BILL ANALYSIS Ó AB 2127 Page 1 Date of Hearing: May 18, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2127 (O'Donnell) - As Amended May 12, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 Page 2 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. AB 2127 Page 3 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 Page 4