BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 1685 (Gomez)
          Version: June 14, 2016
          Hearing Date: June 28, 2016
          Fiscal: Yes
          Urgency: No
          TH   


                                        SUBJECT
                                           
                      Vehicular Air Pollution: Civil Penalties

                                      DESCRIPTION  

          This bill increases from $500 to $37,500 the maximum civil  
          penalty that may be imposed upon a person who violates specified  
          provisions of California's Vehicular Air Pollution Control  
          statute, or any order, rule, or regulation of the California Air  
          Resources Board adopted pursuant to those provisions.  This bill  
          provides that the Board shall adjust the maximum civil penalty  
          for inflation based on the California Consumer Price Index.   
          This bill provides certain exceptions to the increased maximum  
          civil penalty, including violations involving portable fuel  
          containers or small off-road engines, and provides that  
          automobile dealers who violate specified provisions of the  
          statute shall be subject to a civil penalty not to exceed  
          $10,000.  This bill adjusts from per vehicle to per violation  
          the frequency for which certain penalties may be imposed.

                                      BACKGROUND  

          On September 3, 2015, representatives of the automaker  
          Volkswagen (VW) admitted to the U.S. Environmental Protection  
          Agency (U.S. EPA) and the California Air Resources Board (CARB)  
          that a large number of their diesel-powered vehicle engines had  
          been manufactured with a device designed to bypass or defeat  
          elements of the vehicle's on-board emissions control system.   
          According to the British Broadcasting Company:

            [these] engines had computer software that could sense  








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            [emissions] test scenarios by monitoring speed, engine  
            operation, air pressure and even the position of the steering  
            wheel.  When the cars were operating under controlled  
            laboratory conditions - which typically involve putting them  
            on a stationary test rig - the device appears to have put the  
            vehicle into a sort of safety mode in which the engine ran  
            below normal power and performance.  Once on the road, the  
            engines switched out of this test mode . . . and emitted  
            nitrogen oxide pollutants up to 40 times above what is allowed  
            in the US.  (Russell Hotten, Volkswagen: The Scandal  
            Explained, BBC (December 10, 2015)  
             [as of June 23,  
            2016].)

          Indications of a problem with VW's diesel fleet began surfacing  
          at least a year earlier when in 2014, "regulators raised  
          concerns about VW emissions levels, but these were dismissed by  
          the company as technical issues and unexpected real-world  
          conditions."  (Id.)  However, once regulators uncovered the true  
          cause of these emissions irregularities, they determined that  
          "482,000 cars in the US only, including the VW-manufactured Audi  
          A3, and the VW models Jetta, Beetle, Golf and Passat" were  
          equipped with the device."  VW has since "admitted that about 11  
          million cars worldwide, including eight million in Europe, are  
          fitted with the so-called defeat device," prompting regulators  
          in the UK, Italy, France, South Korea, Canada and, Germany, to  
          open investigations.  (Id.)  CARB is also now investigating  
          other manufacturers testing results to see if this problem  
          extends beyond VW.

          The financial cost to VW has been significant.  With the company  
          recalling millions of cars worldwide, it has set aside ?6.7bn  
          (4.8bn) to cover costs resulting in the company posting its  
          first quarterly loss for 15 years of ?2.5bn in late October of  
          last year.  However, the costs to VW are likely to escalate  
          given that the EPA has the power to fine a company up to $37,500  
          for each vehicle that breaches standards - a maximum fine of  
          about $18bn."  (Id.)

          Under existing law, CARB can impose a civil penalty of $500 per  
          vehicle against an automaker who violates the Board's emissions  
          standards.  This bill would increase that civil penalty amount  
          to $37,500 per violation.

                                CHANGES TO EXISTING LAW







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           Existing federal law  , the Clean Air Act, authorizes the  
          imposition of civil penalties against any person who violates  
          specified provisions pertaining to motor vehicle emission and  
          fuel standards in the amount of $25,000 (now $37,500), as  
          specified.  (42 U.S.C. Sec. 7524.)

           Existing law  provides that any person who violates any provision  
          of California's Vehicular Air Pollution Control statute, or any  
          order, rule, or regulation of the California Air Resources Board  
          (state board) adopted pursuant to the statute, and for which  
          violation there is not provided in this part any other specific  
          civil penalty or fine, shall be subject to a civil penalty not  
          to exceed $500 per vehicle, portable fuel container, spout,  
          engine, or other unit subject to regulation.  (Health & Saf.  
          Code Sec. 43016.)

           Existing law  provides that any person who engages in specified  
          prohibited transactions shall be liable for a civil penalty not  
          to exceed $5,000 per vehicle.  (Health & Saf. Code Sec. 43154.)

           Existing law  provides that no new motor vehicle shall be sold in  
          California that does not meet the emission standards adopted by  
          the state board, and any manufacturer who sells, attempts to  
          sell, or causes to be offered for sale a new motor vehicle that  
          fails to meet the applicable emission standards shall be subject  
          to a civil penalty of $5,000 for each such action.  (Health &  
          Saf. Code Sec. 43211.)

           Existing law  provides that any manufacturer or distributor who  
          does not comply with the emission standards or the test  
          procedures adopted by the state board shall be subject to a  
          civil penalty of $50 for each vehicle which does not comply with  
          the standards or procedures and which is first sold in this  
          state.  The payment of such penalties to the state board shall  
          be a condition to the further sale by such manufacturer or  
          distributor of motor vehicles in this state.  (Health & Saf.  
          Code Sec. 43212.)

          This bill  would increase the above civil penalty amounts to  
          $37,500 for each action in violation, except as specified.

           This bill  would specify that violations involving portable fuel  
          containers or small off-road engines shall be subject to a civil  
          penalty not to exceed $500 per unit.







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           This bill  would specify that a dealer who engages in specified  
          prohibited transactions shall be subject to a civil penalty not  
          to exceed $10,000 for each such action.

           This bill  would direct the state board to adjust the above civil  
          penalty amounts for inflation based on the California Consumer  
          Price Index.

           This bill  would provide that for a manufacturer or distributor,  
          the payment of the penalty shall be a condition for the  
          continued sale in this state of products regulated by the state  
          board.

           This bill  would provide that the state board may order a  
          manufacturer of motor vehicles to bring its vehicles into  
          compliance with the emissions configuration to which they were  
          certified, and that compliance with the order shall be a  
          condition for the continued sale of motor vehicles by that  
          manufacturer in this state.
          
                                        COMMENT
           
           1.Stated need for the bill
           
          The author writes:

            By law, California's mobile source civil penalty amounts must  
            be set at levels that ensure compliance with the law and deter  
            future violations.  To be effective, penalty levels cannot  
            simply be the cost of doing business.  In the 1970s, the  
            average new car cost around $3,500.  Today, the average is  
            around $33,500, with some models costing tens of thousands of  
            dollars more.  However, the maximum penalty for actions  
            involving the sale of new motor vehicles that do not meet the  
            state's emission standards or test procedures has remained  
            flat for decades, at a woefully inadequate $5,000 per vehicle.  
             By contrast, the federal maximum penalty amount for analogous  
            violations is $37,500.  Moreover, U.S. EPA is required to  
            review penalty amounts every four years and adjust them for  
            inflation.

            AB 1685 seeks to remedy this discrepancy and strengthen  
            California's ability to deter bad actors that violate the  
            state's strict emissions standards as well as protect public  







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            health and the environment.  Specifically, AB 1685:
                 increases the maximum penalty for mobile source  
               violations to $37,500 (equal to the penalty prescribed in  
               federal law), while retaining the current, lower penalty  
               amount for smaller, less expensive equipment, like small  
               off-road engines;
                 prohibits further sales until the penalty is paid,  
               consistent with other provisions of existing law;
                 modernizes the code to reflect that today's new vehicles  
               may be advertised or sold over the internet, rather than at  
               a brick-and-mortar establishment exclusively;
                 allows ARB [California Air Resources Board] to order  
               manufacturers to bring their vehicles into the emissions  
               configuration of the ARB certification, and requires  
               compliance with the order before a manufacturer may  
               continue selling vehicles in California; and
                 allows ARB to update its vehicular penalties  
               periodically for inflation, and exempts this adjustment  
               from the Administrative Procedures Act, so that penalties  
               maintain their deterrent effect over time.

           1.Disincentivizing noncompliance  

          This bill would raise the maximum civil penalties that the  
          California Air Resources Board (CARB) could impose on parties  
          who violate standards established under California's Vehicular  
          Air Pollution Control statute.  The civil penalties currently  
          authorized in law - generally either $500 or $5,000 per  
          noncompliant vehicle - were set by the Legislature in 1975.   
          Having not been adjusted since that time, California's civil  
          penalty level is now up to 1/75th the amount that may be imposed  
          for similar violations under the federal Clean Air Act, and does  
          not carry the same force to disincentivize parties from engaging  
          in non-compliant acts.  This bill raises the maximum civil  
          penalty that may be assessed under state law to match its  
          federal counterpart.  Writing in support, the American Lung  
          Association in California states:

            This bill would strengthen California's ability to protect  
            public health by updating the penalties as a deterrent for air  
            pollution violations such as those recently perpetrated by  
            Volkswagen.  Largely due to transportation pollution,  
            California is home to the nation's most polluted cities.   
            Disadvantaged communities throughout California bear a  
            disproportionate burden of air pollution and other  







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            environmental burdens made worse by traffic pollution.  AB  
            1685 would update the decades-old penalty structure for  
            violating emissions programs as an important deterrent to  
            cheating on California's emissions standards and certification  
            tests.

            AB 1685 would update the maximum fines able to be imposed on  
            emission violations to align with the federal penalty level of  
            $37,500 per vehicle.  This would raise the fine up from the  
            current $5,000 maximum per vehicle that was established  
            decades ago and reflected a much lower overall vehicle  
            purchase price.  AB 1685 also provides for the maximum fine to  
            be adjusted over time based on inflation, ensuring a more  
            reasonable penalty amount remains in place going forward.  
            Updating the emissions penalties is long overdue and has been  
            clearly highlighted as insufficient in light of the Volkswagen  
            emissions cheating scandal.  

           2.Opposition concerns  

          Domestic and foreign manufacturers of automobiles, speaking  
          through their representative trade organizations, have raised  
          several concerns over how the California Air Resources Board  
          will assess these enlarged civil penalties.  The Alliance of  
          Automobile Manufacturers (Alliance) summarizes these concerns as  
          follows:
           increasing the penalty for failing to produce a zero emission  
            vehicle credit (ZEV) from $5,000 to $37,500 results in an  
            unconscionable penalty of up to $150,000 per vehicle.  Such a  
            dramatic penalty increase for ZEV credits is unwarranted.  
            (Section 43211)
           increasing the current penalties by up to 750 times is  
            excessive and is not accompanied by any requirement for the  
            California Air Resources Board (CARB) to update their civil  
            penalty policy to clearly articulate how the increased  
            penalties are to be calculated.   If penalties are to be  
            increased, that policy must be revised to provide quantifiable  
            standards for the calculation of penalties so as to ensure  
            consistency, transparency, and due process.
           requiring payment of a civil penalty as a condition of  
            continued sale during an appeal unfairly requires up-front  
            payment of amounts that could later be found excessive.  
            (Sections 43016, 43154, 43212)
           requiring CARB to prohibit sales of an entire fleet of  
            compliant vehicles when only a small subset cannot be brought  







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            into compliance is unwarranted and beyond the stated intent of  
            the bill. (Section 43214)
           changing penalties from "per vehicle" to "per action" has an  
            unclear effect and is concerning to the extent it may be  
            construed to permit multiple penalties per vehicle, or broaden  
            the scope of what actions are subject to penalty. (Section  
            43016, 43154)

          Along with the Alliance, manufacturers represented by Global  
          Automakers argue that the requirement to pay a civil penalty,  
          even if the penalty amount is contested and is under review by  
          an appellate body, as a condition for the continued sale of  
          motor vehicles by a manufacturer or distributor is overly  
          punitive.  As stated by the Alliance, a manufacturer who is  
          assessed a penalty for one non-compliant product line would  
          potentially be prohibited from selling any other motor vehicles,  
          even in compliant product lines, unless they first paid the  
          assessed penalty to the ARB.  The Committee may wish to consider  
          the extent to which compliant product lines offered by a  
          manufacturer or distributor ought to be impacted by disputes  
          over penalties concerning non-compliant product lines, and  
          whether parties ought to be given an opportunity to request the  
          stay of a penalty assessment while appealing that assessment,  
          which is typically available (though not necessarily granted) to  
          litigants appealing a judgment in civil litigation.


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

           Opposition  :  Alliance of Automobile Manufacturers; Global  
          Automakers

                                        HISTORY
           
           Source  :  Author

           Related Pending Legislation  :  None Known

           Prior Legislation  :  AB 2922 (DeSaulnier, Ch. 687, Stats. 2008)  
          specified that violations of California Air Resources Board  
          rules or regulations that are subject to a $500 penalty include  







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          those relating to portable fuel containers, spouts, engines, and  
          other units subject to regulation under the Board's authority to  
          control vehicular air pollution.

           Prior Vote  :

          Senate Transportation and Housing Committee (Ayes 7, Noes 4)
          Senate Environmental Quality Committee (Ayes 4, Noes 2)
          Assembly Floor (Ayes 48, Noes 29)
          Assembly Appropriations Committee (Ayes 14, Noes 6)
          Assembly Transportation Committee (Ayes 10, Noes 5)

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