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. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: August 18, 2015 |Policy Vote: T. & H. 8 - 1, | | | E.Q. 5 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 24, 2015 |Consultant: Marie Liu | | | | ----------------------------------------------------------------- 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. AB 857 (Perea) Page 1 of ? 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. AB 857 (Perea) Page 2 of ? 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 AB 857 (Perea) Page 3 of ? 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 AB 857 (Perea) Page 4 of ? 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. -- END --