BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 692 (Quirk) - Low-carbon transportation fuels.
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|Version: June 2, 2015 |Policy Vote: T. & H. 8 - 2, |
| | E.Q. 5 - 2 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Marie Liu |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 692 would require state agencies to procure at
least three percent of their total aggregate transportation
fuels from very low carbon transportation fuel sources by
January 1, 2017, with the amount to increase by one percent
annually until January 1, 2024.
Fiscal
Impact:
Unknown costs to the General Fund and various special funds,
including the Greenhouse Gas Reduction Fund (GGRF), for
increased fuel prices.
Unknown costs, but potentially minor, to the General Fund and
various special funds to the Department of General Services
(DGS) to manage fuel purchases to meet the purchase
requirements.
Potential costs up to $175,000, but likely minor, to the Cost
of Implementation Account (special) to the Air Resources Board
AB 692 (Quirk) Page 1 of
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(ARB) to assist state agencies with compliance with the
purchase requirements.
Background: In January 2007, Governor Schwarzenegger issued Executive
Order S-01-07 in which he ordered the establishment of a
statewide goal of reducing the carbon intensity (CI) of
California's transportation fuels by at least 10% by 2020 and
ordered ARB to establish a low-carbon fuel standard (LCFS) for
the state.
The ARB adopted the LCFS regulation in April 2009 that was
designed to reduce the CI of transportation fuels by 10% by
2020. In May 2009, the ARB adopted its AB 32 Scoping Plan to map
out how to achieve the reduction in GHG emissions by 2020, as
required by AB 32. The Scoping Plan included the LCFS as an
early action measure and projected the program to result in 15
million metric tons (MMT) of emissions reductions, or about 20%
of the GHG emissions reductions needed to reach the 2020 GHG
emissions target of 427 MMT.
The LCFS achieves a 10% reduction in average CI by establishing
an initial intensity level for specified providers of
transportation fuels ("regulated parties") and incrementally
lowering the allowable CI in each subsequent year. For example,
modest targeted reductions of 0.5 and 1.0% are required for 2012
and 2013, respectively. The reductions become more substantial
with each year, such that by 2020, the 10% average reduction is
achieved. This reduction makes room for low-CI fuels to enter
the market. A regulated party needs to meet each year's
specified target, taking into account all of its transportation
fuels. If the reduction in intensity exceeds the target, the
provider earns a credit, which can be sold or carried forward.
The LCFS allows fuels like electricity, hydrogen, and natural
gas, which already meet the CI standards through 2020, to
generate LCFS credits that may be sold. Regulated fuel
providers, therefore, can meet their annual CI levels through
several compliance strategies: making low-GHG fuels, such as
biofuels made from waste products; carrying forward credits from
previous years from their own production process; buying credits
from other fuel producers; or reducing the amount of fuel they
sell. A fuel provider meets the requirements of the LCFS if the
amount of credits at the end of the year is equal to, or greater
than, the deficits. A provider determines its credits and
AB 692 (Quirk) Page 2 of
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deficits based on the amount of fuel sold, the CI of the fuel,
and the efficiency by which a vehicle converts the fuel into
useable energy. Under the LCFS, a regulated party's compliance
with the annual CI requirements is based on end-of-year
credit/deficit balancing.
The CI requirement has been frozen at 1% since 2013 as a result
of litigation, but the ARB plans to re-adopt the LCFS in
September this year.
AB 236 (Lieu) Chapter 593, Statutes of 2007 established the goal
of reducing or displacing the consumption of petroleum products
by the state fleet compared to the 2003 consumption levels by 10
percent by 2012 and 20 percent by 2020. According to DGS's 2015
progress report for this requirement, the state fleet has
surpassed the 2012 target of 10% and is on pace to meet or
exceed the 2020 20% target.
Proposed Law:
This bill would require that at least three percent of the
state agencies aggregated fuel purchases to be from very low
carbon (VLC) transportation fuel sources beginning on January 1,
2017. This minimum requirement would increase by one percent
every year until it reaches 10% in January 1, 2024. DGS would be
required to coordinate with state agencies that buy
transportation fuel and to report to the Legislature on actions
taken pursuant to this requirement.
The bill would define VLC transportation fuel as a liquid or
gaseous transportation fuel having no greater than 40 percent of
the carbon intensity of the closest comparable petroleum fuel
for that area as measured by ARB's low-carbon fuel standard
regulation.
The bill would explicitly allow the Legislature to appropriate
money from the Greenhouse Gas Reduction Fund (GGRF) to offset
any increased costs resulting from the purchase of VLC
transportation fuel.
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Staff
Comments: DGS administrative costs: State agencies buy
transportation fuel through retail and bulk purchases. Bulk fuel
purchases are made through contracts negotiated by DGS. As DGS
already coordinates the bulk purchases of fuel, ensuring that
sufficient bulk purchases are made from VLC transportation fuels
is unlikely to add workload to DGS.
Retail purchases, on the other hand, would require additional
workload for both DGS and individual agencies to manage.
However, as approximately 50% of the state's transportation fuel
is purchased in bulk according to DGS, the requirements of this
bill are likely to be met with bulk purchases only, avoiding
complications and costs associated with managing retail sales.
Fuel costs: This bill may also have costs to the extent that
there is a price difference between VLC fuels and comparable
petroleum fuel. As the price of both VLC fuels and petroleum
fuels are constantly changing, this fuel cost is unknown. Staff
notes that the state bought over 32 million gallons of petroleum
fuels in 2012 so a small difference in price, say ten cents per
gallon, could change state fuel costs by hundreds of thousands
of dollars. A difference of fifty cents per gallon would bring
the difference into the millions of dollars.
Staff notes that the price of VLC transportation fuel may also
depend on the supply availability and the number of suppliers.
The simplest and least expensive way for state agencies to
comply with this bill's requirement is to increase the use of
renewable diesel because it can be used interchangeably with
petroleum diesel. ARB has preliminary estimates that here are
two suppliers of renewable diesel that can supply necessary fuel
volumes for the state. There are additional suppliers of
biodiesel, though not all biodiesel fit the bill's definition of
a VLC transportation fuel. While ARB expects other suppliers to
be created as demand increases, staff notes that a small number
of suppliers may limit the ability of the state to negotiate on
the price of VLC fuels especially as the as the suppliers will
know that the state is under a mandated purchase requirements.
Staff notes that there are no "off ramp" provisions of the bill
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that would allow for a modification or a release of the purchase
requirement should there be substantial price differentials in
fuel costs or supply issues.
The bill would allow GGRF to be used to offset any increased
costs upon appropriation by the Legislature. If such an
appropriation is not made, the costs would come from the General
Fund and various special funds. Staff notes that there are
multiple bills being considered by both houses of the
Legislature that propose projects that would be eligible to
receive GGRF funds. It is unclear how these bills will interact
with each other. Staff notes that a discussion on the spending
of GGRF is anticipated in August as part of a budget discussion.
New Vehicle, retrofit, and infrastructure costs: The cost of
switching to VLC fuels could be larger if such a switch would
necessitate retrofits to vehicles or new vehicle purchases. The
state is likely to be able to meet the bill's requirements
simply by purchasing more renewable diesel, which, as mentioned
above, can be used interchangeably with petroleum diesel.
However, should the state need to use other VLC fuels, such as
natural gas, the state could incur costs to purchase new
vehicles, retrofit existing vehicles, or to build infrastructure
allow the use of other VLC transportation fuels.
Potential costs to the ARB: ARB believes that it may have costs
associated with the implementation of this bill in order to
assist other state agencies in developing compliance strategies
as compliance with the bill will require CI calculations. ARB
estimates $175,000 in costs annually for one Air Resources
Engineer from the Cost of Implementation Account (special).
While ARB may be consulted for assistance, staff notes that ARB
already assigns a CI to all fuels sold in the state as part of
the LCFS program so limited assistance may be needed. Also, this
bill's purchase requirement is on the aggregate amount of
transportation fuel bought by the state. As such, compliance
could be achieved with purchases made by just a few agencies,
minimizing the number of agencies that may request ARB
assistance.
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This bill requires DGS to submit a report on the progress in
meeting this bill's requirements. Staff recommends that this
report be combined with the AB 236 report.
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