BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 857 (Perea) - California Clean Truck, Bus, and Off-Road  
          Vehicle and Equipment Technology Program.
          
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          |Version: August 18, 2015        |Policy Vote: T. & H. 8 - 1,     |
          |                                |          E.Q. 5 - 2            |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 24, 2015   |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  AB 857 would reserve 50% or $100 million annually,  
          whichever is greater, of Greenhouse Gas Reduction Fund (GGRF)  
          monies that are allocated to the California Clean Truck, Bus,  
          and Off-Road Vehicle and Equipment Technology Program (AB 1204  
          program) to support the commercial deployment of existing zero-  
          and near-zero emission heavy-duty truck technology that meets or  
          exceeds the Air Resources Board's optional low NOx standard  
          between 2018 and 2023.


          Fiscal  
          Impact:  
           Ongoing cost of at least $100,000 annually to the GGRF  
            (special) to provide $100,000 for zero- and  
            near-0zero-emission Class 7 and 8 trucks plus pressures to  
            provide funds for other types of eligible projects under the  
            AB 1204 program.







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           Initial costs of $844,000 for FY 2016-17 followed by annual  
            ongoing costs of $2.0 million to the GGRF (special) for the  
            ARB to update guidelines and procedures for the new program,  
            review grant solicitations, conduct fleet audits, conduct  
            on-site inspections, and verify fueling requirement  
            compliance.


          Background:  The California Global Warming Solutions Act of 2006 (referred  
          to as AB 32, HSC §38500 et seq.) requires the California Air  
          Resources Board (ARB) to determine the 1990 statewide greenhouse  
          gas (GHG) emissions level, to approve a statewide GHG emissions  
          limit equivalent to that level that will be achieved by 2020,  
          and to adopt GHG emissions reductions measures by regulation.  
          ARB is authorized to include the use of market-based mechanisms  
          to comply with the regulations. Under this authority, the ARB  
          initiated the cap-and-trade program. All monies, except for  
          fines and penalties, collected pursuant to the cap-and-trade  
          program deposited in the Greenhouse Gas Reduction Fund (GGRF)  
          (Government Code §16428.8). 
          Existing law requires that the GGRF only be used to facilitate  
          the achievement of reductions of GHG emissions consistent with  
          AB 32 (HSC §39710 et seq.). To this end, the Department of  
          Finance, in consultation with the ARB and any other relevant  
          state agencies, is required to develop, as specified, a  
          three-year investment plan for the moneys deposited in the GGRF.  
          The investment plan must allocate a minimum of 25% of the funds  
          to projects that benefit disadvantaged communities and to  
          allocate 10% of the funds to projects located within  
          disadvantaged communities. Additionally, the ARB, in  
          consultation with CalEPA, is required to develop funding  
          guidelines for administering agencies receiving allocations of  
          GGRF funds that include a component for how agencies should  
          maximize benefits to disadvantaged communities.


          Existing law establishes the California Clean Truck, Bus, and  
          Off-Road Vehicle and Equipment Technology Program (SB 1204  
          (Lara) Chapter 524, Statutes of 2014) to fund development,  
          demonstration, precommercial pilot, and early commercial  
          deployment of zero- and near-zero-emission truck, bus, and  
          off-road vehicle equipment technologies with GGRF funds.  








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          Priority is given to projects that benefit disadvantaged  
          communities. The SB 1204 program is administered by the Air  
          Resources Board (ARB) in conjunction with the California Energy  
          Commission (CEC). Until January 1, 2018, at least 20% of the  
          funds allocated to the SB 1204 program are reserved to support  
          early commercial deployment of existing zero- and  
          near-zero-emission heavy-duty truck technology.




          Proposed Law:  
            This bill would make changes to the SB 1204 program to require  
          minimum investments in the commercial deployment of existing  
          zero- and near-zero emission heavy-duty truck technology  
          beginning in 2018. Specifically, this bill would require that  
          between January 2, 2018 and January 1, 2023, at least 50% or  
          $100 million, whichever is greater, of the funds allocated to  
          the SB 1204 program be reserved for the commercial deployment of  
          existing zero- and near-zero-emission heavy-duty truck  
          technology that meets or exceeds specified NOx emission  
          standards. Beginning in 2018, a heavy-duty truck would be  
          defined as a vehicle with a gross vehicle weight rate of 26,001  
          pounds or more (Class 7 and 8 trucks). 
          This bill would also require that heavy-duty trucks with an  
          internal combustion engine that receives awards under the  
          program between January 2, 2018 and January 1, 2020 use at least  
          30% renewable fuel. This requirement would be increased to 50%  
          for trucks that receive awards from the program after January 2,  
          2020. The ARB would be authorized to increase the minimum  
          percentage of renewable fuel required if it finds that the  
          higher percentage is commercially feasible and the CEC finds  
          there is sufficient supply available. Increases in fuel  
          requirements would only apply prospectively to future awards.




          Staff  
          Comments:  There are no funding guarantees for the existing SB  
          1204 program. However, because this bill requires that at least  
          $100 million be made available annually from 2018 to 2023 for  
          existing zero- and near-zero emission heavy-duty truck  
          technology, this bill would result in at least $500,000 in costs  








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          to the GGRF to fund this portion of the project over five years.  
          The actual amount that is reserved could be larger if 50% of the  
          SB 1204 program allocations are larger than $200 million in  
          2018, which is unknown at this time. 
          This bill also creates unknown cost pressures to fund other  
          eligible projects under SB 1204 other than zero- and near-zero  
          emission heavy-duty truck technology. For illustration purposes,  
          if the bill's requirements were applied to next year, using  
          ARB's 2015-16 proposed funding plan for Low-carbon Investments  
          and the Air Quality Improvement Program, the SB 1204 program  
          would receive $148 million with $100 million reserved for  
          existing zero- and near-zero emission heavy-duty truck  
          technologies, or 2/3 of the funding. Reserving such a  
          substantial amount of funds for one category would put  
          considerable cost pressures on the program for other eligible  
          projects including for medium-duty trucks, lower class  
          heavy-duty trucks, busses, off-road vehicles, and demonstration  
          projects. These cost pressures are likely at least in the high  
          tens of millions of dollars and are likely to change in time as  
          markets and technologies change. 


          The ARB anticipates needing five positions at an annual cost of  
          $844,000 in 2017 to develop the required program and then six  
          positions plus a $1 million contract for a total annual cost of  
          $2.0 million to implement the program. It is possible that ARB  
          would elect to develop a program consistent with this bill on  
          its own, as it has the authority to do so under SB 1204.  
          However, this bill would require such changes to the program;  
          therefore the costs of the program are appropriately attributed  
          to this bill. 


          Moneys in this program are likely to go toward trucks fueled by  
          natural gas. However, the use of natural gas in itself does not  
          necessarily correspond to a significant reduction in GHG  
          emissions, which is a requirement as the program is funded by  
          the GGRF. To ensure the program results in GHG emission  
          reductions, this bill requires that trucks awarded monies from  
          the program be fueled by a minimum amount of renewable fuel.  
          This requirement necessitates ongoing oversight of awardees by  
          the ARB that has not been implemented before. ARB estimates  
          significant costs with overseeing fueling requirements,  
          including one position and a $1 million dollar contract for  








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          verification services (included in the totals discussed above).


          The duration of these fueling requirement compliance costs are  
          unknown because the bill is silent as to how long the fueling  
          requirement would be imposed or enforced. Class 7 and 8 trucks  
          often are only owned by the first purchaser for only five to  
          seven years but then sold to other operators and remain on the  
          road for decades. Natural gas powered heavy-duty trucks are not  
          anticipated to have a different useful life. If the fueling  
          requirements are only imposed on the first owner of the truck,  
          then the GHG benefits of the program are likely to be limited to  
          five or seven years. However, imposing fueling requirements on  
          subsequent owners and tracking ownership changes could increase  
          and sustain ARB's administrative costs to oversee compliance for  
          decades years to come and long after the last awards are  
          allocated. Staff notes that the ARB is considering such fuel  
          requirements under the current AB 1204 program, so to some  
          extent these costs are pre-existing. However, because this bill  
          dramatically increases funding to projects that necessitate  
          fueling requirements, additional costs are justifiably  
          attributable to this bill. 




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