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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