BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 1685           Hearing Date:    6/21/2016 
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          |Author:   |Gomez                                                 |
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          |Version:  |6/14/16                                               |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Erin Riches                                           |
          |:         |                                                      |
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          SUBJECT:  Vehicular air pollution:  civil penalties


            DIGEST:  This bill increases and clarifies the civil penalties  
          for certain emissions violations by vehicle and engine  
          manufacturers and distributors.  

          ANALYSIS:
          
          Existing law:
          
          1)Establishes a civil penalty of up to $500 per vehicle,  
            portable fuel container (e.g., gas can), spout, engine, or  
            other unit for a violation of statute, or a violation of any  
            order, rule, or regulation adopted by the state Air Resources  
            Board (ARB) pursuant to statute, for which there is no  
            specific civil penalty or fine.  

          2)Prohibits the import, delivery, purchase, rent, lease,  
            acquisition, or receipt of a new motor vehicle, new engine, or  
            motor vehicle with a new engine, for use, registration, or  
            resale in California unless the vehicle or engine has been  
            certified by ARB, with certain limited exceptions.  Provides  
            that a person in violation of this provision shall be liable  
            for a civil penalty of up to $5,000 per vehicle.

          3)Prohibits the sale of any new motor vehicle in California that  
            does not meet ARB emission standards.  Provides that any  
            manufacturer that violates this provision shall be subject to  
            a civil penalty of $5,000 per action.  







          AB 1685 (Gomez)                                    Page 2 of ?
          
          

          4)Provides that any manufacturer or distributor not in  
            compliance with ARB emission standards or test procedures  
            shall be subject to a civil penalty of $50 for each vehicle  
            that is out of compliance and is first sold in this state.   
            Prohibits the manufacturer or distributor from selling more  
            vehicles until the penalties are paid.  

          This bill:

          1)Establishes a civil penalty of $37,500 per action for a  
            violation of any statute, or any order, rule, or regulation  
            adopted by ARB pursuant to statute, for which there is no  
            specific civil penalty or fine.  Maintains the civil penalty  
            of up to $500 per unit for violations involving portable fuel  
            containers or small off-road engines.  Requires a manufacturer  
            or distributor who is in violation to pay the penalty or  
            penalties as a condition of continued sale in California.   
            Requires ARB to adjust the penalty for inflation based on the  
            California Consumer Price Index.  

          2)Increases, from $5,000 per vehicle to $37,500 per action, the  
            violation for the import, delivery, purchase, rent, lease,  
            acquisition, or receipt of a new vehicle, new engine, or  
            vehicle with a new engine that has not been certified by ARB.   
             Specifies that for dealers, the civil penalty shall increase  
            to $10,000 per action.  Requires ARB to adjust the penalty for  
            inflation based on the California Consumer Price Index.  Adds  
            "introduction into commerce" to the list of violations.   
            Replaces "a person who is a resident of, or who operates an  
            established place of business within, this state" with "a  
            person."  

          3)Increases the civil penalty from $5,000 per action to $37,500  
            per action for selling a new motor vehicle in California that  
            does not meet ARB emission standards.  Requires ARB to adjust  
            the penalties for inflation based on the California Consumer  
            Price Index.

          4)Increases the penalty from $50 per vehicle to a maximum of  
            $37,500 per vehicle for failure to comply with ARB emissions  
            standards or test procedures.  Requires ARB to adjust the  
            penalty for inflation based on the California Consumer Price  
            Index.  









          AB 1685 (Gomez)                                    Page 3 of ?
          
          
          5)Authorizes ARB to order a manufacturer to bring its vehicles  
            into compliance with the emissions configuration they were  
            certified to meet.  Requires a manufacturer to comply with  
            this order as a condition for continued sales in California.    


          COMMENTS:

          1)Purpose.  The author states that Volkswagen's egregious  
            actions (see "Background on the Volkswagen Scandal" below) not  
            only violated public trust, but have had deleterious effects  
            on human health and the environment.  Although new car prices  
            have increased tens of thousands of dollars since the 1970s,  
            California's civil penalties relating to emissions standards  
            have remained flat for decades at $5,000 per vehicle.  The  
            author states that in order to be effective, penalty levels  
            cannot simply be the cost of doing business.  The federal  
            maximum penalty amount for analogous violations is $37,500;  
            moreover, the federal Environmental Protection Agency (U.S.  
            EPA) is required to review penalty amounts every four years  
            and adjust them for inflation.  This bill seeks to strengthen  
            California's ability to deter bad actors that violate the  
            state's strict emissions standards, and to protect public  
            health and the environment.

          2)Federal and state emissions testing requirements.  Nationally  
            and statewide, the transportation sector is responsible for a  
            major portion of air pollution.  To address transportation  
            sector emissions, the federal Clean Air Act authorizes U.S.  
            EPA to establish and regulate standards for mobile sources of  
            pollution.  Because of its pre-existing vehicle emissions  
            standards and motor vehicle air pollution problems, California  
            is also authorized under the Clean Air Act to implement  
            separate stricter state mobile emission standards.  

            Both U.S. EPA and ARB regulations require a manufacturer,  
            prior to introducing a vehicle for sale, to demonstrate that  
            it meets certain federal and state emissions standards.  Only  
            after undergoing this certification process are vehicles legal  
            for sale in California.  In California, applications must be  
            concurrently submitted to, and approved by, both U.S. EPA and  
            ARB.  A manufacturer that fails to comply is subject to civil  
            penalties and other enforcement actions.  The current maximum  
            federal penalty is $37,500 per violation, while a violation of  
            the state certification carries a fine of up to $5,000 per  








          AB 1685 (Gomez)                                    Page 4 of ?
          
          
            vehicle. 

          3)Background on the Volkswagen scandal.  As early as 2013,  
            regulators in California and the European Union noticed that  
            emissions for Volkswagen diesel engines were higher than  
            expected when the cars were tested in actual operating  
            conditions.  Clear evidence that the vehicles' on-road  
            emissions deviated from laboratory testing levels came in May  
            2014 in a study by university researchers working in  
            cooperation with ARB.  The study results prompted ARB and U.S.  
            EPA to launch their own investigations.  On September 3, 2015,  
            representatives of Volkswagen admitted to staff of U.S. EPA  
            and ARB that a large number of their vehicle engines had been  
            designed and manufactured with a software-based "defeat  
            device" to bypass, defeat, or render inoperative elements of  
            the vehicles' emissions control systems.  As a result, these  
            vehicles are 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, of which 79,400 are in California.  

          4)Legislative hearing.  On March 8, 2016, this committee held a  
            joint hearing with the Senate Environmental Quality Committee  
            titled, "Volkswagen's 'Defeat Device:' Update and Implications  
            for California."  During the hearing, committee members  
            expressed the need for stronger penalties to discourage  
            non-compliance by automobile manufacturers, particularly given  
            that  the federal penalties are substantially higher and that  
            the state's penalties were set in 1970 and have not been  
            indexed to inflation.  Committee members suggested that  
            existing ARB penalties do not provide a sufficient deterrent,  
            particularly for egregious actions such as in the Volkswagen  
            case.  This bill seeks to address those concerns.

          5)Fixing the "catchall" provision.  Existing law contains a  
            "catchall" provision establishing a $500 penalty for mobile  
            source violations that do not carry a specific penalty  
            elsewhere in statute.  This provision is commonly applied to  
            violations such as lawn equipment, where a $500 penalty may be  
            appropriate.  It also applies, however, to violations  
            involving much more expensive pieces of equipment.  This bill  
            increases the maximum penalty to $37,500 for expensive  
            equipment, consistent with federal law, but retains the $500  
            penalty for smaller, less expensive equipment such as small  
            off-road engines.  








          AB 1685 (Gomez)                                    Page 5 of ?
          
          

          6)Increasing penalties.  This bill establishes penalties of up  
            to $37,500 for specified violations, and increases the penalty  
            for others from $5,000 per vehicle to $37,500 per action, in  
            line with U.S. EPA penalties.  While the increased amounts may  
            sound high, the author notes that this bill does not require  
            ARB to impose penalties of this amount, but up to this amount.  
             In a report developed pursuant to SB 1402 of 2010 (see  
            "Related Legislation" below), ARB noted that it takes into  
            account the specific circumstances for each enforcement case  
            when determining a penalty.  ARB also noted that penalty  
            determinations are designed specifically to prevent harm to  
            the public and the environment and are tailored so as not to  
            create undue financial hardship.

          7)Accounting for Internet sales.  In addition to updating the  
            civil penalties for emissions violations, this bill makes  
            various updates to statute.  For example, this bill replaces  
            "a person who is a resident of, or who operates an established  
            place of business within, this state" with "a person," and  
            adds "introduction into commerce" to the prohibitions related  
            to new vehicles and engines that are not certified by ARB.   
            The author states that these modernizations address the fact  
            that today's new vehicles can be advertised or sold over the  
            Internet rather than at a brick-and-mortar establishment.   


          8)Stakeholder concerns.  Global Automakers has taken an "oppose  
            unless amended" position.  They raise a number of concerns,  
            some of which the author has addressed in the June 14th  
            amendments, as indicated below.  The Alliance of Automobile  
            Manufacturers, which has taken an "oppose" position, raises  
            similar concerns.  

             a.   This bill would result in a ban on advertising upcoming  
               models, such as through auto shows or in teaser ads, if a  
               manufacturer has committed a violation under this bill.   
               The prior version of this bill added "advertise" and  
               "introduce into commerce" to the list of violations related  
               to engines that have not been certified by ARB.  The new  
               amendments address Global Automakers' concern by removing  
               "advertise" from this provision.  

             b.   This bill would require payment of civil penalties as a  
               condition for continued sale of any vehicles in the state,  








          AB 1685 (Gomez)                                    Page 6 of ?
          
          
               even if the party wishes to avail itself of its right to  
               appeal the order imposing the penalty.  The author is  
               working with stakeholders to address this issue.

             c.   This bill's change of the terminology from "per vehicle"  
               to "per action" is unclear as it may permit multiple  
               penalties per vehicle, or broaden the scope of what  
               "actions" are subject to penalty. The author is working  
               with stakeholders to address this issue.

             d.   This bill would increase the penalties associated with  
               the zer-emission vehicle (ZEV) mandate to $37,500; a  
               manufacturer should not be subject to such punitive  
               penalties for a failure to sell the requisite number of  
               ZEVs in the state.  The author is continuing to work with  
               stakeholders on this issue.

             e.   This bill imposes maximum penalties in several sections  
               with no opportunity for reduction should circumstances  
               warrant.  The June 14th amendments address this concern by  
               amending the penalties in this bill to be "up to" the  
               maximum amount, rather than the specific amount.

             9)   Triple-referral.  This bill was approved by the  
               Environmental Quality Committee on June 8 on a 4-2 vote.   
               It will also be heard by the Judiciary Committee.

          Related Legislation:
          
          ACR 112 (Hadley) - commends ARB for its work uncovering the  
          Volkswagen defeat devices and declares the Legislature's support  
          for the increased use of real-world emissions verification  
          testing and enhanced penalty authority for ARB to deter future  
          efforts to circumvent emissions standards.  This bill is pending  
          referral in the Senate Rules committee. 

          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 it has imposed, and  
          publish a penalty policy in relation to vehicular air pollution  
          control.

          Assembly Votes:








          AB 1685 (Gomez)                                    Page 7 of ?
          
          
               Floor:         48-29
               Appr:          14-6
               Trans:         10-5
          
          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  No


            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          June 15, 2016.)
          
            SUPPORT:  

          American Lung Association in California
          Bay Area Air Quality Management District
          Breathe California
          California Air Pollution Control Officers Association
          California Railroad Industry
          CALPIRG
          Clean Power Campaign
          Coalition for Clean Air
          Environment California
          Natural Resources Defense Council
          Sierra Club California

          OPPOSITION:

          Alliance of Automobile Manufacturers
          Global Automakers



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