BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Wieckowski, Chair
                                2015 - 2016  Regular 
           
          Bill No:            AB 1685
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          |Author:    |Gomez                                                |
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          |Version:   |4/11/2016              |Hearing      |6/8/2016        |
          |           |                       |Date:        |                |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Dan Brumbaugh                                        |
          |           |                                                     |
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          SUBJECT:  Vehicular air pollution:  civil penalties.

          Existing law:
          
          1) Requires that persons who violate any California Air  
             Resources Board (ARB) order, rule, or regulation, where there  
             is not a penalty described for the specific violation, shall  
             be subject to a civil penalty not to exceed $500 per vehicle,  
             portable fuel container, spout, engine, or other unit subject  
             to regulation and that the penalty be collected by the State  
             Treasurer and deposited into the Air Pollution Control Fund.  
             (Health and Safety Code 43016)

          2) Prohibits residents or businesses from importing, delivering,  
             purchasing, renting, leasing, acquiring, or receiving a new  
             motor vehicle or vehicle engine for use or resale in the  
             state unless the engine has been certified compliant with ARB  
             standards, as specified, with violations set at $5,000 per  
             vehicle. (HSC 43151)

          3) Prohibits new vehicles from being sold in California that do  
             not meet the emissions standard adopted by ARB. (HSC 43211)

          4) Provides penalties of $5,000 per action, for manufacturers  
             who sell, attempt to sell, or offer for sale, a new vehicle  
             that does not meet ARB emission standards. (HSC 43211)

          5) Provides that manufacturers or distributors who do not comply  
             with emission standards or test procedures adopted by ARB may  
             be subject to civil penalties of $50 per vehicle that is not  







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             in compliance and that no further sales of the vehicles can  
             take place until the penalty is paid. (HSC 43212)

          6) Provides, pursuant to federal law, that violators be subject  
             to civil penalties up to $37,500 per non-compliant vehicle or  
             engine, $3,750 per tampering event or sale of defeat device,  
             and $37,500 per day for reporting and recordkeeping  
             violations. (42 U.S. Code 7524; 69(30) Federal Register 7121  
             [Feb. 13, 2004]; 73(239) Federal Register 75340 [Dec 11,  
             2008]; 78(215) Federal Register 66643 [Nov. 6, 2013])

          This bill: 

          1) Increases civil penalties for violations of certain air  
             quality orders, rules, or regulations adopted by ARB from a  
             maximum amount of $50 per vehicle, or $500 or $5,000 per  
             action, depending on the provision, to a maximum of $37,500  
             per vehicle or action, as specified.

          2) Requires, for violations committed by a manufacturer or  
             distributor, that payment of penalties be a condition for  
             further sales by the manufacturer or distributor in the  
             state.

          3) Specifies that violations involving portable fuel containers  
             or small off-road engines retain maximum civil penalties of  
             $500 per unit.

          4) Expands prohibitions for commerce in new motor vehicles or  
             engines in the state that do not meet ARB requirements to  
             include businesses or persons who reside outside the state.

          5) Increases from $5,000 to $37,500, per action, the penalty for  
             any manufacturer who sells, as specified, any new motor  
             vehicle that fails to meet applicable emissions standards. 

          6) Authorizes ARB to order a manufacturer to bring its vehicles  
             into compliance with the emissions configuration they were  
             certified to meet, and requires that compliance with this  
             order shall be a condition of further sale of motor vehicles  
             in California.

          7) Authorizes ARB to adjust the maximum penalties for failure to  
             comply with specified regulations for inflation based on the  








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             California Consumer Price Index without the requirement to go  
             through rulemaking procedures.

          8) Makes related clarifying amendments.

            Background
          
          1) Federal and state air quality laws. The federal Clean Air Act  
             and its implementing regulations are intended to protect  
             public health and environmental quality by limiting and  
             reducing pollution from various sources. Under the Clean Air  
             Act, the United States Environmental Protection Agency (US  
             EPA) establishes National Ambient Air Quality Standards  
             (NAAQS) that apply to outdoor air throughout the country.   
             These federal standards exist for several air pollutants due  
             to their negative impact on public health when above  
             specified thresholds, including ozone, particulate matter  
             (PM), nitrogen oxides (NOx), sulfur oxides (SOx), carbon  
             monoxide, and lead. US EPA reviews each NAAQS at five-year  
             intervals to ensure that the standards are based on the most  
             recent scientific information.

             Regions that do not meet the national standards for any one  
             of the standards are designated nonattainment areas.  The  
             Clean Air Act sets deadlines for attainment based on the  
             severity of nonattainment and requires states to develop  
             comprehensive plans, known as the state implementation plan  
             (SIP), to attain and maintain air-quality standards for each  
             area designated nonattainment for an NAAQS.

             California has some of the most severe air pollution problems  
             in the country.  In particular, the South Coast and San  
             Joaquin air basins, which contain over half of the state's  
             population, are extreme nonattainment regions (the highest  
             degree of severity) for ozone pollution and are both  
             nonattainment regions for PM.

          2) Why transportation emissions standards matter.  Nationally  
             and statewide, the transportation sector is responsible for a  
             major fraction of air pollution, especially NOx (including NO  
             and NO2), which contributes to both ozone and PM formation.   
             People who live and work in closer proximity to roadways are  
             especially exposed to and impacted by this pollution.  
             Nationwide, approximately 16% of US housing units (including  








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             48 million people) are located within 300 ft. of a major  
             highway, railroad, or airport, and the affected population is  
             disproportionately economically disadvantaged and non-white.

             Ground-level ozone (or tropospheric ozone) is a primary  
             component of smog and is formed from the reaction of NOx with  
             volatile organic compounds in sunlight. 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 lungs.  Active  
             children are at highest risk from ozone exposure.

             PM can be directly emitted or can be formed in the atmosphere  
             when gaseous pollutants such as sulfur dioxide and NOx react  
             to form fine particles.  Very fine particulate matter is  
             particularly dangerous since it burrows deep into the lungs  
             where it can enter the bloodstream and harm the heart and  
             other organs. Fine particulate pollution poses an especially  
             critical health danger for children, the elderly, and people  
             with existing health problems.  Exposure to PM 2.5 (i.e.,  
             particles or droplets that are 2.5 ?m or less in diameter) is  
             also linked to cardiovascular disease.  A 2010 ARB analysis  
             based on scientific assessments by US EPA reported that  
             approximately 9,000 people in California are estimated to die  
             prematurely each year as a result of exposure to fine  
             particle pollution.

             In addition, the specialized cancer agency of the World  
             Health Organization, the International Agency for Research on  
             Cancer, classified outdoor air pollution, and PM as a major  
             component of outdoor air pollution, as carcinogenic to  
             humans. 

          3) US EPA and ARB vehicle testing requirements.  To address  
             transportation sector emissions, the federal Clean Air Act  
             authorizes the US EPA to establish and regulate standards for  
             hydrocarbons, carbon monoxide, NOx, and PM from mobile  
             sources of pollution.  Because of its pre-existing  
             vehicle-emission standards and motor vehicle air pollution  
             problems, California is also authorized under the Clean Air  
             Act to implement separate stricter state mobile emission  
             standards.  State law assigns ARB with primary responsibility  
             for control of mobile-source air pollution.  Both US EPA and  
             ARB regulations require that, prior to introducing a vehicle  








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             for sale, a manufacturer must demonstrate that the vehicle  
             meets certain federal and state emissions standards. In  
             particular, manufacturers must demonstrate that its vehicle's  
             exhaust and emission-control systems are durable and comply  
             with the emission standards for the vehicle's useful life.   
             Only after going through this "certification of conformity"  
             (COC) process are vehicles legal for sale. Manufacturers that  
             fail to comply are subject to civil penalties and other  
             enforcement actions.  The current maximum federal penalty for  
             violating the Clean Air Act through the sale of new vehicles  
             without a valid COC is $37,500 per violation.

             In California, applications for certification must be  
             concurrently submitted to and approved by both the ARB and US  
             EPA.  By obtaining and testing a limited sample of vehicles  
             from a test group or engine family, and attempting to  
             duplicate the manufacturers' vehicle emissions certification  
             tests, ARB's In-Use Compliance Program aims to ensure that  
             manufacturers' vehicles meet emissions standards throughout  
             their useful lives.

          4) The Volkswagen case and its lessons.  As described in the  
             background paper of the Joint Oversight Hearing by the Senate  
             Transportation and Housing and Environmental Quality  
             Committees (Volkswagen's "Defeat Device:" Update and  
             Implications for California, March 8, 2016), a 2014 study by  
             academic researchers, followed by an expanded 2015  
             investigation by ARB and US EPA of discrepancies between  
             emissions during stationary tests and while driving, led to  
             admission by Volkswagen (VW) that several of their "clean  
             diesel" engines had been designed with software-based "defeat  
             devices" to bypass key elements of the emissions control  
             systems.  As a result, these vehicles were able to pass  
             emissions tests despite exceeding federal emissions standards  
             by up to 40 times.  According to vehicle sales data, there  
             are estimated to be 617,000 of these vehicles nationally,  
             79,400 of which are in California.

             During the hearing, Members of the Senate Committees  
             expressed the need for stronger penalties to discourage  
             non-compliance by automobile manufacturers, particularly  
             given that federal penalties are substantially higher and  
             that penalties for non-compliance in California were set in  
             the 1970 and have not been indexed to inflation.  Members  








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             suggested that existing ARB penalties do not provide  
             sufficient deterrent, particularly for egregious actions to  
             circumvent emissions requirements, such as with VW.

            Comments
          
          1) Purpose of bill. According to the author, "AB 1685 makes long  
             overdue and common sense adjustments to California's mobile  
             source violation penalty amounts - bringing them into  
             equivalence with federal law, ensuring compliance with the  
             state's strict clean air and emissions standards, protecting  
             competitors that abide by the rules, and safeguarding public  
             health and safety."

          2) Updating potential penalties while maintaining flexibility.  
             By raising the maximum penalties, but still allowing ARB  
             discretion on actual penalty amounts up to those maxima, ARB  
             staff expects that there will be a greater deterrence effect  
             for potential violators, as well as real punitive impacts on  
             actual bad actors who knowingly violate emissions standards  
             in the way that VW did.  AB 1685 also allows for ARB to  
             periodically update mobile source penalties by indexing them  
             to inflation, thereby ensuring that penalties maintain their  
             deterrent effect over time.

             Because there have been no increases in specified penalties  
             since they were first created more than four decades ago, AB  
             1685's proposed adjustment to match the federal,  
             inflation-adjusted maximum levels may strike some  
             stakeholders as too dramatic of an increase.  In practice,  
             however, ARB's actual penalties are calculated based on  
             multiple statutory factors, including the violator's ability  
             to pay. Moreover, lower penalty amounts are explicitly  
             retained for smaller, less egregious violations and  
             violations involving lower-value equipment such as off-road  
             engines and fuel containers.

          3) Further statute modernization.  By removing language about  
             place of business and residency, AB 1685 modernizes the state  
             code to allow ARB to assess penalties for violations of its  
             regulations by internet-based entities doing commerce in new  
             cars destined for California.

          4) Statutory overlap and ambiguity?  Existing statute arguably  








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             includes some ambiguity in the interpretation of potentially  
             overlapping violations with different maximum penalties.  AB  
             1685 may exacerbate this ambiguity by increasing the  
             differences in penalties, and thereby incentivizing bad  
             actors to legally challenge which penalties apply to them.   
             Specifically, AB 1685 will update the maximum penalty to  
             $37,500 within HSC 43016(a)(1), which is interpreted as a  
             "catch-all" section, for any relevant violations that do not  
             otherwise have explicit penalties in Part 5 (HSC 43000 et  
             seq.).

             Elsewhere in Part 5, however, HSC 43008.6 authorizes a  
             maximum of $1,500 per violation of Vehicle Code (VEH) 27156,  
             which arguably covers similar emissions control system  
             violations as found in HSC 43000 et seq.  For example,  
             according to VEH 27156(b), "? No person shall disconnect,  
             modify, or alter any such required device," and according to  
             VEH 27156(c), "No person shall install, sell, offer for  
             sale, or advertise any device, apparatus, or mechanism  
             intended for use with, or as a part of, a required motor  
             vehicle pollution control device or system that alters or  
             modifies the original design or performance of the motor  
             vehicle pollution control device or system." 

             Any substantial overlap in violations therefore risks that  
             bad actors may have incentive to argue that HSC 43008.6,  
             with its much lower maximum penalties, applies to them rather  
             than the revised sections of HSC 43000 et seq. with its new  
             maximum penalties of $37,500, pursuant to AB 1685.  To the  
             extent that such reductions of maximum penalties can be  
             pursued and possibly litigated, the goals of AB 1685 and ARB  
             to increase emissions compliance and substantively penalize  
             bad actors may be short-circuited.

             Although the relevant Health and Safety Code sections are  
             conventionally interpreted to apply mainly to manufacturers  
             and distributors of vehicles, and the Vehicle Code section  
             appears to otherwise apply mostly to vehicle operators, these  
             targets are not explicitly specified within all the  
             highlighted sections above, contributing to possible  
             ambiguity of interpretation and applicability.  As this bill  
             continues to move, the author or other Committees may wish to  
             further explore this issue to resolve whether it would be  
             precautionary and advantageous to reduce such ambiguities.








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            TRIPLE REFERRAL:    

          If this measure is approved by the Senate Environmental Quality  
          Committee, the do pass motion must include the action to  
          re-refer the bill to the Senate Transportation and Housing  
          Committee.
          
          Related/Prior Legislation
          
          ACR 112 (Hadley) thanks ARB for its exemplary work and tenacity  
          in uncovering emissions control defeat devices on certain  
          diesel-fueled VW motor vehicles.  ACR 112 was amended and passed  
          out of the Assembly Committee on Natural Resources (7-0) and is  
          currently awaiting a vote on the Assembly Floor.

          SB 1402 (Dutton, Chapter 413, Statutes of 2010) requires ARB to  
          provide a specified written explanation prior to imposing an  
          administrative or civil penalty for a violation of air pollution  
          law, make these explanations available to the public, annually  
          report specified administrative penalties imposed, and publish a  
          penalty policy pertaining to vehicular air pollution control. 

          AB 1085 (Mendoza, Chapter 384, Statutes of 2009) requires ARB to  
          release all technical data that is used to develop regulations  
          prior to the comment period of any proposed regulation.
           
            SOURCE:    Assembly Member Gomez  

           SUPPORT:               

          American Lung Association, California
          Bay Area Air Quality Management District
          Breathe California
          California Air Pollution Control Officers Association (CAPCOA)
          CALPIRG
          Clean Power Campaign
          Coalition for Clean Air
          Environment California
          Natural Resources Defense Council
          Sierra Club California
           
           OPPOSITION:









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          None received
                                      -- END --