BILL ANALYSIS Ó
AB 692
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CONCURRENCE IN SENATE AMENDMENTS
AB
692 (Quirk)
As Amended September 4, 2015
Majority vote
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|ASSEMBLY: | |(June 4, 2015) |SENATE: |25-14 |(September 9, |
| |52-27 | | | |2015) |
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Original Committee Reference: NAT. RES.
SUMMARY: Requires each state agency that is a buyer of
transportation fuels to buy at least 3% of "very low carbon
transportation fuels," as defined, beginning January 1, 2017,
increasing by 1% per year thereafter until 2024.
The Senate amendments:
1)State a legislative finding that incentives for the
development of low carbon transportation fuels can be enhanced
if the state's purchasing power is used to buy very low carbon
transportation fuel for its own fleets.
2)Delete a provision that authorized the Legislature to
appropriate funds from the Greenhouse Gas Reduction Fund to
state agencies that buy transportation fuel to offset
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increased costs associated with the purchase of very low
carbon transportation fuel.
3)Specify that the Department of General Services (DGS) shall
submit an annual progress report to the Legislature consistent
with the existing report relating to alternative fuels.
4)Require the state to procure very low carbon transportation
fuel only to the extent feasible, if DGS, in consultation with
the chair of the Air Resources Board (ARB), makes a
determination that very low carbon transportation fuel does
not perform adequately for its intended use or is not
available for a reasonable price and in a reasonable period of
time.
EXISTING LAW:
1)Pursuant to the California Global Warming Solutions Act (AB 32
(Núñez), Chapter 488, Statutes of 2006), requires the 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
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.
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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 Senate Appropriations
Committee:
1)Unknown costs, but potentially minor, to the General Fund and
various special funds to the DGS to manage fuel purchases to
meet the purchase requirements.
2)Potential costs up to $175,000, but likely minor, to the Cost
of Implementation Account (special) to ARB to assist state
agencies with compliance with the purchase requirements.
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
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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 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
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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.
3)Hydrogen, depending on the fuel source and production process.
Analysis Prepared by:
Lawrence Lingbloom / NAT. RES. / (916) 319-2092
FN:
0002364