BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2576


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          Date of Hearing:  April 4, 2016


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          AB 2576  
          (Gray) - As Introduced February 19, 2016


          SUBJECT:  Recycling:  glass container manufacturers:  market  
          development payments


          SUMMARY:  Annually appropriates $20 million from the Greenhouse  
          Gas Reduction Fund (GGRF) to the Department of Resources  
          Recycling and Recovery (CalRecycle) for market development  
          payments to glass container manufacturers of an unspecified  
          amount per ton of state-generated cullet that is used for glass  
          manufacturing in the state.  


          EXISTING LAW:  


          1)Requires the Air Resources Board (ARB), pursuant to California  
            Global Warming Solutions Act of  2006 [AB 32 (Nunez), Chapter  
            488, Statutes of 2006], to adopt a statewide greenhouse gas  
            (GHG) emissions limit equivalent to 1990 levels by 2020 and  
            adopt regulations to achieve maximum technologically feasible  
            and cost-effective GHG emission reductions.  AB 32 authorizes  
            ARB to permit the use of market-based compliance mechanisms to  
            comply with GHG reduction regulations, once specified  
            conditions are met.

          2)Establishes the GGRF and requires all moneys, except for fines  








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            and penalties, collected by ARB from the auction or sale of  
            allowances pursuant to a market-based compliance mechanism  
            (i.e., the cap-and-trade program adopted by ARB under AB 32)  
            to be deposited in the GGRF and available for appropriation by  
            the Legislature.

          3)Continuously appropriates: 

             a)   10% of the GGRF for the Transit and Intercity Rail  
               Capital Program; 

             b)   5% for the Low Carbon Transit Operations Program; 

             c)   20% for the Affordable Housing and Sustainable  
               Communities Program; and,

             d)   25% for high speed rail.  

          4)Establishes the GGRF Investment Plan and Communities  
            Revitalization Act to set procedures for the investment of GHG  
            allowance auction revenues.  Authorizes a range of GHG  
            reduction investments and establishes several policy  
            objectives, including: 

             a)   Maximize economic, environmental, and public health  
               benefits; 

             b)   Foster job creation; 

             c)   Complement efforts to improve air quality; 

             d)   Direct investment toward the most disadvantaged  
               communities and households in the state; 

             e)   Provide opportunities for businesses, public agencies,  
               nonprofits, and other community institutions to participate  
               in and benefit from statewide efforts to reduce GHG  
               emissions; and, 









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             f)   Lessen the impacts and effects of climate change on the  
               state's communities, economy, and environment. 

          5)Requires the investment plan to allocate (1) a minimum of 25%  
            of the available moneys in the GGRF to projects that provide  
            benefits to identified disadvantaged communities, and (2) a  
            minimum of 10% of the available moneys in the GGRF to projects  
            located within identified disadvantaged communities. 

          6)Pursuant to the California Beverage Container Recycling and  
            Litter Reduction Act (Bottle Bill): 



             a)   Requires beverage containers sold in this state to have  
               a California refund value (CRV) of 5 cents for containers  
               that hold fewer than 24 ounces and 10 cents for containers  
               that hold 24 ounces or more and requires a distributor to  
               pay a redemption payment to CalRecycle.  Continuously  
               appropriates these funds to CalRecycle for the payment of  
               refund values and processing fees;  
             b)   Requires that each new glass container manufactured in  
               the state contain a minimum of 35% postfilled (recycled  
               food container cullet) glass.  Requires every glass food,  
               drink, or beverage container manufacturer in the state to  
               report the amount of tons of new glass and the tons of  
               postfilled glass used in the manufacturing of those  
               containers to CalRecycle every month; and   


             c)   Among other payments, annually allocates $10 million for  
               quality incentive payments (QIP) of up to $60 per ton of  
               recycled glass cullet to glass recyclers.  


          FISCAL EFFECT:  Unknown


          COMMENTS:  








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          1)Existing GGRF funding and programs.  The 2014-15 Budget Act  
            allocated GGRF revenues for the 2014-15 fiscal year and  
            established a long-term plan for the allocation of GGRF  
            revenues beginning in fiscal year 2015-16.  Thirty-five  
            percent of GGRF is continuously appropriated for investments  
            in transit, affordable housing, and sustainable communities.   
            Twenty-five percent is continuously appropriated to continue  
            the construction of the high-speed rail project.  The  
            remaining 40% is subject to annual appropriation by the  
            Legislature for investments in programs that include  
            low-carbon transportation, energy efficiency and renewable  
            energy, and natural resources and waste diversion.  An  
            expenditure plan for the 40% was not included in the 2015-16  
            Budget Act, with the exception of $227 million appropriated to  
            continue funding for specified existing programs.  The  
            remaining 2015-16 revenues, along with 2016-17 revenues, are  
            available for appropriation this year.  



          The 2016 Annual Report of Cap and Trade Auction Proceeds  
            includes an analysis of funds spent within and benefiting  
            disadvantaged communities, excluding high speed rail spending.  
             According to the report, 39% of expenditures were for  
            projects located within disadvantaged communities and 51% of  
            the overall funding benefited disadvantaged communities.  
            Listed below are the major GGRF program areas, administering  
          agency, and funding to date:


             a)   Transportation and Sustainable Communities


               i)     High Speed Rail, High Speed Rail Authority  
                 (Authority), $750 million










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               ii)    Transit and Intercity Rail Capital Program,  
                 Transportation Agency, $225 million


               iii)   Low Carbon Transit Operations Program, Department of  
                 Transportation (Caltrans), $125 million


               iv)    Affordable Housing and Sustainable Communities  
                 Program, Strategic Growth Council (SGC), $530 million


               v)     Low Carbon Transportation, ARB, $325 million


             b)   Clean Energy and Energy Efficiency


               i)     Low-Income Weatherization Program, Community  
                 Services and Development (CSD), $154 million


               ii)    Energy Efficiency in Public Buildings, California  
                 Energy Commission (CEC), $20 million


               iii)   Agricultural Energy and Operational Efficiency,  
                 Department of Food and Agriculture (CDFA), $75 million


               iv)    Water-Energy Efficiency, Department of Water  
                 Resources (DWR), $75 million


             c)   Natural Resources and Waste Diversion


               i)     Wetlands and Watershed Restoration, Department of  
                 Fish and Wildlife (DFW), $27 million








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               ii)    Urban Forestry, Forest Health Restoration, and  
                 Reforestation, Department of Forestry and Fire Protection  
                 (CAL FIRE), $42 million


               iii)   Waste Diversion, CalRecycle, $31 million


            The Governor's 2016-17 Budget proposes just under $3.1 billion  
          in expenditures:  


             d)   Continuous Appropriations


               i)     High Speed Rail, Authority, $500 million 


               ii)    Low Carbon Transit Operations, State Transit  
                 Assistance, $100 million 


               iii)   Transit and Intercity Rail Capital Program,  
                 Transportation Agency, $200 million 


               iv)    Affordable Housing and Sustainable Communities  
                 Program, SGC, $400 million 


             e)   Fifty Percent Reduction in Petroleum Use 


               i)     Transit and Intercity Rail Capital Program,  
                 Transportation Agency, $400 million 










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               ii)    Low Carbon Road Program, Caltrans, $100 million 


               iii)   Low Carbon Transportation and Fuels, ARB, $500  
                 million 


               iv)    Biofuel Facility Investments, CEC, $25 million 


             f)   Local Climate Action 


               i)     Transformative Climate Communities, SGC, $100  
                 million 


             g)   Short-Lived Climate Pollutants 


               i)     Black Carbon Woodsmoke and Refrigerants, ARB, $60  
                 million 


               ii)    Waste Diversion, CalRecycle, $100 million 


               iii)   Climate Smart Agriculture - Healthy Soils and Dairy  
                 Digesters, CDFA, $55 million 


             h)   Safeguarding California/Water Action Plan 


               i)     Water and Energy Efficiency, CDFA and DWR, $30  
                 million 


               ii)    Drought Executive Order, CEC, $60 million 








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               iii)   Wetlands and Watershed Restoration/CalEcoRestore,  
                 DFW, $60 million 


             i)   Safeguarding California/Carbon Sequestration 


               i)     Healthy Forests and Urban Forestry, CAL FIRE, $180  
                 million 


               ii)    Urban Greening, Natural Resources Agency, $20  
                 million 


             j)   Energy Efficiency/Renewable Energy 


               i)     Energy Efficiency for Public Buildings, Department  
                 of General Services, $30 million 


               ii)    California Lending for Energy and Environmental  
                 Needs Center, I Bank, $20 million 


               iii)   Energy Corps, Conservation Corps, $15 million 


               iv)    Energy Efficiency Upgrades/Weatherization,  
                 Department of Community Services and Development, $75  
                 million 


               v)     Renewable Energy and Energy Efficiency Projects,  
                 University of California, California State University,  
                 $60 million  








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          2)Author's statement: 


               Furnace-ready recycled glass (cullet) is expensive and hard  
               to acquire. Single-stream recycling systems result in  
               low-quality glass that cannot be used in a furnace.  Often,  
               this glass is disposed of in landfills rather than  
               recycled?  Glass container manufacturing uniquely fits the  
               [requirements] for [GGRF] expenditures by reducing  
               emissions in disadvantaged communities.  



               Glass market development payments? will improve the market  
               for recycled glass, incentivize the use of more recycled  
               glass, and increase the availability of furnace-ready  
               cullet in California.   AB 2576 will require that cap and  
               trade funds are used to minimize leakage and protect high  
               wage manufacturing jobs in disadvantaged communities.  
          3)Leaky emissions.  Leakage refers to GHG emissions reductions  
            in state that are replaced by increased GHG emissions out of  
            state.  AB 32 requires ARB to design measures to minimize  
            leakage.  Industries for which production is highly emissions  
            intensive, which results in high compliance costs, and  
            industries facing strong competition from out-of-state  
            producers are generally at highest risk of leakage.  In order  
            to minimize leakage risk, ARB provides free allocations to  
            at-risk industries (identified by the North American Industry  
            Classification System codes) into high, medium, or low risk  
            for leakage.  Over time, ARB will reduce the percentage of  
            free allocations for medium and low risk industry sectors.   
            Glass manufacturing is classified by ARB as a high risk  
            industry, so glass manufacturers receive a base amount of free  
            allowances.  











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          Supporters of this bill argue that because the quantity of free  
            allocations will reduce over time (as the GHG emissions cap is  
            reduced), "thus, in the coming years, glass manufacturers will  
            not be able to meet their compliance obligation with their  
            free allocation alone, and will be forced to either reduce  
            emissions, or purchase more allowances."  The bill's  
            supporters state that this will result in California glass  
            manufacturers becoming less cost competitive relative to  
            out-of-state manufacturers.  

          This bill is intended to provide an incentive to glass  
            manufacturers to fund the use of recycled cullet, thereby  
            reducing GHG emissions and their costs.  
          4)GGRF under the cap?  Approximately 85% of the state's GHG  
            emissions are generated by industries that are regulated under  
            the cap and trade program (i.e., "under the cap").  According  
            to the LAO's Cap-and-Trade Revenues:  Strategies to Promote  
            Legislative Priorities, using GGRF proceeds to fund activities  
            from sources that are under the cap will likely have no net  
            effect on overall emissions, because the cap is limiting  
            overall GHG emissions from these sources.  The committee, and  
            more broadly the Legislature, may wish to consider whether or  
            not it wishes to prioritize funding for GHG emissions  
            reductions outside the cap.  If the committee moves this bill  
            forward, the committee may wish to amend the bill to require  
            that CalRecycle to award funds that will result in GHG  
            emissions reductions that exceed the reductions already  
            required by state law and regulation.  


          5)Glass recycling in California.  California is home to four  
            glass manufacturers:  Owens Illinois has facilities in Vernon  
            and Tracy; Ardagh Glass has a facility in Madera; and, Gallo  
            Glass has a facility in Modesto.  Until last fall, Owens  
            Illinois also operated a plant in Oakland.  



          Under the Bottle Bill, glass beverage containers are required to  








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            contain 35% recycled content.  In addition to the benefits of  
            recycling (e.g., reductions in virgin material use, reduced  
            landfilling, energy savings, and providing markets for  
            recycled materials), recycled cullet produces significantly  
            fewer GHG emissions than virgin glass production.  According  
            to the Glass Packaging Institute, every six tons of recycled  
            cullet used in glass manufacturing reduces GHG emissions by  
            one ton.  
            The Bottle Bill allocates $10 million annually for quality  
            incentive payments of up to $60 per ton of color sorted  
            (green, brown, or clear) recycled glass cullet to glass  
            recyclers.  Recyclers sell the recycled cullet to glass  
            manufacturers based on market pricing; glass container  
            manufacturers argue that they are unable to compete with  
            non-container manufacturers (e.g., fiberglass) for this  
            material and need the additional assistance provided by this  
            bill.  QIP are awarded for color sorted glass only, which is  
            more expensive than mixed cullet.  While fiberglass  
            manufacturers may opt to purchase color-sorted glass, it makes  
            little financial sense for them to do so, as they are able to  
            use less expensive mixed cullet.  


          6)Additional amendments:


             a)   In order to preserve the integrity of the Budget process  
               and ensure adequate legislative oversight of GGRF  
               expenditures, the committee may wish to amend the bill to  
               specify that an amount up to $20 million is available, upon  
               appropriation, for the glass market development payments.  


             b)   This bill does not specify the amount of the incentive  
               payment.  According to the author, the intent is to provide  
               $50 per ton.  The committee may wish to amend the bill to  
               specify this amount. 










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          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Manufacturers and Technology Association


          West Coast Protective League
          Wine Institute


          Opposition


          CalChamber


          CalTax


          Analysis Prepared by:Elizabeth MacMillan / NAT. RES. / (916)  
          319-2092


















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