BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Wieckowski, Chair
2015 - 2016 Regular
Bill No: AB 1176
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|Author: |Perea |
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|Version: |7/7/2015 |Hearing | 7/15/2015 |
| | |Date: | |
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|Urgency: |Yes |Fiscal: |Yes |
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|Consultant:|Rebecca Newhouse |
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SUBJECT: Vehicular air pollution.
ANALYSIS:
Existing law:
1) Under the California Global Warming Solutions Act of 2006
(commonly referred to as AB 32), requires the Air Resources
Board (ARB) to determine the 1990 statewide greenhouse gas
(GHG) emissions level and approve a statewide GHG emissions
limit that is equivalent to that level, to 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 these regulations. (Health and Safety Code
(HSC) §38500 et seq.)
2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the
State Treasury and requires all moneys, except for fines and
penalties, collected pursuant to a market-based mechanism be
deposited in the fund and requires the Department of Finance,
in consultation with ARB and any other relevant state agency,
to develop, as specified, a three-year investment plan for the
moneys deposited in GGRF. (Government Code §16428.8)
3) Requires the investment plan to allocate a minimum of 25% of
the available moneys in the fund to projects that provide
benefits to disadvantaged communities, and a minimum of 10% of
the available moneys in the fund to projects located within
disadvantaged communities. (HSC §39713).
AB 1176 (Perea) Page 2 of
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4) Requires moneys from GGRF be used to facilitate the achievement
of reductions of GHG emissions in this state consistent with
the California Global Warming Solutions Act of 2006, and to the
extent feasible complement efforts to improve air quality, and
direct investment toward the most disadvantaged communities and
households in the state, among other things. (HSC §39712).
5) Requires the State Energy Resources Conservation and
Development Commission (CEC) to implement the Alternative and
Renewable Fuels and Vehicle Technology Program (ARFVTP) to
provide funding measures to specified entities to develop and
deploy technologies and alternative and renewable fuels in the
marketplace to help attain the state's climate change policies.
(HSC §43865 et seq.),
6) Creates the Air Quality Improvement Program (AQIP), to be
administered by ARB in consultation with local air districts,
to fund air quality improvement projects. (HSC §44274).
7) Establishes certain vehicle and vessel related surcharges and
fees, until January 1, 2016, including an $8 fee increase in
the smog abatement, a $3 fee increase in the annual vehicle
registration fee, a $5 fee increase for special identification
plates and a $10-20 fee increase for vessel registration, to
fund the AQIP and ARFVT programs, among others. (HSC §44060.5
and Vehicle Code §§9250.1, 9261.1, & 9853.6).
8) Establishes the Carl Moyer Program, administered by ARB, to
fund the incremental cost of cleaner-than-required vehicles,
engines, and equipment and authorizes the funding of projects
reducing NOx, particulate matter (PM) and reactive organic
gases emissions under the Carl Moyer Program until January 1,
2015, after which date, only the reduction of oxides of
nitrogen (NOx) emission reduction projects will be eligible for
funding. (HSC §44275).
9) Creates the California Clean Truck, Bus, and Off-Road Vehicle
and Equipment Technology Program, to fund development,
demonstration, pre-commercial pilot, and early commercial
deployment of zero- and near-zero-emission truck, bus, and
off-road vehicle and equipment technologies.
This bill:
AB 1176 (Perea) Page 3 of
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1) Establishes the Advanced Low-Carbon Diesel Fuels Access Program
under CEC, in consultation with ARB.
2) Requires the program to provide capital assistance for projects
to expand low-carbon diesel fueling infrastructure in
communities that are disproportionately impacted by
environmental hazards and where additionally the greatest air
quality impacts can be identified.
3) Defines "low-carbon diesel fuel" as a biomass-based diesel fuel
that meets the definition of a low-carbon diesel fuel under the
Low Carbon Fuel Standard Regulation.
4) Defines "low-carbon diesel fueling infrastructure" as equipment
to store and dispense low-carbon diesel fuel to motor vehicles
that is open to the public. Eligible equipment includes, but
is not limited to, storage, tanks, piping, fittings, fuel
dispensers, signage, and point-of-sale systems.
5) Provides for the program to be funded with GGRF moneys, upon
appropriation by the Legislature.
6) Requires CEC, by March 1, 2016, to develop guidelines to ensure
the program focuses on communities that are disproportionately
impacted by environmental hazards and where the greatest
vehicular pollution is identified, and on low-carbon diesel
fuels that have approved fuel pathways, as specified.
7) Requires CEC to select disadvantaged communities for funding in
consultation with the California Environmental Protection
Agency.
8) Requires the CEC, in evaluating projects for funding, to
prioritize the following characteristics:
a) Occurs in or near disadvantaged communities.
b) Demonstrates potential for co-benefits or multi-benefits,
including reducing significant emissions of criteria
pollutants or toxic air contaminants.
c) Quantifies and measures cost-effectiveness and impacts on
disadvantaged and low-income populations.
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d) Demonstrates the ability to leverage additional public or
private funding.
e) Demonstrates the ability to obtain immediate benefits.
f) Includes marketing and education outreach strategies
designed to increase the effectiveness of program goals.
9) Prohibits the program from funding a project that is already
required to be undertaken pursuant to state, federal, or local
laws.
10)Specifies that CEC may amend a contract, grant, loan, or other
agreement awarded under the Alternative and Renewable Fuels and
Vehicle Technology Program to extend the terms of that
contract, grant, loan, or other agreement or award by two years
if the moneys are reprioritized by the commission to apply
toward a project that benefits disadvantaged communities.
Background
1) Cap-and-trade auction revenue. ARB has conducted 11
cap-and-trade auctions. The first 10 have generated almost
$1.6 billion in proceeds to the state.
Several bills in 2012, and one in 2014, provided legislative
direction for the expenditure of auction proceeds including the
following:
SB 535 (de León, Chapter 830, Statutes of 2012)
requires that 25% of auction revenue be used to benefit
disadvantaged communities and requires that 10% of auction
revenue be invested in disadvantaged communities.
AB 1532 (J. Pérez, Chapter 807, Statutes of 2012)
directs the Department of Finance to develop and
periodically update a three-year investment plan that
identifies feasible and cost-effective GHG emission
reduction investments to be funded with cap-and-trade
auction revenues. AB 1532 specifies that GGRF moneys may
be allocated to reduce GHG emissions through investments
including, but not limited to, development of
state-of-the-art systems to move goods and freight,
advanced technology vehicles and vehicle infrastructure,
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advanced biofuels, and low-carbon and efficient public
transportation.
SB 1018 (Budget and Fiscal Review Committee, Chapter
39, Statutes of 2012) created the GGRF, into which all
auction revenue is to be deposited. The legislation
requires that before departments can spend moneys from the
GGRF, they must prepare a record specifying, among other
things, how the expenditures will be used, and how the
expenditures will further the purposes of AB 32.
SB 862 (Budget Committee, Chapter 36, Statutes of
2014) requires the ARB to develop guidelines on maximizing
benefits for disadvantaged communities by agencies
administering GGRF funds, and guidance for administering
agencies on GHG emission reduction reporting and
quantification methods.
Legal consideration of cap-and-trade auction revenues. The
2012-13 Budget analysis of cap-and-trade auction revenue by the
Legislative Analyst's Office noted that, based on an opinion
from the Office of Legislative Counsel, the auction revenues
should be considered mitigation fee revenues, and their use
requires that a clear nexus exist between an activity for which
a mitigation fee is used and the adverse effects related to the
activity on which that fee is levied. Therefore, in order for
their use to be valid as mitigation fees, revenues from the
cap-and-trade auction must be used to mitigate GHG emissions or
the harms caused by GHG emissions.
In 2012, the California Chamber of Commerce filed a lawsuit
against the ARB claiming that cap-and-trade auction revenues
constitute illegal tax revenue. In November 2013, the superior
court ruling declined to hold the auction a tax, concluding
that it is more akin to a regulatory fee. The plaintiffs filed
an appeal with the 3rd District Court of Appeal in Sacramento
in February of last year.
AB 32 auction revenue investment plan. The first three-year
investment plan for cap-and-trade auction proceeds, submitted
by Department of Finance, in consultation with ARB and other
state agencies in May of 2013, identified sustainable
communities and clean transportation, clean energy and energy
efficiency, and natural resources and waste diversion, as the
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three key sectors that provide the best opportunities for
achieving the legislative goals and supporting the purposes of
AB 32. The plan recommended the aforementioned sector receive
the largest allocation of funds from the GGRF, but did not
specify a monetary amount.
Budget allocations. The 2014-15 Budget allocates $832 million
in GGRF revenues to a variety of transportation, energy, and
resources programs aimed at reducing GHG emissions. Various
agencies are in the process of implementing this funding. SB
862 (Committee on Budget and Fiscal Review), a budget trailer
bill, established a long-term cap-and-trade expenditure plan by
continuously appropriating portions of the funds for designated
programs or purposes. The legislation appropriates 25% for the
state's high-speed rail project, 20% for affordable housing and
sustainable communities grants, 10% to the Transit and
Intercity Rail Capital Program, and 5% for low-carbon transit
operations. The remaining 40% is available for annual
appropriation by the Legislature.
Of that 40%, $200 million was appropriated to ARB to implement
low carbon transportation programs.
2) LCFS. The Low Carbon Fuel Standard (LCFS) was established
through a Governor's Executive Order in January 2007. ARB
adopted the LCFS regulation in April 2009, effective the
following year. The LCFS aims to reduce 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 ("well to
wheels" accounting of GHG emissions from the production,
delivery and use of the fuel) 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,
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natural gas, or hydrogen. The CI has been frozen at 1% since
2013 as a result of litigation, but ARB plans to re-adopt the
LCFS this year. After re-adoption, the CI will begin to
decrease toward the 10% reduction required by 2020.
3)NOx and ozone. Smog is formed from the reaction of oxides of
nitrogen (NOx) with volatile organic compounds (VOCs) to produce
ground-level ozone, or tropospheric ozone. Ozone has a number
of negative health effects including irritated respiratory
system, reduced lung function, aggravated asthma and
inflammation and damage of the lining of the lung. Active
children are the group at highest risk from ozone exposure. In
addition to negative public health impacts, ozone itself is a
powerful SCLP.
Under the federal Clean Air Act, the United States
Environmental Protection Agency (US EPA) established National
Ambient Air Quality Standards (NAAQS) that apply for outdoor
air throughout the country. These standards exist for several
air pollutants due to their negative impact on public health
above specified concentrations, including ozone. ARB has also
adopted state ambient air quality standards for various air
pollutants that are, in some cases, more stringent than federal
standards. Local air districts are required to adopt and
enforce rules to achieve and maintain the state and federal
ambient air quality standards. Nonattainment areas are regions
that do not meet the ambient air quality standard for one of
those pollutants. There are several nonattainment designations
ranging from concentrations slightly above the standard, termed
marginal nonattainment, to extreme nonattainment, where
pollution levels far exceed the national standard.
To comply with the standards for ozone, local air districts
have regulations limiting emissions of NOx and VOCs for
stationary sources located in their jurisdiction. These local
air district requirements have cut in half the emissions of
VOCs and NOx, and significantly reduced ozone concentrations
throughout California.
On November 25, 2014, the US EPA proposed to strengthen the
current 2008 NAAQS for ground-level ozone, based on extensive
scientific evidence about ozone's effects on public health and
welfare. US EPA's proposal finds that the current level of the
standard, 75 parts per billion, is not adequate to protect
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public health.
The San Joaquin and South Coast air basins are both in extreme
nonattainment for the 2008 NAAQS for ozone. States with
nonattainment areas would have until 2020 to late 2037 to meet
the proposed health standard, with attainment dates varying
based on the ozone level in the area.
4) Renewable diesel and biodiesel. Renewable diesel, often called
"green diesel" or "second generation diesel," refers to fuels
derived from recently living biological sources but has the
same chemical makeup as petroleum diesel, and can be produced
using a variety of feedstocks, such as vegetable oils and
animal fats.
Biodiesel is also created using a large variety of feedstocks,
such as soybean oil, waste vegetable oil, animal fats or algae.
Biodiesel is chemically different from petroleum diesel and
renewable diesel. Biodiesel can be used in its pure form, or
blended with petroleum-based diesel as an additive. A fuel
blend comprised of 20% biodiesel and 80% petroleum diesel is
called B20. Renewable diesel can be blended in the same way
(where a similar blend of renewable fuel and petroleum diesel
would be termed R20).
CI of biodiesel and renewable diesel. Depending on the
feedstock, the carbon intensity of biodiesel and renewable
diesel can range from one of the lowest of any alternative fuel
available (with fuels from waste oils or tallow), to a CI near
that of conventional diesel (when using Midwest soybeans to
produce the fuel).
NOx of renewable diesel and biodiesel. Although renewable
diesel reduces NOx emissions relative to conventional diesel,
biodiesel can increase NOx emissions compared to diesel fuel.
5) Alternative fuels and infrastructure funding. AB 118 (Núñez,
Chapter 750, Statutes of 2007) created the Alternative and
Renewable Fuels and Vehicle Technology program (ARFVT) and the
Air Quality Improvement program (AQIP). AQIP, administered by
ARB in consultation with local air districts, provides
competitive grants to fund projects to improve the air quality
impacts of alternative fuels and vehicles, vessels, and
equipment technologies. AB 118 provides, upon appropriation by
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the Legislature, approximately $180 million annually until 2023
for these programs. These funds primarily come from additional
fees on vehicle registrations and vessel registrations.
ARFVTP, administered by CEC, provides funding for development
and deployment of alternative and renewable fuels and advanced
transportation technologies to help attain the state's climate
change goals. Eligible projects include, for example,
development, improvement, and production of alternative and
renewable low-carbon fuels; improvement of light-, medium-, and
heavy-duty vehicle technologies; and expansion of
infrastructure connected with existing fleets, public transit,
and transportation corridors.
Comments
1) Purpose of Bill. According to the author, "AB 1176 provides an
opportunity for the Legislature and the Governor to facilitate
important cost-effective transportation infrastructure that can
achieve immediate, tangible, and measurable air quality
benefits for residents living in California communities most
impacted by pollution and GHG emissions. Just as importantly,
the bill provides a cost-effective way for thousands of
Californians of moderate- or low-income means, including my
constituents living in the San Joaquin Valley, to participate
in California's low carbon economy, thereby making significant
contributions on their own towards meeting California's
important environmental and public health objectives."
The author states that AB 1176 is needed because the current
funding available in the private sector for clean energy
infrastructure projects is very limited. Additionally, the
author notes that there exist other business and contractual
impediments and practices that substantially impede the market
penetration of renewable fuels in California and throughout the
nation. As examples, the author cites fuel contracts that can
have terms of 20 years or longer and typically require supplier
exclusivity and allow distributors to sell only those fuels
made available by the supplier. The author also notes that
often contracts require minimum sales volumes of branded fuels,
meaning increased sales of renewable fuels could jeopardize the
retailer's ability to meet minimum volume quotas for
fossil-based fuels. Additionally, the author states that
branding agreements discourage or prohibit retailers from
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promoting or advertising the availability of renewable fuels.
2) Do we need another program? There are already multiple
programs under CEC and ARB to fund infrastructure related to
clean cars. The committee may wish to weigh the benefits of
creating another new program against providing more funding to
existing programs.
3) Not just a financing problem. Although more funding for
infrastructure designated for low carbon diesel may help make
low carbon diesel more available, as noted by the author, there
seem to be broader contractual issues preventing the widespread
availability of biodiesel and renewable diesel that cannot
necessarily be addressed through creation of a new grant
program. It may be more prudent for the author to work to
address these issues before creating a new program to fund a
specific type of alternative fueling infrastructure, especially
in light of the fact that CEC already administers a program
broadly focused on funding infrastructure for vehicles that run
on alternative fuels.
4) Appropriate use of GGRF funds? GGRF funds are required to
facilitate the achievement of GHG emission reductions. This
bill provides GGRF funding for low-carbon diesel fueling
infrastructure that includes equipment such as signage and
point-of-sale systems. It is unclear how ARB could quantify
the GHG emissions of such equipment.
5) Definition. Concerns were raised in the Senate Transportation
and Housing Committee staff analysis that there may only be one
company (the sponsor, Propel Fuels) "currently producing fuel
that meets the requirements of this bill." In order to allow
more fuel types to qualify, amendments taken in that committee
struck all of the requirements that narrowed what types of
fuels would qualify and instead simply defined "low-carbon
diesel fuel" as a biomass-based diesel fuel that is used in
diesel engines and meets the definition of low-carbon diesel
fuel pursuant to the LCFS regulations.
However, the LCFS regulations do not define low-carbon diesel
fuel. Therefore, a diesel fuel that is blended with any amount
of biomass-based diesel may qualify as a "low-carbon diesel
fuel" under the current definition in the bill.
AB 1176 (Perea) Page 11 of
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If the committee believes this bill is necessary, an amendment
is needed to redefine "low-carbon diesel fuel" as a
biomass-based diesel fuel that has a carbon intensity of at
least 50% lower than petroleum diesel, to ensure that there are
GHG emission reduction benefits from using this fuel, and
thereby providing justification for the use of GGRF moneys.
Additionally, as noted in the background, some blends of
biofuel result in an increase in NOx emission relative to
conventional diesel. As the bill proposes infrastructure in
disadvantaged communities, many of which are severe
nonattainment areas for ozone pollution as well as particulate
matter, it is critical that these fuels do not exacerbate
ozone, or other air pollution problems in these regions. To
address this issue, an amendment is needed to require that "low
carbon diesel fuel," as defined in the bill, does not increase
either NOx, or particulate matter, as compared to conventional
diesel.
6) If you build it, will they use it? Proponents state that AB
1176 will result in GHG emission reductions, and criteria air
pollutant reductions from low-carbon renewable diesels and
biodiesels as compared to conventional diesel. One of the
benefits of these types of fuels is that they are "drop in"
fuels, and can be used in diesel-engine vehicles in place of
conventional fossil-fuel diesel. Therefore, proponents note
that they do not require changing out the vehicle fleet to
realize the benefits of the fuel. This differs from other
types of technologies where the vehicle technology requires a
certain type of alternative fuel, as is the case for fuel cell
vehicles that only run on hydrogen. In the fuel cell vehicle
case, getting fuel cell vehicles on the road ensures a market
for the hydrogen fuel. However, diesel trucks, as noted, can
run on conventional diesel or low-carbon diesel fuels. How
then does the funding of this infrastructure ensure fleets will
change over to these low-carbon diesel fuels? How much
infrastructure is needed to make significant market gains and
change consumer behavior?
7) Reprioritize funding. In addition to creating a new program to
fund low-carbon diesel infrastructure, AB 1176 amends CEC's
Alternative and Renewable Fuel and Vehicle Technology (ARFVT)
Program that currently funds alternative vehicle and fuels
infrastructure. This bill would amend that program to specify
AB 1176 (Perea) Page 12 of
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that CEC can extend by two years contracts or grants awarded
under that program if the moneys are reprioritized by CEC to
apply toward projects in disadvantaged communities.
It is unclear why this provision is needed, since CEC already
has the authority to extend contracts or grants awarded through
the ARFVT program.
8) Piece by piece. GGRF investments must facilitate the
achievement of GHG emissions reductions. However, after that
requirement is fulfilled, there are number of other policy
goals that should be considered, including benefits to
environmental quality, resource protection, public health and
the economy, as well as benefits to disadvantaged communities.
And although the fund is growing, it is still a limited source
of revenue. In order to create an optimized investment
strategy from GGRF moneys, proposals should not be considered
in isolation, but be assessed in aggregate to determine what
suite of measures best meets the requirements of the fund, uses
resources most efficiently, and maximizes policy objectives.
As budget discussions on a cap-and-trade investment strategy
have been pushed to later this session, an opportunity exists
to have a comprehensive discussion on the universe of GGRF
proposals currently in the Legislature, during budget
negotiations this summer. If the Legislature feels that the
program established through AB 1176 is an appropriate
expenditure of GGRF moneys, then this measure should also be
considered through the budget process for cap-and-trade
expenditures, along with all other measures proposing to
expend, or authorize for expenditure, GGRF moneys.
Related/Prior Legislation
AB 692 (Quirk) would require 3% of the aggregate amount of
transportation fuel purchased by state agencies to be procured
from very low-carbon fuel sources. AB 692 is also being heard by
this committee today.
DOUBLE REFERRAL:
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This measure was heard in Senate Transportation and Housing
Committee on June 30, 2015, and passed out of committee with a
vote of 10-0.
SOURCE: Propel Fuels
SUPPORT:
Agron
Fresno Chamber of Commerce
San Joaquin Valley Air Pollution Control District
San Joaquin Valley Regional Transportation Planning Agencies
Coalition for Clean Air
OPPOSITION:
None received
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