BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Wieckowski, Chair
2015 - 2016 Regular
Bill No: AB 577
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|Author: |Bonilla |
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|Version: |7/6/2015 |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: Biomethane: grant program.
ANALYSIS:
Existing law:
1) Under the California Global Warming Solutions Act (AB 32),
requires the Air Resources Board (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) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the
State Treasury, 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 the state board and any other relevant
state agency, to develop, as specified, a three-year
investment plan for the moneys deposited in the GGRF.
(Government Code §16428.8)
3) Prohibits the state from approving allocations for a measure
or program using GGRF moneys except after determining that
the use of those moneys furthers the regulatory purposes of
AB 32, and requires moneys from the GGRF be used to
facilitate the achievement of reductions of GHG emissions in
California. (Health and Safety Code (HSC) §39712).
4) Authorizes expenditures from the GGRF for investments that
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reduce GHG emissions through, among other things, clean
energy and renewable energy generation and advanced biofuels.
(HSC §39712).
5) Requires the Department of Finance, in the investment plan,
to allocate at least 25% of available moneys in the GGRF to
projects that provide benefits to disadvantaged communities,
and at least 10% to projects located within disadvantaged
communities. (HSC §39713 )
6) Under the California Alternative and Renewable Fuel, Vehicle
Technology, Clean Air, and Carbon Reduction Act of 2007,
requires the State Energy Resources Conservation and
Development Commission (CEC) to implement the Alternative and
Renewable Fuels and Vehicle Technology program to provide
funding measures to develop and deploy technologies and
alternative and renewable fuels in the marketplace to help
attain the state's climate change policies. (HSC §43865 et
seq.)
7) Under the Alternative Fuels Law, requires the CEC, in
partnership with the ARB, and in consultation with specified
state agencies, to develop and adopt a state plan to increase
the use of alternative fuels on or before June 30, 2007.
(HSC §38500 et seq.)
8) Requires the Office of Environmental Health Hazard Assessment
(OEHHA), in consultation with the ARB, and other specified
agencies, to compile a list of constituents of concern that
could pose risks to human health and that are found in biogas
at concentrations that significantly exceed the
concentrations of those constituents in natural gas and
requires OEHHA to determine the health protective levels for
that list, as specified, and requires the ARB to identify
realistic exposure scenarios and the health risks associated
with those scenarios, as specified and the acceptable
threshold concentrations of those constituents. (HSC §25421)
9) Requires the California Public Utilities Commission (PUC) to
adopt standards for biomethane to be injected into a common
carrier pipeline that specify constituent concentrations that
are reasonably necessary to ensure the protection of human
health, giving due deference to the findings by OEHHA, ARB,
and other specified agencies. (HSC §25421)
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10)Requires the CEC to hold public hearings to identify
impediments that limit procurement of biomethane in
California, including, but not limited to, impediments to
interconnection, and requires CEC to offer solutions to those
impediments as part of the integrated energy policy. (PRC
§25326)
11)Requires the PUC to adopt policies and programs that promote
the in-state production and distribution of biomethane. (PUC
§399.24 )
12)Requires the PUC to adopt pipeline access rules that ensure
that each gas corporation provides nondiscriminatory open
access to its gas pipeline system to any party for the
purposes of physically interconnecting with the gas pipeline
system and effectuating the delivery of gas. (PUC §784)
13)Requires businesses that generate specified amounts of
organic waste to arrange for recycling services for that
material. (PRC §42649.81)
This bill:
1) Establishes the Biomethane Production, Collection, and
Purification Grant Program, and requires CEC to develop and
implement grants for projects that produce biomethane,
upgrade or expand existing biomethane production facilities,
or develop collection and purification technology or
infrastructure for biomethane.
2) Requires biomethane produced from projects funded through the
program meet the standards established by PUC for injection
into a common carrier pipeline.
3) When awarding grants, requires CEC to consider:
a) The highest and best use of the local biomethane
project; and,
b) Location of biomethane sources and their proximity to
natural gas pipeline injection sites.
4) Requires CEC to prioritize projects that provide the maximum
GHG reductions for each dollar awarded.
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5) Specifies that grants may be funded from the GGRF upon
appropriation by the Legislature.
Background
1) Cap and trade auction revenue. The ARB has conducted 11
cap-and-trade auctions. The first 10 have generated almost
$1.6 billion in proceeds to the state.
Several bills in 2012, and one in 2014, provided legislative
direction for the expenditure of auction proceeds including:
SB 535 (de Leon, 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.
AB 1532 (J. Perez, 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 GGRF moneys
may be allocated to reduce GHG emissions through
investments including, but not limited to, 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.
SB 1018 (Budget and Fiscal Review Committee,
Chapter 39, Statutes of 2012) created the GGRF, into
which all auction revenue is to be deposited. The
legislation requires that before departments can spend
moneys from the GGRF, they must prepare a record
specifying, among other things, how the expenditures
will be used, and how the expenditures will further the
purposes of AB 32.
SB 862 (Budget and Fiscal Review Committee,
Chapter 36, Statutes of 2014) requires the ARB to
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develop guidelines on maximizing benefits for agencies
administering GGRF funds and guidance for administering
agencies on GHG emission reduction reporting and
quantification methods.
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 emissions.
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. The
plaintiffs filed an appeal with the 3rd District Court of
Appeal in Sacramento in February of last year.
AB 32 auction revenue investment plan. The first three-year
investment plan for cap-and-trade auction proceeds, submitted
by Department of Finance, in consultation with the ARB and
other state agencies in May of 2013, identified sustainable
communities and clean transportation, energy efficiency and
clean energy, and natural resources and waste diversion as
the three sectors that provide the best opportunities, in
that order, for achieving the legislative goals and
supporting the purposes of AB 32.
Budget allocations. The 2014-15 Budget allocates $832
million in GGRF revenues to a variety of transportation,
energy, and resources programs aimed at reducing GHG
emissions. Various agencies are in the process of
implementing this funding. SB 862 (Budget and Fiscal Review
Committee), the 2014 budget trailer bill, established a
long-term cap-and-trade expenditure plan by continuously
appropriating portions of the funds for designated programs
or purposes. The legislation appropriates 25% for the
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state's high-speed rail project, 20% for affordable housing
and sustainable communities grants, 10% to the Transit and
Intercity Rail Capital Program, and 5% for low-carbon transit
operations. The remaining 40% is available for annual
appropriation by the Legislature.
Of that 40% $15 million was appropriated to California
Department of Food and Agriculture (CDFA) to fund
agricultural energy and operational efficiency programs, with
$12 million directed for financial assistance for the
installation of dairy digesters, and $3 million to support
deployment and use of renewable natural gas, its analogues,
and other low-carbon renewable biofuels derived from
agricultural waste, for use in the transportation sector.
Department of Resources Recycling and Recovery (CalRecycle)
was also awarded $25 million of cap-and-trade auction funds
in 2014-15. They have established multiple programs for some
of these funds to reduce GHG emissions through providing
financial assistance to expand existing capacity or establish
new facilities to process California-generated organic waste
through composting or anaerobic digestion to produce
low-carbon fuel.
The Governor's 2015-16 Budget proposes increased
appropriations of $25 and $60 million, respectively, for the
aforementioned CDFA and CalRecycle GGRF programs.
1) Methane and short-lived climate pollutants. Methane (or CH4)
is the principal component of natural gas and is also
produced biologically under anaerobic conditions in ruminant
animals, landfills and waste handling. Methane is termed a
short-lived climate pollutant (SLCP), as it has a much
shorter lifetime in the atmosphere than CO2, but has a much
higher global warming potential. According to the US
Environmental Protection Agency (US EPA), methane is 20-30
times more effective than CO2 in trapping heat in the
atmosphere over a 100-year period. SCLPs, including methane,
are responsible for 30-40% of global warming to date.
2) Methane and Biomethane. Through a series of steps involving
the bacterial breakdown of organics, carbon-based material
can be converted to methane in oxygen-deprived conditions.
This process occurs naturally, and is often uncontrolled in
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landfills and dairy farms, contributing to significant GHG
emissions. However, capturing and utilizing the gas is
facilitated through the use of anaerobic digesters, which
operate with various temperatures, pH and bacteria types, can
break down organic wastes, dramatically speeding up the
natural decomposition process, and produce primarily methane,
significant quantities of carbon dioxide and trace amounts of
other gasses including hydrogen, carbon monoxide, nitrogen,
oxygen, and hydrogen sulfide, which, all together, is termed
"biogas." The biogas can be processed further to produce
high purity, or "pipeline" quality methane, and is termed
biomethane to differentiate it from natural gas. In addition
to landfills and dairies, biomethane is generated from
digestion processes at wastewater treatment plants.
Methane sources. Atmospheric methane concentrations have
been increasing as a result of human activities related to
agriculture, fossil fuel extraction and distribution, and
waste generation and processing. According to the ARB's
updated scoping plan, the state's largest anthropogenic
methane-producing sources are enteric fermentation
(eructation, or belching by animals), manure management,
landfills, natural gas transmission, and wastewater
treatment.
Methane emissions also come from non-anthropogenic sources
such as wetlands, oceans, and forests. Methane gas from oil
and gas production and distribution is a growing source of
emissions in many countries, including the United States, due
to increased exploration and use of natural gas for energy.
Fugitive methane. A growing body of evidence suggests that
the US EPA has underestimated methane emissions nationwide,
possibly by as much as 50%. Additionally, several recent
analyses of atmospheric measurements suggest that actual
methane emissions in the state may be 30 to 70% higher than
estimated in the ARB's emission inventory.
SB 605 (Lara, Chapter 523, Statutes of 2014) directs the ARB
to develop a comprehensive short-lived climate pollutant
strategy by January 1, 2016. In developing the strategy, the
ARB is required to complete an inventory of sources and
emissions of SLCPs in the state based on available data,
identify research needs to address data gaps, and existing
and potential new control measures to reduce emissions. In
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May of this year, the ARB released a short-lived climate
pollutant concept paper.
According to the concept paper, methane is the second largest
component of GHG emissions in California, and methane
emissions are on the rise. The paper notes that California
"has taken important steps to reduce methane emissions from
all of its major sources, but more needs to be done to more
fully control methane emissions, especially from organic
waste streams going to landfills and at dairies." The
concept paper identifies the following steps as necessary to
significantly reduce methane emissions in the state:
Minimize fugitive methane emissions from all
infrastructure and equipment;
Effectively eliminate disposal of organic
materials at landfills;
Significantly reduce methane emissions from
dairies;
Maximize resource recovery from wastewater
treatment facilities.
The concept paper also notes that, "coordinated research
efforts between ARB and the California Energy Commission to
refine emission estimates have led to the development of the
only subnational methane monitoring network in the world. In
addition, researchers at ARB and at NASA's Jet Propulsion
Laboratory are currently collaborating to identify large 'hot
spot' methane sources in the San Joaquin Valley."
1) AB 32 and methane. The ARB has broad authority to regulate
methane as a GHG under AB 32 and create programs and
implement measures to reduce GHGs in the state to achieve the
statewide 2020 GHG emissions goal.
The ARB has implemented several programs that target methane
emissions, or provide incentives for the use of renewably
generated methane.
Mandatory GHG reporting: AB 32 requires the ARB to monitor
and verify GHG emissions from electricity production and
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manufacturing throughout the state, as well as suppliers of
fuel (including natural gas) and operators of natural gas
pipelines, if the amount of fuel combusted in the state is
over 10,000 metric tons of CO2 equivalents. Fugitive GHG
emissions from landfills and emissions from agriculture are
exempt from the reporting requirement.
Methane from landfills: Effective June 17, 2010, the ARB
approved a regulatory measure as an AB 32 discrete early
action measure that requires owners and operators of certain
uncontrolled municipal solid waste landfills to install gas
collection and control systems, and requires existing and
newly installed gas and control systems to operate in an
optimal manner.
Cap-and-Trade Program. Pursuant to AB 32, the ARB adopted a
cap-and-trade program that places a "cap" on aggregate GHG
emissions from large GHG emitters, which are responsible for
approximately 85% of the state's GHG emissions. The cap
declines over time, eventually reaching the target emission
level in 2020. Large emitters must obtain compliance
instruments equal to their emissions in that period.
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.
Although GHG emissions, including methane, from landfills and
agricultural sources are not covered under the cap, the ARB
has adopted offset protocols for five project types including
dairy digesters to capture fugitive methane emissions, and an
offset protocol for capturing would-be fugitive emissions of
methane from coal mines.
Low Carbon Fuel Standard: Pursuant to their authority under
AB 32, the ARB adopted the low carbon fuel standard (LCFS) in
2009, which requires transportation fuel suppliers in the
state to meet certain average annual carbon limitations. The
program ultimately requires a 10% reduction in the carbon
intensity of a particular fuel by 2020. The carbon intensity
measures the net carbon emissions of the entire life-cycle of
the fuel, including carbon emitted during production,
refining, and transportation, and conversion of the fuel to
useable energy. Fuel suppliers can meet the standard by
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reducing the carbon intensity of their fuels, or by
purchasing credits from other suppliers of other fuels that
have carbon intensities below state requirements. Methane
created from organic feedstock, or biomethane, already meets
the 10% reduction requirement in 2020, the fuel qualifies for
credits under the program.
2) Statewide Waste Diversion Goals. CalRecycle is tasked with
diverting at least 75% of solid waste statewide by 2020.
Currently, organic materials, including green waste, make up
one-third of the waste stream (approximately 11 million tons)
and food waste continues to be the highest single category of
disposal at over 15%. Green materials, such as lumber,
cardboard, and leaves and grass comprise over 20%.
CalRecycle is also charged with implementing its Strategic
Directive 6.1, which calls for reducing organic waste
disposal by 50% by 2020. According to CalRecycle,
significant gains in organic waste diversion (through
recycling technologies for organic waste including composting
and anaerobic digestion) are necessary to meet the 75% goal
and to implement Strategic Directive 6.1. Anaerobic
digestion, which produces biogas that can be processed to
biomethane fuel, is particularly suited to handle food waste.
As previously noted, organic waste that ends up in landfills
generates landfill gas, 50% of which is methane, from the
anaerobic decomposition of organic materials such as food,
paper, wood, and green material.
In order to address the large percentage of organic waste
disposed of in landfills, AB 1826 (Chesbro, Chapter 727,
Statutes of 2014) requires businesses that generate specified
amounts of organic and greenwaste to arrange for recycling
services of that waste. In addition to diverting organics to
better and higher uses, the bill has the added benefit of
reducing GHG emissions from landfills, since even landfills
with methane-control technologies can produce significant
fugitive methane emissions.
3) Landfill Gas and AB 1900. More than 20 years ago, concern
arose regarding the emission of vinyl chloride at a
particular Class I hazardous waste landfill, where
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dangerously high levels of the carcinogen were measured.
Because Class II landfills do not accept hazardous waste, the
emissions from these landfills were assumed to be free of
hazardous chemicals, however, subsequent analysis of Class II
landfills biogas detected vinyl chloride and other toxics in
non-hazardous waste gas emissions as well, and a 1987 report
from the South Coast Air Quality Management District
identified vinyl chloride and benzene in 90% of the Class II
landfills tested. The study concluded that the presence of
the toxins resulted from either illegal dumping, or as an
intermediate of microbial digestion of chlorinated chemicals.
In response, California adopted strict requirements
regarding the allowable levels of vinyl chloride and the
required testing protocols for vinyl chloride for the legal
sale, supply or transport of landfill gas to a gas
corporation in the state. Prior to 2013, the Southern
California Gas Company prohibited the use of landfill gas in
its natural gas pipelines.
In 2012, the Gas Technology Institute (GTI) released results
of analytical tests on 27 landfill gas samples processed
using one of three gas clean-up technologies. Based on their
results, GTI concluded that landfill gas can be processed to
meet typical gas quality standards, or tariffs, to be
introduced with natural gas supplies. GTI data indicates
that vinyl chloride was undetectable in all samples of
post-processed landfill gas.
In an effort to encourage the production and use of
biomethane in California, including methane produced from
landfill biogas, the Legislature passed AB 1900 (Gatto,
Chapter 602, Statutes of 2012), which required PUC to adopt
health and safety standards for biomethane for pipeline
injection based on recommendations from OEHHA and the ARB.
In response to AB 1900, CPUC opened a rulemaking in February
2013 to create rules for how gas utilities and producers
should process biomethane, and how it can be safely injected
into utility pipelines. On January 16, 2014, CPUC issued a
Decision adopting health and safety standards that limit the
amounts of certain constituents determined to be harmful to
either human health or pipeline integrity in pipeline
injected biomethane. In April of last year, CPUC opened a
second phase of their proceeding on biomethane to consider
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who should bear the costs of complying with the testing,
monitoring, reporting, and recordkeeping requirements
associated with those health and safety standards. A
decision was expected late last year, but has not yet been
issued, although CPUC issued a proposed decision that would
require ratepayers to subsidize half of the interconnection
costs, up to $1.5 million, of any biomethane project built
over the next five years, with a program cap of $40 million.
AB 1900 also requires utilities adopt rules allowing
non-discriminatory pipeline injection of biomethane and calls
for PUC to "adopt policies and programs that promote the
in-state production and distribution of biomethane."
CEC is required by AB 1900 to hold public hearings to
identify impediments that limit procurement of biomethane in
California and offer solutions as part of the integrated
energy policy. CEC is considering this issue as part of
their Renewable Portfolio Standard proceeding.
Comments
1) Purpose of Bill. According to the author, "In order to bring
these emerging energy sources to the mainstream market, we
need to invest in biogas infrastructure and purification
technology. Creating this grant program will allow for
technology upgrades to biogas facilities and for the
construction of new infrastructure which will help companies
meet existing biogas safety and purity standards. The grant
program will decrease the use of fossil natural gas and
increase the use of biomethane. Supporting the development
and use of biogas will significantly reduce GHG emissions and
achieve the goals outlined by AB 32."
2) Similar program. As noted in the background, the 2014-15
Budget bill directed $12 million directed to CDFA for the
installation of dairy digesters, and $3 million to CDFA's
Division of Measurement Standards to develop solutions to
fuel quality and metrological barriers preventing commercial
use of biomethane from dairy digesters, which entails
establishing fuel sampling and testing procedures, acquiring
necessary equipment, and validating test methods. CalRecycle
has awarded almost $9 million in grants to expand or enhance
anaerobic digestion of organic materials. One of these
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projects will consist of a high-solids anaerobic codigestion
facility that plans to divert more than 110,000 tons of waste
annually from state landfills in order to produce biomethane,
and plans to directly feed the biomethane into the natural
gas grid via a Southern California Gas transmission line
adjacent to the property. Excess biomethane will also be
provided as a diesel alternative to San Joaquin Valley's
on-road truck market through a public access natural gas
fueling station located on the property. The Governor's
2015-16 Budget proposal increases the appropriations to both
CDFA and CalRecycle to continue their programs established in
last year's budget. However, an expenditure plan for the
GGRF was not included in the Budget signed in June of this
year.
AB 577 creates a grant program to accomplish similar goals of
overcoming barriers to the commercial use of biomethane.
However, the program created through AB 577 differs somewhat
in that it focuses on funding infrastructure for not only the
production of biomethane, but the collection and purification
of that biomethane in order to meet PUC's health and safety
standards required for injection of biomethane into
common-carrier pipelines.
3) Piece by piece. GGRF investments must facilitate the
achievement of GHG emissions reductions. However, after that
requirement is fulfilled, there are a number of other policy
goals that should be considered, including benefits to
environmental quality, resource protection, public health and
the economy, as well as benefits to disadvantaged
communities. And although the fund is growing, it is still a
limited source of revenue. In order to create an optimized
investment strategy from GGRF moneys, proposals should not be
considered in isolation, but be assessed in aggregate to
determine what suite of measures best meets the requirements
of the fund, uses resources most efficiently, and maximizes
policy objectives.
As budget discussions on a cap-and-trade investment strategy
have been pushed to later this session, an opportunity exists
to have a comprehensive discussion on the universe of GGRF
proposals currently in the Legislature, during budget
negotiations this summer. If the Legislature feels that the
program established through AB 577 is an appropriate
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expenditure of GGRF moneys, then this measure should also be
considered through the budget process for cap-and-trade
expenditures, along with all other measures proposing to
expend, or authorize for expenditure, GGRF moneys.
Related/Prior Legislation
SB 687 (Allen) of 2015 requires the ARB to establish a renewable
gas standard, where natural gas is required to contain a
specified percentage of renewable gas, through 2030. SB 687 was
held on the Senate Appropriations Committee suspense file.
AB 1496 (Thurmond) of 2015 requires the ARB, with air districts,
to undertake monitoring and measuring of high emission hot-spots
in the state. AB 1496 is currently in the Senate Appropriations
Committee.
SB 605 (Lara, Chapter 523, Statutes of 2014) required the ARB to
conduct a short-lived climate pollutant strategy by January 1,
2016.
AB 1900 (Gatto, Chapter 602, Statutes of 2012) directed the CPUC
to adopt health and safety standards for biomethane for pipeline
injection based on recommendations from OEHHA and the ARB.
DOUBLE REFERRAL:
This measure was heard in Senate Energy, Utilities and
Communications Committee on June 30, 2015, and passed out of
committee with a vote of 7-0.
SOURCE: Bioenergy Association of California
SUPPORT:
Anaergia
California Refuse Recycling Council
California Special Districts Association
County Sanitation Districts of Los Angeles County
Clean Energy
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CR&R
East Bay Municipal Utility District
Environmental Services Engineering
Harvest Power California, LLC
San Francisco Public Utilities Commission
Solid Waste Association of North American, California Chapters
OPPOSITION:
CalTax
ARGUMENTS IN
SUPPORT: Supporters state that increasing the use of
renewable biomethane will help California meet its GHG
reduction, landfill
diversion, fuel diversity, and clean energy goals, as well as
provide jobs and air
quality benefits across the state. Supporters argue that while
AB 1900 (Gatto)
passed in 2012 with the intention of facilitating and promoting
the instate
production and distribution of biomethane, the standards adopted
by the CPUC
pursuant to that bill have made it cost-prohibitive to inject
biomethane into the
state's common carrier pipelines, and AB 577 is needed to
address that challenge.
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