Constitution : The California Constitution requires that revenues from fees and taxes imposed by the state on vehicles and their use or operation can only be used for certain purposes, including: 1)Collection of these fees and taxes; 2)Motor vehicle and traffic law administration and enforcement; 3)Research, planning, construction, maintenance, operation, and environmental mitigation of streets and roads; 4)Research, planning, construction, improvement, and mitigation of environmental impacts of exclusive mass transit guideways; and, 5)Mitigating the environmental effects of motor vehicle sound and air emissions. When the Legislature passed AB 118 in 2007, it funded the programs with increases in fees paid to register a motor SB 11 Page 12 vehicle, as well as utility ratepayer (electric utility charges to fund research), and surcharges on boat registration fees. The vehicle fees, however, are the only ones subject to the constraints in Article XIX above. Now the specified utility ratepayer funds no longer exist due to changes in law and the boat registration fees have proved to be a very small revenue source (approximately $300,000 per year). This bill updates the AB 118 statute to reflect that virtually all expenditures made of AB 118 funds by either CEC or ARB comply with these constitutional spending restrictions. Support : Writing in support of this bill, the proponents note that the bill would provide the necessary funding for hydrogen fueling infrastructure to support commercial fuel cell vehicle deployment in California beginning in 2015. Fuel cell vehicles, in addition to other advanced clean vehicles, are necessary to meet federal and state clean air standards, AB 32 goals and to increase energy security. They further cite that the existing programs "have already resulted in significant air quality and public health benefits, supported advances in clean transportation." Oppose : Writing in opposition to this bill, as indicated earlier in the discussion of the Clean Fuels Outlet regulation, the Sierra Club California contends that the bill could set a dangerous precedent by prohibiting ARB from implementing and enforcing the regulation. They urge that the bill be amended to remove the prohibition language so that ARB's rulemaking authority will not be abrogated. Also, in opposition to the bill, the Howard Jarvis Taxpayers Association indicates that the tax increase will prove to be extremely regressive for California drivers. They also contend that the Legislature is "breaking another promise as these fees were supposed to sunset at the end of 2014, not be extended for another nine years." Related bills : AB 8 (Perea) of 2013, a similar bill. That bill passed the Assembly Floor and is awaiting assignment in the Senate. At some point in the legislative process, SB 11 and AB 8 may need to be reconciled. SB 1455 (Kehoe) of 2012, a similar bill introduced last session that passed the Assembly but died in the final moments of the prior legislative session. SB 11 Page 13 Double referral : This bill has also been referred to the Assembly Natural Resources Committee. REGISTERED SUPPORT / OPPOSITION : Support American Lung Association in California (Co-sponsor) California Air Pollution Control Officers Association (Co-sponsor) CALSTART (Co-sponsor) Agricultural Council of California Alameda-Contra Costa Transit District Alliance of Automobile Manufacturers American Federation of State, County and Municipal Employees, AFL-CIO Associated General Contractors Association of Global Automakers Bay Area Air Quality Management District Bioenergy Association of California Breathe California California Association of Winegrape Growers California Citrus Mutual California Cotton Ginners & Growers Association California Council for Environmental and Economic Balance California Dairies, Inc. California Electric Transportation Coalition California Energy Commission California Farm Bureau Federation California Forestry Association California Grape & Tree Fruit League California Independent Oil Marketers Association California Manufacturers & Technology Association California Municipal Utilities Association California Natural Gas Vehicle Coalition California Public Health Association - North California Refuse Recycling Council California Rice Industry Association California Service Station & Automotive Repair Association California Thoracic Society California Transit Association California Trucking Association Capstone Turbine Corporation Clean Power Campaign SB 11 Page 14 Coalition for Clean Air Construction Industry Air Quality Coalition Contra Costa Council CR & R Environmental Defense Fund Health Care Without Harm Honda North America Hyundai Motor America Linde North America Los Angeles County Medical Association Metropolitan Transportation Commission Move LA Natural Resources Defense Council Nisei Farmers League Physicians for Social Responsibility, Sacramento Chapter Physicians for Social Responsibility, San Francisco Bay Area Chapter Public Health Institute Regional Asthma Management and Prevention Sacramento Area Council of Governments Sacramento Metropolitan Air Quality Management District Sacramento Municipal Utility District San Diego Gas & Electric Company San Diego Regional Asthma Coalition San Francisco County Transportation Authority San Joaquin Valley Air Pollution Control District Santa Clara Valley Transportation Authority Sempra Energy utilities South Coast Air Quality Management District Southern California Gas Company Southern California Regional Rail Authority (Metrolink) United Parcel Service, West Region Waste Management - Government Affairs/West Western Agricultural Processors Association Western Growers Association Western States Petroleum Association Workplace Wellness Los Angeles (numerous medical professionals) Opposition California Federation of Republican Women CRM Company of Rancho Dominguez Howard Jarvis Taxpayers Association Sierra Club California, oppose unless amended SB 11 Page 15 Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093