BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                               Senator Wieckowski, Chair
                                 2015 - 2016  Regular 
           
          Bill No:            AB 33
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          |Author:    |Quirk                                                |
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          |Version:   |6/23/2015              |Hearing      | 7/15/2015      |
          |           |                       |Date:        |                |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Rebecca Newhouse                                     |
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          SUBJECT:  California Global Warming Solutions Act of 2006:  Energy  
          Sector Emissions Reduction Advisory Council.

            ANALYSIS:
          
          Existing law, under the California Global Warming Solutions Act of  
          2006 (Health and Safety Code 35800 et seq.), requires:
               
          1) The California Air Resources Board (ARB) to adopt a statewide  
             greenhouse gas (GHG) emissions limit equivalent to 1990 levels  
             by 2020 and adopt regulations to achieve maximum technologically  
             feasible and cost-effective GHG emission reductions. 

          2) Prepare and approve a scoping plan, on or before January 1, 2009  
             and once every five years thereafter, for achieving the maximum  
             technologically feasible and cost-effective reductions in GHG  
             emissions from sources of emissions by 2020 and requires ARB to  
             consult with the Public Utilities Commission (PUC) and the State  
             Energy Resources Conservation and Development Commission (CEC)  
             on all elements of its plan that pertain to energy-related  
             matters.

          This bill:  

          1)Establishes the Energy Sector Emissions Reduction Advisory  
            Council consisting of the following members or their designees: 

             a)   Chair of the CEC.
                       
             b)   The president of the PUC.







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             c)   The president of the California Independent System Operator  
               (CAISO).

             d)   The chair of the State Water Resources Control Board.


             e)   The Chair of ARB.

          2)Requires the council to make recommendations of strategies for  
            the electricity sector, other than, or in addition to, a  
            market-based mechanism adopted by ARB, for incorporation in to  
            the scoping plan based on the following:

             a)   An analysis of approaches to reduce GHG emissions from the  
               electricity sector and integrate increasing amounts of  
               renewable energy into the electricity grid, comparing the  
               technical feasibility, cost-effectiveness and the extent to  
               which they would minimize over-generation, maintain the  
               reliability of the grid, and reduce GHGs, and requires the  
               analysis to consider various strategies, including the  
               following:

               i)     Increasing the volume of renewable energy generation by  
                 the amount required by state law or otherwise needed to  
                 achieve the 2020 GHG emissions limit set by AB 32.

               ii)    Deepening regional coordination in the Western  
                 Interconnection.

               iii)   Increasing energy storage, including  
                 pumped-hydroelectric storage.

               iv)    Retrofitting existing natural gas-fired powerplants to  
                 increase operational flexibility and using renewable energy  
                 generation facilities to provide operational flexibility.

               v)     Deploying carbon capture and storage and other GHG  
                 emission reduction technology at existing fossil fuel-fired  
                 electrical generation facilities.

               vi)    Increasing the role of demand response, as specified.

               vii)   Increasing energy efficiency.









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               viii)  Ensuring adequate generating capacity remains available  
                 to meet demand through measures such as multi-year capacity  
                 or reliability payments. 

             b)   An economic analysis using the best available economic  
               models and data of the various strategies.

             c)   An analysis of the benefits to the health, safety, and  
               welfare of state residents, worker safety, the state's  
               environment and quality of life, and any other benefits  
               associated with the strategies. 

          3)Requires the council to convene no later than February 1, 2016,  
            to develop a schedule with the chair of ARB for delivery of  
            recommendations that ensure the recommendations are delivered  
            early enough to be considered during the next scoping plan  
            update, make preliminary recommendations available for public  
            comment for at least 30 days; and consider public comments before  
            finalizing and delivering recommendations and analyses to ARB.

          4)Specifies that the council, after completion of its duties,  
            ceases to exist as of the following December 31.

          5)Specifies that the council's recommendations are intended to  
            assist in updating the scoping plan, and informing the  
            regulations and approaches of the agencies on the council and do  
            not change statute, regulation, or regulatory decision.  

            Background
          
          1)The Global Warming Solutions Act of 2006.  In 2006, the Global  
            Warming Solutions Act of 2006, AB 32 (Nez, Pavley, Chapter  
            488, Statutes of 2006) established a statewide GHG emissions  
            limit by 2020.  AB 32 defines greenhouse gasses (GHGs) as carbon  
            dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons,  
            perfluorocarbons, and sulfur hexafluoride and requires 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. 

            AB 32 also requires ARB, among other things, to inventory GHGs  
            in California, outline a Scoping Plan for achieving the 2020 GHG  
            emission limit, and implement regulations that achieve the  
            maximum technologically feasible and cost-effective reduction of  
            GHG emissions.








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            Statute requires ARB to consult with all state agencies with  
            jurisdiction over sources of greenhouse gases, including PUC and  
            CEC, on all elements of its plan that pertain to energy related  
            matters to ensure the greenhouse gas emissions reduction  
            activities to be adopted and implemented by ARB are  
            complementary, nonduplicative, and can be implemented in an  
            efficient and cost-effective manner.  AB 32 specifies these  
            energy-related matters may include, but are not limited to,  
            electrical generation, load based-standards or requirements, the  
            provision of reliable and affordable electrical service,  
            petroleum refining, and statewide fuel supplies.

            The statute also specifies that ARB may include market-based  
            compliance mechanisms in the AB 32 regulations, after  
            considering the potential for direct, indirect, and cumulative  
            emission impacts from these mechanisms. 
            
          2)AB 32 Scoping Plan.  Pursuant to AB 32, ARB approved the first  
            Scoping Plan in 2008.  The Scoping Plan outlined a suite of  
            measures aimed at achieving 1990-level emissions, a reduction of  
            80 million metric tons of CO2 (MMT CO2e).  Average emission data  
            in the Scoping Plan reveal that transportation accounts for  
            almost 40% of statewide GHG emissions, and electricity and  
            commercial and residential energy sector account for over 30% of  
            statewide GHG emissions.  The industrial sector, including  
            refineries, oil and gas production, cement plants, and food  
            processors, was shown to contribute 20% of California's total GHG  
            emissions. 
                                                 
            The 2008 Scoping Plan recommended that reducing GHG emissions  
            from the wide variety of sources that make up the state's  
            emissions profile could best be accomplished through a  
            cap-and-trade program along with a mix of other strategies  
            including, among other measures, a low carbon fuel standard,  
            light-duty vehicle GHG standards, expanding energy efficiency  
            programs, and achieving a 33% renewable portfolio standard.  

          3)Cap and trade overview.  Beginning on January 1, 2013, the  
            cap-and-trade regulations set a firm, declining cap on total GHG  
            emissions from sources that make up approximately 85% of all  
            statewide GHG emissions.  Sources included under the cap are  
            termed "covered" entities.  The cap is enforced by requiring each  
            covered entity to surrender one "compliance instrument" for every  
            metric ton of carbon dioxide equivalent that it emits at the end  








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            of a compliance period.  Over time, the cap declines, resulting  
            in GHG emissions reductions.  Based on the first update to the  
            Climate Change Scoping Plan, the cap-and-trade program will be  
            responsible for approximately 30% of the required GHG emission  
            reductions to meet the AB 32 goal of reducing GHG emissions to  
            1990 levels by 2020. 

            Compliance instruments include allowances and offsets, where  
            allowances are generated by the state in an amount equal to the  
            cap, and offsets result from emissions reductions achieved in an  
            uncapped sector and are quantified and verified using an  
            ARB-approved compliance offset protocol.  The inclusion of  
            offsets in the cap-and-trade program is intended to help reduce  
            entities' compliance costs. 

            For the first compliance period (2013-14), the capped sector  
            includes the electricity and industrial sectors.  Uncapped  
            sectors throughout the course of the program include small  
            businesses (with annual emissions under 25,000 metric tons CO2e),  
            agriculture, and forestry. 

            In the second compliance period beginning in 2015, distributors  
            of transportation fuels, natural gas, and other fuels also come  
            under the cap.  Once under the cap, an entity covered by the  
            regulation must periodically submit to ARB allowances sufficient  
            to match its GHG emissions during the period. 

            ARB is allocating most allowances for free in order to provide  
            transition assistance and to minimize leakage for trade-exposed  
            industries (leakage refers to increased GHG emissions outside  
            California either from entities leaving the state and producing  
            emissions elsewhere, or by reduction of economic activity within  
            the state that is offset by increased production outside the  
            state).  The remaining allowances (apart from a small amount set  
            aside in a price containment reserve) are auctioned off.   
            Electric and natural gas utilities are provided free allocation  
            of allowances for the benefit of ratepayers.

            Offsets: Under the cap-and-trade regulation, offsets may be used  
            to satisfy up to 8 percent of a covered entity's compliance  
            obligation.  The inclusion of offsets in the cap-and-trade  
            program is designed to help reduce entities' compliance costs.   
            To date, ARB has adopted protocols for the following project  
            types: 









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                 Livestock manure management 
                 Ozone depleting substances 
                 Urban forestry
                 U.S. forestry 
                 Coal mine methane

            Linkage:  The cap-and-trade regulations include general  
            requirements for linking to other trading programs.  Linkage  
            refers to the use of compliance instruments from a GHG emissions  
            trading system outside California to meet compliance obligations  
            under California's cap-and-trade regulation and the reciprocal  
            approval of compliance instruments issued by California to meet  
            compliance obligations in the external trading program.  In  
            April of 2013, the ARB approved the regulatory amendments to  
            link with Quebec beginning on January 1, 2014. 
            
          Comments
          
          1) Purpose of Bill.  According to the author, "By Executive Order  
             B-30-15, the Governor has established a new interim GHG  
             emissions reduction target of 40% below 1990 levels by 2030.  As  
             climate change policy continues to usher in new ways to grow and  
             evolve the energy sector, it is imperative that there be a  
             formalized body to examine the various strategies that could be  
             implemented to reduce GHG emissions from this sector.  

             "For example, in his 2015 Inaugural Address, the Governor called  
             for an increase in the amount of energy generated by renewable  
             sources from 33% by 2020 to 50% by 2030 as part of a  
             comprehensive strategy for reaching the state's GHG emissions  
             reduction goals.  As increasing amounts of renewable resources  
             come on line, challenges emerge for using those resources  
             efficiently.  There are already certain times of the day where  
             more renewable energy is being generated than there is demand to  
             use it.  Relying more on renewable resources to meet our energy  
             needs will require new technologies and strategies and increased  
             regional collaboration to reduce this potential risk of supply  
             exceeding demand, known as "overgeneration." 
           
             "While such challenges exist, they are not insurmountable given  
             proper analysis and planning.  To that effect, AB 33 would  
             establish the Energy Sector Emissions Reduction Advisory Council  
             (Council) consisting of the California Energy Commission (CEC),  
             the California Public Utilities Commission (CPUC), the California  
             Independent System Operator (CAISO), the State Water Resources  








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             Control Board (SWRCB) and the California Air Resources Board  
             (CARB), and task the council with developing and delivering a  
             complete set of recommendations to ARB before the next Scoping  
             Plan update on various strategies that can be used to reduce GHG  
             emissions from the electricity sector and integrate increasing  
             volumes of renewable energy.  The Council would be required to  
             analyze these strategies in light of key criteria: (1) technical  
             feasibility; (2) cost-effectiveness; and (3) the extent to which  
             implementation would minimize over-generation and maintain  
             reliability of the electricity grid."

             The author notes that while several agencies with complementary  
             expertise are analyzing and coordinating with each on how best  
             to reduce GHG emissions from the electricity sector and  
             integrate increasing amounts of renewable energy, their analyses  
             often employ different criteria and economic models or are aimed  
             at different purposes.  AB 33 is intended to address this issue  
             for purposes of inclusion in the AB 32 updated Scoping Plan.  

          2) Council makeup. AB 33 establishes the energy sector emissions  
             reduction advisory council and provides that the membership  
             include the chair of the CEC, the president of the PUC, the  
             president of CAISO, the chair of the State Water Resources  
             Control Board (SWRCB) and the chair of the ARB.  As this council  
             is required to provide recommendations on strategies to  
             integrate increasing amounts renewable technologies, it is not  
             clear why the SWRCB chair, or his or her designee, is included  
             on this panel, as their jurisdiction does not include renewable  
             energy generation. 

          3) Amendment.  AB 33 requires the Council's analyses to consider  
             "increasing the volume of renewable energy generation to the  
             amounts required by state law or otherwise needed to achieve the  
             goals established pursuant to Section 38550."  Section 38500 of  
             the Health and Safety Code requires ARB to approve a statewide  
             GHG emissions limit, equivalent to the 1990 level of GHG  
             emissions, to be achieved by 2020.

             Although the 2020 GHG emissions limit is currently the only  
             statutory statewide GHG emissions limit or standard in  
             California, the Governor's recent executive order has set a GHG  
             emissions limit 40% below the 1990 level, to be achieved by  
             2030.  Additionally, legislation this session is actively  
             seeking to codify that goal, as well as a statewide GHG  
             emissions target for 2050.  Also, presumably, the next update to  








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             the Scoping Plan to be released in 2019, will focus on time  
             frames beyond 2020.  For these reasons, an amendment is needed  
             to ensure that any new, post-2020 GHG emissions limits be  
             considered by the council's analyses, as well. 

             An amendment is needed to strike the reference to Section 38550,  
             which references the 2020 GHG emissions limit, and instead refer  
             broadly to statewide GHG emissions limits.  

            Related/Prior Legislation

          SB 32 (Pavley) of 2015 requires ARB to approve statewide GHG  
          emissions limits
          of 40% below the 1990 GHG emissions level, to be achieved by 2030,  
          and 80%
          below the 1990 GHG emissions level, to be achieved by 2040.  SB 32  
          is currently
          in the Assembly Natural Resources Committee.

          DOUBLE REFERRAL:  

          This measure was heard in Senate Energy, Utilities and  
          Communications Committee on July 7, 2015, and passed out of  
          committee with a vote of 11-0.
           
           SOURCE:                    Author 

           SUPPORT:               

          California Energy Storage Alliance
          California Manufacturers and Technology Association
          
           OPPOSITION:    

          None received  
                                        -- END --