BILL ANALYSIS Ó
AB 692
Page 1
ASSEMBLY THIRD READING
AB
692 (Quirk)
As Amended June 2, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+----------------------+--------------------|
|Natural |6-3 |Williams, Cristina |Dahle, Hadley, |
|Resources | |Garcia, McCarty, |Harper |
| | |Rendon, Mark Stone, | |
| | |Wood | |
| | | | |
|----------------+------+----------------------+--------------------|
|Accountability |6-3 |Salas, Burke, |Lackey, Brough, |
| | |Frazier, Irwin, | |
| | |Medina, Rodriguez | |
| | | |Beth Gaines |
| | | | |
|----------------+------+----------------------+--------------------|
|Appropriations |12-5 |Gomez, Bonta, |Bigelow, Chang, |
| | |Calderon, Daly, |Gallagher, Jones, |
| | |Eggman, Eduardo |Wagner |
| | |Garcia, Gordon, | |
| | |Holden, Quirk, | |
| | |Rendon, Weber, Wood | |
| | | | |
| | | | |
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AB 692
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SUMMARY: Requires at least 3% of the aggregate amount of fuel
purchased by state agencies to be procured from very low carbon
transportation fuel sources beginning January 1, 2017. Requires
that amount to increase by 1% every year until January 1, 2024, at
which time the amount would be 10%. Specifically, 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, state agencies that are
buyers of transportation fuels, to procure at least 3% of the
aggregate 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)Defines "very low carbon transportation fuel" as a liquid or
gaseous fuel having no greater than 40% of the carbon intensity
(CI) of the closest comparable petroleum fuel, as measured by
the LCFS methodology.
4)Provides that the bill does not replace or modify any existing
standards or requirements imposed by the LCFS regulation.
5)Authorizes the Legislature to appropriate money from the GGRF to
state agencies to offset any increased costs resulting from the
purchase of very low carbon transportation fuel.
6)Requires the Department of General Services to coordinate with
state agencies and submit an annual progress report to the
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Legislature.
EXISTING LAW:
1)Pursuant to the California Global Warming Solutions Act (AB 32
(Núñez), Chapter 488, Statutes of 2006), 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 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 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.
3)Establishes the Greenhouse Gas Reduction Fund (GGRF) and
requires all moneys, except for fines and penalties, collected
by ARB from the auction or sale of allowances pursuant to a
market-based compliance mechanism (i.e., the cap-and-trade
program adopted by ARB under AB 32) to be deposited in the Fund
and available for appropriation by the Legislature.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, increased unknown annual costs in the low millions (3%
requirement in 2017) potentially increased to the tens of millions
(10% in 2024) for the added costs of procuring low carbon
transportation fuels as defined by the bill.
AB 692
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COMMENTS: 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 United States 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 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
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the LCFS during the pendency of the lawsuit. In September 2013,
the Ninth Circuit Court ruled that the LCFS provisions were not
facially discriminatory, leaving the LCFS in place while the
plaintiffs petition for review by the United States 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.
According to proposed CI tables published by ARB, the following
fuels may fall under the 40% definition in this bill:
1)Natural gas (biomethane) from landfills, dairy/feedlot sources,
and anaerobic digestion of food/green waste and wastewater.
2)Biodiesel and renewable diesel from used cooking oil, tallow and
plant sources.
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3)Hydrogen, depending on the fuel source and production process.
Analysis Prepared by:
Lawrence Lingbloom / NAT. RES. / (916) 319-2092
FN:
0000852