BILL ANALYSIS Ó SENATE COMMITTEE ON TRANSPORTATION AND HOUSING Senator Jim Beall, Chair 2015 - 2016 Regular Bill No: AB 692 Hearing Date: 6/30/2015 ----------------------------------------------------------------- |Author: |Quirk | |----------+------------------------------------------------------| |Version: |6/2/2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Erin Riches | |: | | ----------------------------------------------------------------- SUBJECT: State agencies: low-carbon transportation fuels DIGEST: This bill requires 3% of the aggregate amount of transportation fuel purchased by state agencies to be procured from very low-carbon fuel sources. ANALYSIS: The Low Carbon Fuel Standard (LCFS) was established through a Governor's Executive Order in January 2007. The Air Resource Board (ARB) adopted the LCFS regulation in April 2009, effective the following year. The LCFS aims to reduce greenhouse gas (GHG) emissions from the transportation sector by about 16 million metric tons by 2020. It is also designed to reduce California's dependence on petroleum, create a lasting market for clean transportation technology, and stimulate the production and use of alternative low-carbon fuels. The LCFS requires producers of petroleum-based fuels to reduce the carbon intensity (CI) of transportation fuels used in California by an average of 10% by 2020. It consists of two elements: a cap on total GHG emissions from the entire fuel sector, and a carbon credit-trading mechanism that incentivizes the production and use of low-carbon fuels. Petroleum importers, refiners, and wholesalers may either develop their own low-carbon fuel products or buy LCFS credits from other companies that sell low-carbon alternative fuels such as biofuels, electricity, natural gas, or hydrogen. The CI has been frozen at 1% since 2013 as a result of litigation, but ARB AB 692 (Quirk) Page 2 of ? plans to re-adopt the LCFS this year. After re-adoption, the CI will begin to decrease toward the 10% reduction required by 2020. The baseline LCFS fuels are reformulated gasoline mixed with corn-derived ethanol and low sulfur diesel. Lower carbon fuels may include ethanol, biodiesel, renewable diesel, or blends of these fuels with gasoline or diesel as appropriate. Compressed natural gas may also be a low-carbon fuel, as well as hydrogen and electricity. This bill: 1)Requires, beginning January 1, 2017, that 3% of the aggregate amount of transportation fuel purchased by state agencies must be procured from very low-carbon fuel sources. 2)Requires the amount of very low-carbon fuel purchased to increase by 1% each year until January 1, 2024 (i.e., up to 10% by 2024). 3)Defines "very low-carbon transportation fuel" as a liquid or gaseous fuel having not more than 40% of the CI of the closest comparable petroleum fuel for that year as measured by LCFS methodology. 4)Authorizes the Legislature to appropriate Greenhouse Gas Reduction Fund (GGRF) monies to state agencies that are buyers of transportation fuel to offset any increased costs resulting from the purchase of very low-carbon fuel. 5)Requires the Department of General Services to coordinate with state agencies that are buyers of transportation fuel and submit to the Legislature an annual progress report on implementation of the mandate in this bill. COMMENTS: Purpose. The author states that while the state has met the 1% GHG reduction commitment of LCFS, it has done so primarily by using corn and sugarcane ethanol and soybean biodiesel; only a very small fraction of the California fuel market is currently satisfied by fuels made from waste products. The main obstacle preventing other fuels from entering the LCFS market is access to capital. Building a commercial-scale low-carbon fuel AB 692 (Quirk) Page 3 of ? production facility requires hundreds of millions of dollars. The market for low-carbon fuels is uncertain due to fluctuations in the petroleum markets, changes in the regulatory landscape, and the inherent uncertainty involved when deploying new technology. This bill guarantees a market for very low-carbon fuels by requiring the state fuel portfolio to include a minimum share of very low-carbon fuels. This requirement will give assurance to prospective producers of very low-carbon fuels that there will be a market for them, even if they are not cost-competitive in the short term. Background on state fuel purchases. The largest state agency purchasers of fuel are the departments of Transportation, Forestry and Fire Protection (CalFIRE), Corrections and Rehabilitation, Water Resources, and Fish and Wildlife. The state government purchases a significant amount of fuels for its fleet; in FY 2007-08, for example, the state purchased approximately 34 million gallons of gasoline, 11 million gallons of diesel fuel, 327,174 gasoline gallon equivalents of compressed natural gas and propane, and 66,183 gallons of E-85. In 2014, for the third year in a row, California was named the 18th "greenest" fleet out of 100 public-sector fleets in North America. Pursuant to legislative and gubernatorial directives, the Department of General Services has established multiple sustainable fleet policies emphasizing the purchase of more fuel-efficient vehicles and the reduction of petroleum use. Narrowly defined. The state purchases fuel under two types of contracts: bulk fuel purchases and retail fuel purchases (e.g., using a credit card at a retail gas station). This bill does not differentiate between the two types, simply requiring 3% of the aggregate amount of transportation fuel purchased by state agencies to be procured from very low-carbon fuel sources. The very narrow definition of low-carbon fuel in this bill, however, would preclude purchase of some types of fuel, including hydrogen gas and sugar cane ethanol, which tend to be somewhat more readily available through retail purchase. The definition also precludes electric vehicles. This bill originally defined eligible fuels as having a maximum of 50% of the CI of the closest comparable petroleum fuel for that year as measured by LCFS methodology, but was amended to 40% in the Assembly Natural Resources Committee in order to preserve the author's intent to promote the development of very low-carbon fuels. LCFS a work in progress. The ARB is currently in the process of AB 692 (Quirk) Page 4 of ? re-adopting the LCFS in the wake of litigation. The committee may wish to consider whether it is appropriate to establish a separate LCFS mandate for the state fleet even as ARB is re-establishing the LCFS. Where will the money come from? In recognition of the higher costs of very low-carbon fuel, this bill authorizes the Legislature to appropriate GGRF monies to state agencies that buy transportation fuel in order to offset these costs. The Legislature could alternatively choose to direct other monies, such as General Fund, away from other programs for this purpose. Either would likely require a budget appropriation, meaning that departments might have to redirect funds internally until the budget is passed in order to cover the increased fuel costs. Double-referred. This bill has also been referred to the Environmental Quality Committee. Related Legislation: AB 1176 (Perea) - would establish the Advanced Low-Carbon Diesel Fuels Access Program to fund low-carbon diesel fueling infrastructure projects in communities that are disproportionately impacted by environmental hazards and where the greatest air quality impacts can be identified. AB 1176 is an urgency bill also being heard by this committee today. AB 1992 (Quirk) - would have authorized ARB to establish a very low-carbon fuel market program, in which transportation fuel providers could be required to include in their sales a specified percentage of very low-carbon fuels, defined as having no greater than 50% of the carbon intensity of the closest comparable petroleum fuel. AB 1992 failed passage in this committee in 2014. Assembly Votes: Floor: 52-27 Appr: 12-5 A&AR: 6-3 NatRes: 6-3 FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No AB 692 (Quirk) Page 5 of ? POSITIONS: (Communicated to the committee before noon on Wednesday, June 24, 2015.) SUPPORT: Biodico Sustainable Refineries California Biodiesel Alliance Coalition for Renewable Natural Gas DuPont OPPOSITION: CalTax -- END --