BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  April 11, 2016


                        ASSEMBLY COMMITTEE ON TRANSPORTATION


                                 Jim Frazier, Chair


          AB 1851  
          (Gray) - As Amended April 4, 2016


          SUBJECT:  Vehicular air pollution:  reduction incentives


          SUMMARY:  Creates and expands a broad array of incentive  
          programs to increase the sales and use of certain clean air  
          vehicles.  Specifically, this bill:  


          1)Makes findings regarding California's climate change goals and  
            declares the intent of the Legislature to provide more  
            realistic incentives to move customer demand for  
            zero-emission-vehicles (ZEV) to meet the state's greenhouse  
            gas (GHG) emission reduction goals. 


          2)Requires California Air Resources Board (ARB), beginning on  
            January 1, 2017, to limit Clean Vehicle Rebate Program (CVRP)  
            rebates to vehicles with an manufacturer's suggested retail  
            price (MSRP) of $60,000.


          3)Requires the ARB, beginning January 1, 2017, to provide CVRP  
            rebates in the following amounts:


             a)   10% of the MSRP for qualified plug-in hybrid electric  








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               vehicles;


             b)   15% of the MSRP for qualified plug-in battery-electric  
               vehicles; and, 


             c)   25% of the MSRP for qualified fuel cell vehicles;


          4)Requires ARB, beginning January 1, 2017, to increase CVRP  
            rebates to provide the following incentive amounts for  
            residents of a disadvantaged community:


             a)   40% of the MSRP for qualified plug-in hybrid electric  
               vehicles;


             b)   45% of the MSRP for qualified plug-in battery-electric  
               vehicles; and, 


             c)   55% of the MSRP for qualified fuel cell vehicles.


          5)Requires ARB to implement a process to allow eligible CVRP  
            applicants to obtain prompt pre-approval prior to purchasing  
            or leasing a qualifying vehicle and to implement a process  
            that allows new motor vehicle dealers to be refunded any CVRP  
            incentive amount applied to the applicant's conditional sales  
            contract or other vehicle purchase or lease agreement in no  
            fewer than seven days.


          6)Authorizes a new car dealer to apply the CVRP incentive amount  
            to the applicant's conditional sales contract or other vehicle  
            purchase or lease agreement as a down payment or amount due at  
            lease sign or delivery.








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          7)Requires ARB to suspend the CVRP pre-approval process if there  
            are insufficient funds available to award CVRP incentives to  
            provide dealers and consumers with no less than 


          30-days advanced notice if the pre-approval process is  
            suspended.



          8)Requires ARB to adopt regulations implementing the enhanced  
            CVRP rebates and related provisions. 


          9)Requires that GGRF monies, be available upon appropriation by  
            the Legislature, for the enhanced CVRP rebates.


          10)Requires ARB to issue rebates to a property owner or lessee  
            for the purchase and installation of up to two electric  
            vehicle (EV) charging stations on residential properties for  
            residents of disadvantaged communities and up to 10 EV  
            charging stations on commercial or multifamily properties,  
            with rebates provided as follows:


             a)   $2,000 for the first year of installation;


             b)   $1,500 following the first year of installation; and,


             c)   $1,000 following the second year of installation.


          11)Requires, to qualify for the EV charging station rebate, that  
            the EV charging station be in service during the calendar year  








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            in which the rebate is claimed.


          12)Requires that the property owner or lessee who receives  
            rebates for the installation of an EV charging system maintain  
            the charging station for a minimum of 60 months.


          13)Requires ARB to verify that EV charging systems that are  
            installed using the rebates remain operative for a minimum of  
            five years.  Failure to meet this requirement would result in  
            the rebate amount being reclaimed by ARB.


          14)Requires that the rebate recipient not claim a rebate for the  
            installation of an EV charging station if an existing EV  
            charging station has been removed from the property in the  
            previous 12 months.


          15)Provides that ARB shall limit eligible EV charging station  
            rebates to Level 2 stations 


          (220 volt chargers) and rapid charging ports.
          16)Requires ARB to issue regulations with regard to EV charging  
            station rebates.


          17)Requires that GGRF monies be available, upon appropriation by  
            the Legislature, for allocation for EV charging system  
            incentives.


          18)Requires, for the purposes of calculating sales and use tax  
            (SUT) that the value of a trade-in vehicle be deducted from  
            the sales price of a qualifying clean air vehicle and that  
            GGRF funds be used, upon appropriation by the Legislature, to  
            reimburse counties and cities for any revenue losses that may  








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            result.


          19) Removes the cap on the green high-occupancy vehicle (HOV)  
            lane stickers thereby allowing an unlimited number of  
            qualifying vehicles (plug-in electric hybrid vehicles) access  
            to HOVs with single occupants.


          20)Makes related, clarifying amendments.


          21)Defines a variety of terms.


          EXISTING LAW:  


          1)Requires ARB, pursuant to AB 32 (Núñez), Chapter 488, Statutes  
            of 2006, to develop a plan to reduce GHG emissions to 1990  
            levels by 2020.  Under AB 32, ARB is authorized to include the  
            use of market-based mechanisms to comply with these  
            regulations (cap and trade).


          2)Established the GGRF in the State Treasury and requires all  
            funds collected pursuant to cap and trade, with certain  
            limited exceptions, be deposited into the fund for  
            appropriation by the Legislature.


          3)Created the Alternative and Renewable Fuel and Vehicle  
            Technology Program (ARFVTP), pursuant to AB 118 (Núñez),  
            Chapter 750, Statutes of 2007, and extended by AB 8 (Perea),  
            Chapter 401, Statutes of 2013, which requires the California  
            Energy Commission (Commission) to fund projects that develop  
            and deploy technologies and alternative and renewable fuels in  
            the marketplace to help meet the state's climate change goal  
            including, but not necessarily limited to, expanding  








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            alternative fueling infrastructure such as EV charging  
            systems.


          4)Created the Air Quality Improvement Program (AQIP),  
            administered by ARB and the Commission, in consultation with  
            local air districts, to fund specified air quality improvement  
            projects which includes the CVRP, administered by ARB, to  
            promote the production and use of ZEVs. 


          5)Requires, pursuant to SB 535 (de León), Chapter 830, Statutes  
            of 2013, that a minimum of 25% of the available monies in the  
            GGRF go to projects that provide benefits to identified  
            disadvantaged communities and that a minimum of 10% of the  
            available monies in the fund go to projects located within  
            identified disadvantaged communities.


          6)Established the Charge Ahead California Initiative pursuant to  
            SB 1275 (de León), Chapter 530, Statutes of 2014, that, among  
            other things, included the goal of placing into service at  
            least one million ZEVs and near-zero emission vehicles by  
            January 1, 2023, and increasing access for disadvantaged,  
            low-income, and moderate-income communities and consumers to  
            ZEVs and near-zero-emission vehicles.


          7)Authorizes a local jurisdiction to impose SUT on the sale of,  
            storage, use, or other consumption of tangible personal  
            property unless specifically exempted.


          8)Established, pursuant to Executive Order B-16-2012, the goal  
            of placing 1.5 million ZEVs on California's roadways by 2025.


          9)Adopted, pursuant to ARB's Advanced Clean Cars Program, a  
            variety of strategies to convert the passenger fleet to zero-  








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            and near-zero emission vehicles by advancing vehicle emission  
            standards for vehicles which included the requirement that by  
            2025, ZEV sales would represent 15% of sales in 2025.


          10)Allows certain qualifying ZEVs to utilize HOV lanes  
            regardless of occupancy level to incentivize the purchase and  
            use of these clean vehicles. 


          FISCAL EFFECT:  Unknown


          COMMENTS:  With the passage of AB 32, California committed to  
          reducing GHG emissions.  Given that the transportation sector  
          contributes nearly 40% of emissions, it makes sense why so many  
          emissions reduction programs target the transportation sector.   
          While AB 1851 focuses solely on the light-duty (or passenger)  
          fleet, it is important to recognize that the light-duty vehicle  
          sector is only one component of a much larger transportation  
          system that includes ports, trucking, maritime, and rail  
          industries, each of which is a significant contributor of  
          criteria pollutants and GHG emissions.  It is also important to  
          recognize that the freight sector (which includes heavy-duty  
          trucks, ports, highway infrastructure, and rail) has some of the  
          greatest adverse effects on disadvantaged communities because  
          these communities tend to border freight corridors and  
          associated facilities such as warehouses and freight hubs.  

          This bill focuses on much-needed state efforts to convert the  
          existing light-duty or passenger fleet from predominant use of  
          higher polluting, internal combustion engine (ICE) vehicles to  
          cleaner cars such as zero- and near-zero-emission vehicles.  The  
          author points out that recent goals and mandates related to  
          converting the passenger fleet, set forth by the Legislature,  
          the Governor, and ARB, have put increasing pressure on the auto  
          industry to produce and sell these vehicles.  Specifically, the  
          author points to ARB's Advanced Clean Cars Program, which  
          requires manufacturers to sell certain percentages of ZEVs.  The  








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          author contends that while these goals are intended to create  
          pressure and increase adoption of ZEVs, that the mechanisms  
          currently available to dealers to get buyers to consider these  
          vehicles are not working.  He specifically points to the current  
          suite of incentives such as CVRP and HOV access as not providing  
          enough incentives for consumers to take action.  He notes that  
          market forces outside of a car dealer's control, such as low gas  
          prices, also has an impact on whether or not buyers opt to  
          purchase or lease ZEVs.  To illustrate this point, he points to  
          sales data that show in 2015 ZEVs represented 3.1% of new cars  
          sold in California, far from the 25% goal set by the ZEV Mandate  
          for sales in 2025.  

          The author introduced this bill to provide significant financial  
          incentives to purchase certain clean air vehicles.  The author  
          points out that this method has been successfully implemented in  
          Norway where incentives were set at nearly 50% of a qualifying  
          vehicles' price.  He notes that these programs have  
          substantially increased sales and improved market penetration.   
          It should also be noted, however, that along with substantial  
          incentives, countries like Norway have also created substantial  
          "disincentives" for purchasing conventional vehicles including  
          increased taxes on these vehicles.  This, along with the  
          relatively high cost of fuel and shorter driving distances  
          create circumstances that are substantially different from those  
          in California. 

          The contention that substantially increasing rebates will  
          automatically spur consumer purchases is likely correct given  
          that rebates would be increased by several orders of magnitude  
          over the current program.   For example, individuals purchasing  
          a Chevy Volt currently receive a $1,500 rebate.  Under this  
          bill, the consumer would receive a $3,300 or $13,000 for  
          disadvantaged community residents.  For battery electric  
          vehicles (such as a Nissan LEAF) for which current rebates are  
          set at $2,500, this bill would provide rebates of $4,350 or  
          $13,050 for disadvantaged community residents.  For fuel cell  
          vehicles, where rebates are currently set $5,000, increased  
          rebates pursuant to AB 1851 would be $14,375 or $31,625 for  








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          disadvantaged community residents).  The important question is  
          whether or not these purchasing habits will be sustained after  
          the program ends.  In the state of Georgia, when successful  
          incentive programs  were eliminated, electric car sales in the  
          state plummeted by 90%, leaving it open to question whether  
          incentives actually create a lasting effect on buyer behavior or  
          if the incentives only temporarily  affect buyer choice   
          insomuch as decision making is influenced solely by the rebate.   
           Overall, the California New Car Dealers Association (CNCDA)  
          estimates that annual expenditures for this program would be in  
          the vicinity of $750 million to $2 billion annually 


          Vehicle charging incentives:  There is little question that EV  
          owners need to have the confidence that they will be able to  
          locate and use EV charging stations so that they can confidently  
          operate their vehicles.  Without this assurance, many will  
          simply choose not to purchase EVs.  To address these concerns,  
          the author included provisions in this bill that would provide  
          additional incentives for the installation of EV charging  
          stations in single family homes, multi-unit dwellings, and  
          commercial buildings.  Specifically, this bill would authorize  
          up to $4,500 in incentive funding, paid over a period of several  
          years, for individuals in disadvantaged communities who wish to  
          install up to two (Level 2 or fast) charging systems.  For  
          commercial developments and multi-unit dwelling, individuals  
          would be authorized to receive a $4,500 rebate (per charging  
          system) for the installation of up to ten (Level 2 or fast) EV  
          charging systems.  The funding for these rebates would come from  
          the GGRF, upon appropriation by the Legislature.  To ensure that  
          the systems are installed and utilized as intended, this bill  
          would require that ARB ensure that the EV charging systems are  
          installed maintained for at least 5 years and, if they are not,  
          ARB would be required to seek reimbursement of the incentive  
          amount from the incentive program recipient.


          While the availability of EV charging systems can be an  
          impediment to EV adoption, it is unclear whether incentive  








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          programs for the installation of home, commercial, and  
          multi-unit dwelling charging systems are needed.  For example,  
          studies show that most EV owners use a standard, 110 outlet to  
          charge their vehicles at home overnight.  Given that the program  
          only qualifies individuals for Level 2 or fast charging systems,  
          many may not feel compelled to utilize the incentive funding.  

          Multi-unit dwellings and commercial buildings present a unique  
          set of challenging circumstances with respect to EV charging  
          system installation.  For example, retrofitting a building to  
          accommodate increased loads on the electrical system as can be  
          very costly.  Additionally, unless these systems include a  
          payment collection system, many landlords or commercial property  
          owners may pass on installing EV charging systems to avoid these  
          increased costs.  

          Manufacturer's suggested retail price cap:  In an effort to  
          limit rebate amounts, the author has included an MSRP "cap" of  
          $60,000 which would effectively limit buyers who wish to use  
          incentives to vehicles with an MSRP of $60,000 or less.  On one  
          hand, it is wise to institute a cap as a mechanism to limit  
          annual program expenditures; however, instituting an MSRP cap  
          would exclude a number of vehicles that would otherwise  
          qualifying (namely Tesla and some Cadillac models).  With  
          substantial incentive amounts at stake, it is likely that buyers  
          would steer away from purchases of these higher-priced vehicles.  
           While it could be argued that this could further encourage auto  
          manufactures to lower their price point, it could also be argued  
          that this could harm California-based companies and the dealers  
          that sell these high-priced vehicles.   

          It is important to note that a similar MSRP cap was suggested by  
          ARB in 2014 as part of proposed CVRP program revisions to  
          address growing concerns incentives were mostly being used by  
          the affluent to purchase expensive vehicles.  After receiving  
          numerous complaints about the potential adverse impacts of the  
          cap on the CVRP program and California's economy, as well as  
          concerns as about how the proposal could stifle competition and  
          innovation, ARB ultimately opted not to implement the MSRP cap  








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          in the CVRP.  While this same argument could be made for the  
          MSRP cap in AB 1851, because incentive amounts are based on a  
          qualifying vehicle's MSRP, eliminating the MSRP cap in this bill  
          would serve to further increase incentive amounts for vehicles  
          and undoubtedly place an increased burden on the GGRF. 

          Sales tax exemption:  The author proposes to increase incentives  
          for the purchase of certain ZEVs by providing that, for the  
          purposes of calculating SUT, that the value of a trade-in  
          vehicle be deducted from the sales price of a qualifying ZEV.   
          This bill addresses potential loss of revenue to local  
          jurisdictions by requiring that they be reimbursed using GGRF  
          revenues.  While it is true that ZEVs are comparatively more  
          costly than traditional vehicles, resulting in an increased tax  
          burden on the consumer, these vehicles also provide substantial  
          cost savings to buyers in terms of lower maintenance costs and  
          reduced fueling costs.  It is likely these savings, especially  
          over time, would far outweigh the amount that would be offset by  
          the SUT exemption.  Additionally, while lowering the tax burden  
          on the buyer would provide a benefit, the pass-through costs to  
          the GGRF could prove substantial.



          HOV sticker program incentives:  Under current law, green HOV  
          access stickers are available for 85,000 plug-in hybrid electric  
          vehicles that meet certain requirements.  To date, the 85,000  
          has been met meaning that no new green stickers can be issued.   
          The white sticker program, which provides HOV access to  
          battery-electric and fuel cell vehicles, does not have a cap on  
          the number of stickers that can be issued.  The green stickers,  
          as well as the white stickers, provide plug-in electric hybrid  
          vehicles with access to HOV lanes and freeway ramps, regardless  
          of occupancy level, until 2019.  

          To further incentivize the purchase of ZEVs the author has  
          included a provision that would lift the cap on green HOV  
          sticker program, thereby providing that an unlimited number of  
          vehicles that qualify for the green sticker program can access  








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          HOV lanes.  While it is true that HOV access provides a  
          low-overhead and popular method by which to incentivize the  
          purchase of HOVs, providing an unlimited number of qualifying  
          vehicles access to HOV lanes could result in increased HOV lane  
          congestion thereby decreasing their utility for ZEV owners and  
          carpoolers alike. It is also important to point out that this  
          bill conflicts with AB 1964 (Bloom), that recently passed out of  
          this committee in that AB 1964 provides plug-in hybrid electric  
          vehicles access to HOV lanes for only a three year period upon  
          execution of the existing program in 2019.
           
          Writing in support, CNCDA writes that in 2015, California's new  
          car dealers sold more than two million new vehicles but of this  
          number, only 3.1% were ZEV and plug-in hybrid vehicles.  CNCDA  
          states unequivocally that drastic measures need to be taken  
          immediately to improve ZEV adoption rates if the states goals  
          and mandates are to be achieved.  CDNA notes that while existing  
          incentive programs have been successful, they clearly are not  
          creating enough of an incentive to get buyers to purchase these  
          cars.  CNCDA feels strongly that substantially increased  
          subsidies, such as those provided in countries like Norway, are  
          needed to get buyers' attention.  

          Committee concerns:  If the state wishes to meet its clean air  
          and climate goals, it must definitely help complete the  
          transformation of the passenger fleet from traditional petroleum  
          fuel vehicles to zero- and near-zero-emission vehicles.  Yet  
          despite spending millions of dollars,  lagging sales of ZEVs  
          leaves one wondering if the efforts have been for not or if  
          additional effort, and expense, should be imparted.  This is a  
          complex question with even more complex answers and it is  
          unclear if incentives alone, no matter how much money is spent,  
          will encourage buyers to adopt ZEVs, particularly when gas  
          prices are low and the cost of conventional vehicles is  
          competitive or lower than ZEVs.

          Therefore, this bill stands on the premise that increasing  
          incentives (to up to half the value of a vehicle) is what is  
          needed to convert the fleet, but given the cost of nearly $2  








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          billion annually, it is important to evaluate whether or not  
          other projects, in the transportation sector or otherwise, would  
          achieve more gains with similar, or fewer, expenditures of  
          increasingly popular GGRF revenues.  

          This bill along with AB 1710 (Calderon) would make changes to  
          the CVRP and other programs to provide additional incentive  
                                                                            funding to encourage ZEV adoption.  While this bill is more  
          prescriptive in that it outlines specific program parameters, AB  
          1710 aims to achieve similar outcomes by directing ARB to  
          develop a the program based specified parameters.  In addition,  
          this bill, along with many others would, draw heavily on GGRF  
          revenues, much of which is already subject to continuous  
          appropriation by the Legislature. 

          Suggested amendments:  This bill does not currently provide an  
          "exit strategy" whereby incentive funding could be discontinued  
          should the program prove too costly or be unsuccessful, nor is  
          it clear whether this program would supplant existing CVRP  
          rebates or add to them.  Further, as written, AB 1851 would  
          provide substantially higher rebates for persons who live in a  
          disadvantaged community, without regard to the individual's  
          income and could potentially incentivize manufactures to keep  
          vehicle prices high.  

          To address these concerns, the author has agreed to take  
          amendments in the Assembly Transportation Committee that would:

          1)Limit incentives to the first $60,000 of a vehicle's MSRP or  
            the final sales price of the vehicle, whichever is lower;

          2)Include a provision to sunset the program on January 1, 2026;

          3)Include a provision clarifying that only low- and  
            moderate-income individuals in disadvantaged communities would  
            qualify for the enhanced rebates; and,

          4)Clarifies that the incentives provided in this bill would  
            replace, not be added to, existing incentives provided  








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            pursuant to CVRP.

          Double referral:  This bill will be referred to the Assembly  
          Natural Resources Committee should it pass out of this  
          committee.



          Related legislation:  AB 1964 (Bloom), creates a new program  
          (upon expiration of the existing program) to allow plug-in  
          hybrid electric vehicles access to HOV lanes for a three-year  
          period, regardless of vehicle occupancy level.  AB 1964 passed  
          out of this committee on April 4, 2016, with a 14 to 2 vote and  
          is currently awaiting a hearing in the Assembly Appropriations  
          Committee.

          AB 1710 (Calderon), requires ARB, in coordination with the  
          Commission, on or before January 1, 2019, to develop and  
          implement a comprehensive program to promote advanced-technology  
          light-duty vehicle deployment in the state to drastically  
          increase the use of ZEVs to meet the state's emissions reduction  
          goals.  AB 1710 is scheduled to be heard by this committee on  
          April 11, 2016.

          AB 1965 (Cooper), requires ARB to expand the Enhanced Fleet  
          Modernization Plus Up Program in disadvantaged communities and  
          in areas with poor air quality to increase retirement of high  
          polluting vehicles and replace them with cleaner cars.  AB 1965  
          is scheduled to be heard by this committee on April 11, 2016.

          Previous legislation:  SB 1275 (de León), Chapter 530, Statutes  
          of 2014, established the Charge Ahead California Initiative  
          that, among other things, set the goal of placing one million  
          zero- and near-zero-emission vehicles into service on  
          California's roadways by January 1, 2023, and increasing access  
          to these vehicles for disadvantaged, low-, and moderate-income  
          communities and consumers.










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          AB 8 (Perea), Chapter 401, Statutes of 2013, extended until  
          January 1, 2024, extra fees on vehicle registrations, boat  
          registrations, and tire sales in order to fund the programs that  
          support the production, distribution, and sale of alternative  
          fuels and vehicle technologies, as well as air emissions  
          reduction efforts.  

          SB 535 (de León), Chapter 830, Statutes of 2013, required that a  
          minimum of 25% of the available moneys in the GGRF go to  
          projects that provide benefits to identified disadvantaged  
          communities and that a minimum of 10% of the available moneys in  
          the fund to projects located within identified disadvantaged  
          communities.  


          AB 945 (Ting) of 2015, would have provided a partial SUT  
          exemption for the purchase and use of a qualified vehicle.  AB  
          945 was held on the Assembly Appropriations Committee suspense  
          file.


          AB 1077 (Ting and Muratsuchi), of the 2013-14 Legislative  
          Session, provided a partial SUT exemption for QMV, as specified,  
          and reduced the amount of vehicle license fee imposed on an  
          owner of a QMV.  AB 1077 was held on the Assembly Appropriation  
          Committee suspense file. 


          AB 118 (Núñez), Chapter 750, Statutes of 2007, created the  
          California Alternative and Renewable Fuel, Vehicle Technology,  
          Clean Air, and Carbon Reduction Act of 2007 that required the  
          Commission to implement the ARFVTP and 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.  

          AB 32 (Núñez), Chapter 488, Statutes of 2006, required the ARB  
          to develop a plan of how to reduce emissions to 1990 levels by  
          the year 2020 and also required ARB to ensure that, to the  








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          extent feasible, GHGs reduction requirement and programs direct  
          public and private investment toward the most disadvantaged  
          communities.  

          AB 1007 (Pavley), Chapter 371, Statutes of 2005, required ARB  
          and the Commission to develop a plan to increase alternative  
          fuels use in California.  
          








          REGISTERED SUPPORT / OPPOSITION:




          Support


          Alliance of Automobile Manufacturers


          California New Car Dealers Association




          Opposition


          California Taxpayers Association











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          Analysis Prepared by:Victoria Alvarez / TRANS. / (916) 319-2093