BILL ANALYSIS Ó AB 199 Page 1 Date of Hearing: March 23, 2015 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair AB 199 (Eggman) - As Introduced January 29, 2015 SUBJECT: Alternative energy: recycled feedstock. SUMMARY: Makes projects that use "recycled feedstock" eligible for sales and use tax exclusions (STEs) authorized by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). EXISTING LAW: 1)Establishes the California Global Warming Solutions Act of 2006 (AB 32), which: a) Requires the California Air Resources Board (ARB) to adopt regulations requiring the reporting and verification of statewide GHG emissions; b) Requires ARB to adopt a statewide GHG emissions limit equivalent to 1990 emissions levels, to be achieved by 2020; and, c) Authorizes ARB to use market-based compliance mechanisms to comply with the regulations. 2)Establishes the California Integrated Waste Management Act of 1989, which requires local jurisdictions to divert 50% of solid waste generated from landfill disposal and establishes a AB 199 Page 2 state policy goal that 75% of solid waste generated statewide be diverted from landfill disposal by 2020. 3)Authorizes CAEATFA to provide financing for facilities that use alternative energy sources and technologies. CAEATFA can issue revenue bonds (without voter approval), make loans, loan loss reserves, loan guarantees, and authorize STEs to develop and commercialize alternative energy projects and "advanced transportation technologies" that conserve energy, reduce air pollution, and promote economic development and jobs. THIS BILL: 1)Expands the definition of a "project" eligible for a STE to include tangible personal property that processes or utilizes recycled feedstock that is intended to be reused in the production of another product or soil amendment. 2)Defines "recycled feedstock" as material that would otherwise be destined for disposal, having completed its intended use and product lifecycle. 3)Includes an urgency clause. FISCAL EFFECT: Unknown. The total impact of all CAEATFA approved STEs to the General Fund is limited to $100 million annually. According to CAEATFA, all projects that are approved for the STE have demonstrated that any costs to the state will be offset by the increased economic activity created by the project. COMMENTS: 1)This bill. According to the author: By targeting materials that would otherwise be landfilled or exported for recycling overseas, AB 199 creates a multiplier effect in terms of job creation and tax revenue. This bill has an urgency clause for several reasons. The AB 199 Page 3 inconsistent application of existing "partial" sales tax exemption has created uncertainty and an uneven playing field for the recycling processing and manufacturing sector. Moreover, drastic drops in oil prices have had the effect of undermining the demand and price for California-generated recycled materials - California recycled material processors and recycled product makers are starting to lose market share to out of state/country "virgin" producers. Similarly, recent market and policy drivers have led to decreases in the quality and supply of recycled glass, requiring significant near term investment in new equipment. Finally, the implementation of the state's 75% recycling goal and recent organics recovery policies has created an immediate demand for increased recycled material processing and manufacturing infrastructure. 2)Why recycling? According to ARB, a total reduction of 80 million metric tons (MMT), or 16% compared to business as usual, is necessary to reduce statewide GHG emissions to 1990 levels by 2020. ARB intends to achieve approximately 78% of the reductions through direct regulations. ARB proposes to achieve the balance of reductions necessary to meet the 2020 limit (approximately 18 MMT) through a cap-and-trade program. The Cap-and-Trade Auction Proceeds Investment Plan: Fiscal Years 2013-14 through 2015-16 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, 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. For example, for every 1% increase in recycled content used in glass manufacturing, there is a corresponding 1% decrease in air emissions from glass manufacturing plants, as well as related reductions from the reduced need for raw materials. AB 199 Page 4 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 (CH4), a potent short-lived climate pollutant. According to the US EPA, "in 2012, CH4 accounted for about 9% of all US GHG emissions from human activities? Methane's lifetime in the atmosphere is much shorter than carbon dioxide (CO2), but CH4 is more efficient at trapping radiation than CO2. Pound for pound, the comparative impact of CH4 on climate change is over 20 times greater than CO2 over a 100-year period." While most modern landfills have systems in place to capture methane, significant amounts continue to escape into the atmosphere. According to ARB's GHG inventory, approximately 7 million tons of CO2 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. A recent study also found that the application of compost to rangelands has significant potential for carbon sequestration. In addition to GHG emissions reductions, increased recycling (including organic waste processing) is needed to achieve the state's ambitious 75% recycling goal. 3)STE eligibility. CAEATFA is authorized to provide eligible projects financial assistance in the form of a STE on property used for the "design, manufacture, production, or assembly" of advanced transportation technologies or alternative energy source products, components or systems, as prescribed. To date, CAEATFA has approved financial assistance to private entities for projects that include: electric vehicle manufacturing, solar photovoltaic manufacturing, landfill gas capture and production, biogas capture and production (at dairies and waste water treatment plants), demonstration hydrogen fuel production, electric vehicle battery manufacturing, and biomass processing and fuel production. AB 199 Page 5 Applicants must meet criteria developed by CAEATFA. In order to qualify for a STE, the applicant must demonstrate that the equipment 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. Eligible projects must meet evaluation criteria relating to the fiscal and environmental benefits of the project and to compare those benefits to the cost of the STE. While there are no maximum or minimum limits on individual STEs, the program is limited to $100 million annually. According to State Treasurer John Chiang: AB 199 will have no negative impact on the state budget because California manufacturers would not invest in the recycling equipment without the tax exemption. Additionally, projects must meet the "net benefits test" by showing that the new project will create jobs in the state. As of December 31, 2013, 48 CAETFTA applications were approved for $1.68 billion in anticipated qualified property purchases, resulting in $137.4 million in sales and use tax exclusions and the creation of 8,164 jobs, 689 of which are attributable to the CAETFTA Program. The projects are anticipated to produce an estimated $79.2 million in environmental benefits and $185.4 million in fiscal benefits, resulting in $127.2 million in net benefits to the state. 4)Previous legislation. The author of this bill carried AB 1021 in 2013, which was substantially similar to AB 199. AB 1021 was held in the Senate Appropriations Committee. 5) Double referral. This bill is double referred to the Revenue and Taxation Committee. REGISTERED SUPPORT / OPPOSITION: AB 199 Page 6 Support Association of Compost Producers California Association of Sanitation Agencies California Compost Coalition California Electronic Asset Recovery California Manufacturing and Technology Association California Resource Recovery Association Californians Against Waste CarbonLITE Industries Command Packaging Cornerstone Environmental CRM Co. CR&R Environmental Services ECS Refining Don't Waste LA Coalition Full Cycle Bioplastics Glass Packaging Insitute Inland Empire Disposal Association Institute of Scrap Metal Recycling Industries Los Angeles Alliance for a New Economy Los Angeles County Waste Management Association Metropolitan Recycling Mid Valley Disposal Napa Recycling and Waste Services Natural Resources Defense Council North County Recycling Northern Recycling and Waste Services Kern Refuse Disposal Recology RePET Republic Services Solid Waste Association of Orange County Sonoma Compost State Treasurer John Chiang StopWaste Varner Brothers Verdeco Recycling Waste Management AB 199 Page 7 Opposition None on file Analysis Prepared by: Elizabeth MacMillan / NAT. RES. / (916) 319-2092