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
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|Author: |Quirk |
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|Version: |6/2/2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Erin Riches |
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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
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