BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 199


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          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  








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            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  








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               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.  








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          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.








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          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


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          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 









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          Opposition


          None on file


          Analysis Prepared  
          by:              Elizabeth MacMillan / NAT. RES. / (916)  
          319-2092