BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2127


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          Date of Hearing:  May 18, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2127 (O'Donnell) - As Amended May 12, 2016


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          |Policy       |Revenue and Taxation           |Vote:|9 - 0        |
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          Urgency:  Yes State Mandated Local Program:  NoReimbursable:  No


          This bill increases the allowable percentage of gasoline that  
          may be included in ethanol and methanol, from 15% to 18%, for  
          the purposes of the excise tax upon ethanol and methanol, and  
          makes a corresponding change to the definition of "Gasohol" for  
          the purposes of the Motor Vehicle Fuel Tax (MVFT) Law. These  
          expanded definitions will sunset on January 1, 2022.


          FISCAL EFFECT:


          Ongoing annual revenue loss of approximately $98,000 annually. 


          COMMENTS:








                                                                    AB 2127


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          1)Purpose. According to the author, the purpose of this bill is  
            to provide incentives to produce fuel products with lower  
            emissions and carbon intensity. It does this by ensuring that  
            state laws and regulations related to fuel standards are  
            consistent in both language and intent. 



          2)Background.  E85 fuel is derived from blending ethanol fuel  
            and gasoline. Typically, gasoline represents 15% of the  
            blended product. However, the actual percentage may vary.  
            Current California Air Resources Board (CARB) standards  
            specify that allowable percentage of gasoline in E85 is a  
            range of 15 to 21%. 



            While CARB standards establish an acceptable range of the E85  
            share that can be gasoline, existing state tax law is more  
            restrictive. The Use Fuel Tax (UFT) Law sets the excise tax  
            rate for fuels. Vendors that sell fuel placed in the tank of  
            motor vehicles, such as retailers and wholesalers, are charged  
            the excise tax. UFT Law sets the excise tax rate for ethanol  
            and methanol containing no more than 15% gasoline at a lower  
            rate, even though E85 may consist of more than 15% gasoline if  
            CARB standards are followed. 





            The MVFT Law similarly has a more restrictive definition of  
            E85. The MVFT is imposed on each gallon of fuel entered into,  
            or removed from a refinery or terminal rack in, California.  
            The tax is typically paid by blenders and refiners. The MVFT  
            Law defines ethanol and methanol containing more than 15%  
            gasoline as "gasohol" rather than a blended fuel like E85.








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          3)Blenders. Under existing law, a gasoline tax refund is allowed  
            to any person who buys and uses gasoline for the purposes of  
            producing a blended fuel, such as E85, when that fuel is taxed  
            as a use fuel. In other words, a blender can get a  
            reimbursement of the portion of the fuel that is taxed as  
            gasoline prior to blending. The author notes that the tension  
            between these standards has made it difficult for some  
            blenders to obtain gas tax refunds on their fuel blends. The  
            author notes that to receive this refund, blenders must submit  
            receipts for their fuel purchases that show an exact 15% ratio  
            of gas to ethanol, even though there is some confusion over  
            what elements of their blend count as gasoline for tax  
            purposes. 



          4)Reid Vapor Pressure (RVP). Another wrinkle for fuel blenders  
            is that an ethanol blend with exactly 15% gasoline and 85%  
            ethanol - which meets the definition required for a tax  
            reimbursement and as well as CARB specifications - does not  
            meet standards in place for the minimum RVP. RVP is a measure  
            of fuel volatility that much be managed to avoid smog  
            formation in the summer.  



          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081














                                                                    AB 2127


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