BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                               SB 1204

                              Senator Jerry Hill, Chair
                              2013-2014 Regular Session
           BILL NO:    SB 1204
           AUTHOR:     Lara & Pavley
           AMENDED:    April 21, 2014
           FISCAL:     Yes               HEARING DATE:     April 30, 2014
           URGENCY:    No                CONSULTANT:    Rebecca Newhouse
                          AND EQUIPMENT PROGRAM 
            SUMMARY :    
            Existing law  :

           1) Under the California Global Warming Solutions Act of 2006  
              (commonly referred to as AB 32), requires the Air Resources  
              Board (ARB) to determine the 1990 statewide GHG emissions  
              level and approve a statewide GHG emissions limit that is  
              equivalent to that level, to be achieved by 2020, and to  
              adopt GHG emissions reductions measures by regulation.  ARB  
              is authorized to include the use of market-based mechanisms  
              to comply with these regulations. (Health and Safety Code  
              (HSC) §38500 et seq.)

           2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the  
              State Treasury and requires all moneys, except for fines  
              and penalties, collected pursuant to a market-based  
              mechanism be deposited in the fund and requires the  
              Department of Finance, in consultation with ARB and any  
              other relevant state agency, to develop, as specified, a  
              three-year investment plan for the moneys deposited in  
              GGRF. (Government Code §16428.8).

           3) Requires the investment plan to allocate a minimum of 25%  
              of the available moneys in the fund to projects that  
              provide benefits to disadvantaged communities, and a  
              minimum of 10% of the available moneys in the fund to  
              projects located within disadvantaged communities.  (HSC §  


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           4) Requires moneys from GGRF be used to facilitate the  
              achievement of reductions of GHG emissions in this state  
              consistent with the California Global Warming Solutions Act  
              of 2006, and to the extent feasible complement efforts to  
              improve air quality, and direct investment toward the most  
              disadvantaged communities and households in the state,  
              among other things.  (HSC §39712).

           5) Under the California Alternative and Renewable Fuel,  
              Vehicle Technology, Clean Air, and Carbon Reduction Act of  
              2007 (HSC §43865 et seq.), requires the California Energy  
              Resources Conservation and Development Commission (commonly  
              referred to as the California Energy Commission) (CEC) to  
              implement the Alternative and Renewable Fuels and Vehicle  
              Technology Program (ARFVTP) to provide funding measures to  
              specified entities to develop and deploy technologies and  
              alternative and renewable fuels in the marketplace to help  
              attain the state's climate change policies. 

           6) Creates the Air Quality Improvement Program (AQIP), to be  
              administered by ARB in consultation with local air  
              districts, to fund air quality improvement projects.  (HSC  

           7) Establishes certain vehicle and vessel related surcharges  
              and fees, until January 1, 2016, including an $8 fee  
              increase in the smog abatement, a $3 fee increase in the  
              annual vehicle registration fee, a $5 fee increase for  
              special identification plates and a $10-20 fee increase for  
              vessel registration, to fund the AQIP and ARFVT programs,  
              among others. (HSC §44060.5 and Vehicle Code §§9250.1,  
              9261.1, & 9853.6).

           8) Establishes the Carl Moyer Program, administered by ARB, to  
              fund the incremental cost of cleaner-than-required  
              vehicles, engines, and equipment and authorizes the funding  
              of projects reducing NOx, particulate matter (PM) and  
              reactive organic gases emissions under the Carl Moyer  
              Program until January 1, 2015, after which date, only the  
              reduction of NOx emission reduction projects will be  
              eligible for funding.  (HSC §44275). 

            This bill  :  


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           1) Establishes the California Clean Truck, Bus, and Off-Road  
              Vehicle and Equipment Technology Program (program),  
              administered by ARB in conjunction with CEC, and requires  
              the program fund development, demonstration,   
              pre-commercial pilot and early commercial deployment of  
              zero-and near-zero emission truck, bus, and off-road  
              vehicle and equipment technologies from monies appropriated  
              to the program from GGRF.

           2) Requires that projects in disadvantaged communities be  

           3) Requires that projects funded by the program are limited to  
              the following:

              a)    Development, demonstration, pre-commercial pilots and  
                 early commercial deployments of zero and near-zero  
                 medium and heavy-duty truck, bus, and off-road vehicles  
                 and equipment technologies. 

              b)    Purchase incentives for commercially available zero  
                 and near-zero truck, bus and off road vehicle and  
                 equipment technologies and fueling infrastructure.

           4) Requires that ARB, in consultation with CEC, develop  
              guidelines for the implementation of the program that are  
              consistent with AB 32 and that do various things, some of  
              which include promoting projects that assist the state in  
              maintaining the 2020 GHG emissions limit, structuring  
              purchase incentives for eligible technologies to increase  
              sales in disadvantaged communities, and leveraging, to the  
              maximum extent feasible, federal or private funding.

           5) Specifies that eligible projects do not include projects  
              required to be undertaken pursuant to state or federal law,  
              district rules or regulations, or other legally binding  

           6) Specifies that the state may fund studies, technology  
              development, and demonstration projects focused on  
              improving performance and financial payback, multivehicle  
              and commercial scale deployments and deployment of early  


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              commercially available advanced vehicles and equipment.

           7) Requires ARB to give priority to projects that benefit  
              disadvantaged communities, leverage additional funds,  
              result in cobenefits, has potential to be replicated and  
              provide regional benefit, and have other specified  

           8) Requires ARB, in consultation with CEC, to create a  
              multiyear framework and plan that articulates an  
              overarching vision for moving the technologies through the  
              commercialization process, outlines technology categories  
              that may be funded and describes roles of agencies and  
              process for coordination.  

           9) Defines "zero and near-zero emission" to mean vehicles,  
              fuels, and related technologies that reduce GHG emissions  
              when compared with conventional or fully commercialized  
              alternatives, as defined by ARB, in consultation with CEC. 

            COMMENTS  :

            1) Purpose of Bill  .  According to the author, "Transportation  
              corridors move freight across the country and intersect  
              communities leaving behind elevated levels of particulate  
              matter, such as diesel soot.  These types of emissions have  
              been proven to warm the earth more quickly than greenhouse  
              gases and have significant health impacts.  For example,  
              the I-710 freeway corridor, a 17-mile stretch from the Port  
              of Long Beach to East Los Angeles, is traveled by thousands  
              of heavy-duty trucks daily and home to several rail yards.   
              If you reside in a community along this corridor, you are  
              up to 140% more likely to get cancer from diesel soot than  
              other areas of Los Angeles.  These areas also have a much  
              higher rate of asthma and birth defects. 

              "In California, 40% of the state's contribution to climate  
              pollution comes from cars, trucks, trains and other mobile  
              sources.  There has been a great deal of progress with the  
              technology for light-duty cars making it widely available  
              for commercial use.  We must have the same progress with  
              heavy-duty trucks.  The health of our communities depends  
              on cleaning up our transportation corridors.  While  


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              technology exists for heavy-duty trucks and buses, they are  
              severely lagging behind light-duty clean vehicles.  The  
              investment has simply not been made as it has in the other  
              sectors.  Additional research and development is needed in  
              this sector to allow new technologies to come to market and  
              be deployed in California.

              "SB 1204 is the vehicle to invest in clean heavy-duty  
              trucks and buses.  This investment will make it easier for  
              truck owners to transition to zero- and near-zero  
              technology and it will improve the health of millions of  
              Californians residing in communities that are burdened  
              daily by transportation pollution."

            2) Background.  

              a)    AB 118 (Núñez), Chapter 750, Statutes of 2007,  
                 created the ARFVT program and AQIP.  AB 118 provides,  
                 upon appropriation by the Legislature, approximately  
                 $180 million annually until 2023 for these programs.  
                 These funds primarily come from additional fees on  
                 vehicle registrations and vessel registrations. 

                 Air Quality Improvement Program: AQIP, administered by  
                 ARB in consultation with local air districts, provides  
                 competitive grants to fund projects to improve the air  
                 quality impacts of alternative fuels and vehicles,  
                 vessels, and equipment technologies. AQIP encompasses  
                 several programs, including the following:

                                      The Hybrid and Zero-Emission Truck  
                          and Bus Voucher Incentive Project (HVIP),  
                          administered by ARB and its contractor  
                          CALSTART, provides vouchers to California fleet  
                          owners to help purchase hybrid and  
                          zero-emission trucks and buses.

                                      AB 118 Advanced Technology  
                          Demonstration Projects, administered by ARB,  
                          provides grants to local air districts and  
                          other public agencies to fund  
                          advanced-technology vehicle, equipment, or  
                          emission-control projects that are not yet  


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                                      The On-Road Heavy-Duty Vehicle Air  
                          Quality Loan Program (Truck Loan Assistance  
                          Program), administered by ARB and the  
                          California Pollution Control Financing  
                          Authority, provides loans to fleets to help  
                          implement ARB emissions reduction regulations  
                          related to trucks, buses, and heavy-duty  
                          (tractor-trailer) vehicles.   

                 Alternative and Renewable Fuel and Vehicle Technology  
                 Program: ARFVTP, administered by CEC, provides funding  
                 for development and deployment of alternative and  
                 renewable fuels and advanced transportation technologies  
                 to help attain the state's climate change goals.  
                 Eligible projects include, for example, development,  
                 improvement, and production of alternative and renewable  
                 low-carbon fuels; improvement of light-, medium-, and  
                 heavy-duty vehicle technologies; and expansion of  
                 infrastructure connected with existing fleets, public  
                 transit, and transportation corridors. 

               a)    Cap-and-Trade Auction Revenue  .  ARB has conducted six  
                 auctions of GHG emission allowances so far. These  
                 auctions have resulted in approximately $663 million in  
                 proceeds to the state.  Several bills in 2012 provided  
                 legislative direction for the expenditure of auction  
                 proceeds including: 

                 i)         SB 535 (de León) Chapter 830, Statutes of  
                      2012, requires that 25% of auction revenue be used  
                      to benefit disadvantaged communities and requires  
                      that 10% of auction revenue be invested in  
                      disadvantaged communities. 

                 ii)        AB 1532 (J. Pérez) Chapter 807, Statutes of  
                      2012, directs the Department of Finance to develop  
                      and periodically update a three-year investment  
                      plan that identifies feasible and cost-effective  
                      GHG emission reduction investments to be funded  
                      with cap-and-trade auction revenues. AB 1532  
                      specifies that reduction of greenhouse gas  


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                      emissions through  the development of  
                      state-of-the-art systems to move goods and freight,  
                      advanced technology vehicles and vehicle  
                      infrastructure, advanced biofuels, and low-carbon  
                      and efficient public transportation.

                 iii)       SB 1018 (Budget Committee) Chapter 39,  
                      Statutes of 2012, created GGRF, into which all  
                      auction revenue is to be deposited. The legislation  
                      required that before departments can spend monies  
                      from GGRF, they must prepare a record specifying:   
                      (1) how the expenditures will be used, (2) how the  
                      expenditures will further the purposes of AB 32,  
                      (3) how the expenditures will achieve GHG emission  
                      reductions, (4) how the department considered other  
                      non-GHG-related objectives, and (5) how the  
                      department will document the results of the  

                  Legal Consideration of Cap-and-Trade Auction Revenues  .  
                 The 2012-13 budget analysis of cap-and-trade auction  
                 revenue by the Legislative Analyst's Office noted that,  
                 based on an opinion from the Office of Legislative  
                 Counsel, the auction revenues should be considered  
                 mitigation fee revenues, and their use requires that a  
                 clear nexus exist between an activity for which a  
                 mitigation fee is used and the adverse effects related  
                 to the activity on which that fee is levied. Therefore,  
                 in order for their use to be valid as mitigation fees,  
                 revenues from the cap-and-trade auction must be used to  
                 mitigate GHG emissions or the harms caused by GHG  

                 In 2012, the California Chamber of Commerce filed a  
                 lawsuit against the ARB claiming that cap-and-trade  
                 auction revenues constitute illegal tax revenue.  In  
                 November 2013, the superior court ruling declined to  
                 hold the auction a tax, concluding that it's more akin  
                 to a regulatory fee. 

                  AB 32 Auction Revenue Investment Plan  .  The first  
                 three-year investment plan for cap-and-trade auction  
                 proceeds, submitted by Department of Finance, in  


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                 consultation with ARB and other state agencies in May of  
                 last year, identified sustainable communities and clean  
                 transportation as one of the key sectors that provide  
                 the best opportunities for achieving the legislative  
                 goals and supporting the purposes of AB 32.  The plan  
                 recommended the aforementioned sector receive the  
                 largest allocation of funds from the GGRF.  The other  
                 two areas recommended for auction revenue allocation in  
                 the investment plan are energy efficiency and clean  
                 energy, and natural resources and waste diversion.

            1) Duplicate Program  ? The program created by SB 1204 is  
              focused on the clean medium and heavy-duty vehicle sector.   
              It is not entirely clear what projects are eligible for the  
              new program that are not currently eligible for funding  
              under the existing AB 118 programs.  One key difference  
              between the existing AB 118 programs and the program  
              created under SB 1204, however, is that the SB 1204 program  
              is funded through cap-and-trade auction proceeds, and not  
              through various vehicle-related fees that serve as the  
              funding source for AB 118's incentives.

            2) Governor's Budget Proposal  .  The Governor's 2014-15 budget  
              proposal appropriates $850 million dollars in cap-and-trade  
              revenue to fund projects including rail modernization,  
              sustainable communities, low carbon transportation, water  
              and energy efficiency, watershed and wetlands restoration  
              and waste diversion.  For the low-transportation category,  
              the proposal allocates $200 million for the ARB to  
              accelerate the transition to low carbon freight and  
              passenger transportation, with a priority for disadvantaged  
              communities.  The proposal states that this investment will  
              support the state's clean air and climate change goals, as  
              well as the Administration's goal to deploy 1.5 million  
              zero-emission vehicles in California by 2025 (Executive  
              Order B-16-2012).

            3) Proposals to Expend Cap-and-Trade Auction Revenues  .  There  
              are a number of bills this session that propose to spend  
              cap-and-trade auction revenues for new or existing  
              programs.  Concurrently, the Governor's budget proposal  
              appropriate $850 million auction revenues for various GHG  
              emission reduction programs in several agencies, and the  


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              Pro Tem has released an alternate proposal on a long-range  
              cap-and-trade revenue investment plan.  There will need to  
              be coordination among authors as these measures move  
              forward so that these proposals create a cohesive  
              investment strategy for maximizing GHG emission reductions  
              and project co-benefits.  

            4) Technical Amendments  .

               a)    An amendment is needed  to add the word "emission" to  
                 several references to zero and near-zero technologies. 

               b)    An amendment is needed  to add the word "early" in  
                 front of a reference to commercial scale deployments on  
                 page 5, line 10. 

            SOURCE  :        Author  

           SUPPORT  :       California Association of Port Authorities
                          California League of Conservation Voters
                          Natural Resources Defense Council
           OPPOSITION  :    California Chamber of Commerce  
                          California League of Food Processors
                          California Manufacturers and Technology