BILL ANALYSIS Ó AB 23 Page 1 Date of Hearing: March 23, 2015 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair AB 23 (Patterson) - As Introduced December 1, 2014 SUBJECT: California Global Warming Solutions Act of 2006: market-based compliance mechanisms: exemption SUMMARY: Exempts distributors of fuels, including gasoline, diesel and natural gas, and any other entities that were not covered on January 1, 2013, from the cap-and-trade regulation adopted by the Air Resources Board (ARB). EXISTING LAW, pursuant to the California Global Warming Solutions Act (AB 32): 1)Requires ARB to adopt a statewide greenhouse gas (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)Authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations, once specified conditions are met. ARB has adopted a cap-and-trade regulation which applies to regulated entities engaged in stationary combustion, cement manufacturing, cogeneration, petroleum refining, hydrogen production, aluminum production, facility operators calcining carbonates, carbon dioxide (CO2) AB 23 Page 2 supplier or transfer recipient, electricity generation, glass production, iron and steel production, lime production, natural gas transmission and distribution, nitric acid production, oil and gas extraction field operation, production of industrial gases, pulp and paper production, soda ash production, electricity deliverers, transportation fuel deliverers, and natural gas deliverers. The cap-and-trade has covered (i.e., imposed a compliance obligation on) large industrial facilities and electricity generators emitting more than 25,000 metric tons of CO2 equivalent per year since January 1, 2013. Distributors of fuels, including gasoline, diesel and natural gas, have been covered since January 1, 2015. THIS BILL: 1)Limits the compliance obligation under cap-and-trade to those entities covered since January 1, 2013, thereby excluding fuels and any other sources of GHG emissions that may be added in the future. 2)Defines "compliance obligation" as the quantity of GHG emissions for which a person or entity is required to submit GHG emissions allowances or offsets to ARB pursuant to a market-based compliance mechanism. 3)Applies retroactively from January 1, 2015. 4)Includes related findings and declarations. 5)Includes an urgency clause. FISCAL EFFECT: Unknown COMMENTS: 1)Background. According to ARB, a total reduction of 80 million metric tons (MMT), or 16% compared to business as usual, is AB 23 Page 3 necessary to achieve AB 32's 2020 statewide limit. Approximately 78% of the reductions will be achieved through identified direct regulations. ARB proposes to achieve the balance of reductions necessary to meet the 2020 limit (approximately 18 MMT) through the cap-and-trade regulation. Transportation fuels are included in cap-and-trade beginning January 1, 2015. 2)Transportation fuels are the biggest source of emissions. According to ARB, transportation constitutes almost 40% of all carbon pollution produced in California, by far the largest contributor to GHG emissions. Transportation fuels also produce 80% of smog-causing pollution and more than 95% of fine particle pollution from diesel engines. Reducing emissions from the transportation sector is critical to achieving the 2020 GHG limit required by AB 32, as well as meeting ambient air quality standards and reducing localized health impacts. 3)If not cap-and-trade, what then? It should be noted that cap-and-trade is viewed by economists and many regulated businesses as the most efficient way to reduce GHG emissions. This bill exempts fuels from cap-and-trade, but it does not exempt fuels from AB 32 or ARB's general authority, nor does it relax the GHG reduction obligation necessary to meet the statewide 2020 limit. If GHG emissions from transportation fuels are not addressed through cap-and-trade, those emissions are likely to be addressed through direct regulatory measures on fuel distributors and/or consumers, or placing additional reduction obligations on other sources of GHG emissions, both of which are likely to be more costly. The likely effect of this bill would be to increase regulatory and consumer costs associated with achieving AB 32's goals, whether at the pump, through utility bills, or other areas of the economy. REGISTERED SUPPORT / OPPOSITION: AB 23 Page 4 Support California Fresh Fruit Association City of Clovis City of Hanford City of Sanger George Runner, Board of Equalization 1st District Greater Fresno Area Chamber of Commerce Howard Jarvis Taxpayers Association Johnson Air KernTax Madera County Board of Supervisors National Federation of Independent Business AB 23 Page 5 National Petroleum Resources for Independence Central Valley Tulare County Farm Bureau Valley Taxpayer's Coalition Western Growers Association 19 individuals Opposition American Lung Association in California California League of Conservation Voters California Municipal Utilities Association Catholic Charities, Diocese of Stockton Climate Parents Climate Resolve AB 23 Page 6 Consumers Union Environmental Defense Fund Natural Resources Defense Council Nature Conservancy TransForm Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916) 319-2092