BILL ANALYSIS Ó
AB 692
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Das Williams, Chair
AB 692
(Quirk) - As Amended April 6, 2015
SUBJECT: Low-carbon transportation fuels
SUMMARY: Requires each state agency that is a buyer of
transportation fuels to buy 3% of "very low carbon
transportation fuels," as defined, beginning January 1, 2017,
increasing by 1% per year thereafter until 2024.
EXISTING LAW:
1)Pursuant to 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)Pursuant to Executive Order S-01-07, sets a statewide goal to
reduce the carbon intensity (CI) of California's
transportation fuels by at least 10% by 2020. Pursuant to AB
32, ARB adopted a Low Carbon Fuel Standard (LCFS) regulation
in 2009 to implement this goal. The LCFS attributes CI values
to a variety of fuels based on direct and indirect GHG
emissions, including land use changes caused by production of
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biofuels. The LCFS permits producers of certain low-CI fuels
to opt in to LCFS regulation for the purpose of generating
credits, which can be banked and used for compliance, sold to
regulated parties, and purchased and retired by regulated
parties. In addition, LCFS credits can be exported to other
GHG emission reduction programs.
THIS BILL:
1)Declares that increasing the supply of low carbon fuels will
help the state achieve its GHG reduction goals, but that
existing incentives have not resulted in sufficient
development.
2)Requires, beginning January 1, 2017, the Department of
Transportation (CalTrans), the Department of General Services
(DGS), and any other state agency that is a buyer of
transportation fuels, to procure 3% of the total amount of
fuel purchased from very low carbon transportation fuel
sources. Requires that amount to increase by 1% every year
until January 1, 2024, at which time the amount would be 10%.
3)Requires each state agency to submit a report to the
Legislature each year from 2018 to 2026.
4)Defines "very low carbon transportation fuel" as a liquid or
gaseous fuel having no greater than 50% the CI of the closest
comparable petroleum fuel, as measured by the LCFS
methodology.
5)Provides that the bill does not replace or modify any existing
standards or requirements imposed by the LCFS regulation.
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FISCAL EFFECT: Unknown
COMMENTS:
1)Background on LCFS. In 2007, Governor Schwarzenegger issued
Executive Order S-1-07, calling for a reduction of at least
10% in the CI of California's transportation fuels by 2020.
The order instructed the California Environmental Protection
Agency to coordinate activities between the University of
California, the California Energy Commission and other state
agencies to develop and propose a draft compliance schedule to
meet the 2020 target.
The Order further directed ARB to consider initiating
regulatory proceedings to establish and implement the LCFS.
In response, ARB adopted the LCFS regulation in 2009, to be
implemented beginning in 2010. 2010 was a reporting year and
the first CI reduction requirement of 0.25% began in 2011.
The target increased to 0.5% in 2012 and 1% in 2013. To date,
fuel suppliers have over-complied, predominantly by blending
ethanol with gasoline, which is preferred in the near term
because ethanol blending is required by the federal Renewable
Fuel Standard and does not require significant changes in
fueling and vehicle infrastructure. However, natural gas,
biodiesel and electricity have also been used in significant
amounts to comply with the LCFS.
In 2009 and 2010, three lawsuits were filed against the LCFS
by ethanol interests - two in federal court and one in state
court. The federal lawsuits were brought by trade
associations of ethanol producers and refiners who claim that
the LCFS is preempted under the Energy Independence and
Security Act of 2007 and violates the Commerce Clause of the
U.S. Constitution (e.g., by assigning corn ethanol from the
Midwest a CI value above that of corn ethanol made in
California). The combined federal lawsuit (Rocky Mountain
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Farmers Union v. Corey) was heard by the Ninth Circuit Court
of Appeals, which considered ARB's appeal of several adverse
rulings and a preliminary injunction that were issued by the
lower federal court in Fresno in December 2011. In April
2012, the Ninth Circuit granted ARB's request for a stay of
the preliminary injunction, which allowed ARB to resume
enforcement of the LCFS during the pendency of the lawsuit.
In September 2013, the Ninth Circuit ruled that the LCFS
provisions were not facially discriminatory, leaving the LCFS
in place while the plaintiffs petition for review by the U.S.
Supreme Court.
The state lawsuit (Poet, LLC v. California Air Resources
Board), brought by a major ethanol producer, alleges that ARB
did not fully comply with the Administrative Procedure Act
(APA) and the California Environmental Quality Act (CEQA) when
adopting the LCFS regulation. In November 2011, the Fresno
Superior Court ruled in favor of ARB on all 14 causes of
action raised by the plaintiffs. Plaintiffs then appealed the
case to the Court of Appeal in Fresno, which found both APA
and CEQA defects with ARB's process of adopting the LCFS. As
a result, ARB has proposed adopting an alternative regulation
for diesel and readopting the LCFS regulation to comply with
the court's instructions.
Meanwhile, the LCFS is frozen at its 2013 (1% CI reduction)
level. In addition to revising the regulation to comply with
the Court of Appeal ruling, ARB has proposed several other
modifications related to adjusting compliance schedules,
determining CI, cost containment in the credit market, and
other assorted issues. ARB proposes to readopt the LCFS
regulation in July, with a target of 2% in 2016, 3.5% in 2017,
5% in 2018, 7.5% in 2019, and 10% in 2020 and thereafter.
2)What types of fuels will be eligible? According to proposed
CI tables published by ARB, the following fuels would fall
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under the 50% definition in this bill:
a) Natural gas (biomethane) from landfills,
dairy/feedlot sources, and anaerobic digestion of
food/green waste and wastewater.
b) Biodiesel and renewable diesel from used cooking
oil, tallow and plant sources.
c) Ethanol from sugarcane.
d) Hydrogen, depending on the fuel source and
production process.
Fuels meeting the 50% definition made up about 1% of the total
volume of fuels produced in 2014.
3)Bill would treat very different fuels the same. Under this
bill, any fuel meeting the 50% mark would count the same
toward a state agency's procurement obligation. Eligible
fuels range from imported, crop-based fuels, such as sugarcane
ethanol (with a CI around 43% of gasoline), to local,
waste-based fuels, such as biomethane derived from anaerobic
digestion of food waste (with a CI less than zero). If the
objective of the bill is to promote the development of very
low carbon fuels, the author and the committee may wish to
consider excluding conventional, crop-based fuels by changing
the standard from 50% to 40%.
Alternatively, the bill could adopt CI-based targets,
requiring state agencies to exceed LCFS targets by a specified
percentage, which would create a stronger incentive to procure
fuels that achieve the lowest CI.
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4)Additional questions for the author and committee to consider:
a) Should every state agency that buys any
transportation fuels be individually subject to this
bill, or should there be a minimum amount of fuel that
triggers a compliance obligation?
b) Does each state agency need to comply each year, or
are agencies allowed to average, trade and/or bank
compliance?
c) Do state agencies get to count the percentage of
very low carbon fuels blended in conventional gasoline or
diesel, or must they separately procure very low carbon
fuels?
d) Do state agencies have to maintain the 10%
procurement requirement after 2024?
e) How much should the state spend, from what source of
funds, and should this expenditure be ranked against
other uses of state funds to reduce GHG emissions?
f) Should each state agency be required to prepare a
separate report each year, or should reporting be
consolidated?
1)Double referral. This bill has been double referred to the
Accountability and Administrative Review Committee.
REGISTERED SUPPORT / OPPOSITION:
AB 692
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Support
California Biodiesel Alliance
DuPont
Opposition
None on file
Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)
319-2092
AB 692
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