BILL ANALYSIS Ó AB 2585 Page 1 Date of Hearing: April 18, 2016 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair AB 2585 (Williams) - As Amended March 15, 2016 SUBJECT: California Global Warming Solutions Act of 2006: market-based compliance mechanisms SUMMARY: Requires the Air Resources Board (ARB) to review any market-based compliance regulation to consider the intended purpose and consistency of requirements aimed to prevent "resource shuffling," as defined, among all fuels subject to that regulation. EXISTING LAW, pursuant to the California Global Warming Solutions Act (AB 32): 1)Requires ARB to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020 and to adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. 2)Authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations, once specified conditions are met. ARB has adopted a cap-and-trade regulation which applies to entities responsible for emitting more than 25,000 metric tons of CO2 equivalent per year, including large industrial facilities, electricity generators, AB 2585 Page 2 electricity importers, and distributors of transportation fuels, including gasoline, diesel, and natural gas. The cap-and-trade regulation generally prohibits "resource shuffling," which the regulation defines as any plan, scheme, or artifice undertaken by a "First Deliverer of Electricity" (in-state generators and importers of electricity) to substitute electricity deliveries from sources with relatively lower emissions for electricity deliveries from sources with relatively higher emissions to reduce its emissions compliance obligation. THIS BILL: 1)Requires ARB, no later than July 1, 2018, to review any market-based compliance regulation to consider the intended purpose and consistency of requirements aimed to prevent resource shuffling among all fuels subject to that regulation. 2)Defines "resource shuffling" as any plan, scheme, or artifice undertaken by a fuels provider to substitute fuels deliveries from sources with relatively lower emissions for fuels deliveries from sources with relatively higher emissions to reduce the fuels provider's emissions compliance obligation. FISCAL EFFECT: Unknown COMMENTS: 1)Author's statement: Biomethane, a carbon neutral fuel, is treated differently under the carbon cap than other biomass derived fuels and is assessed compliance costs that act as a disincentive for fuel purchasers. AB 2585 Page 3 "Biogas" which can be produced from various sources, like dairies, landfills and wastewater treatment plants, and municipal and commercial green and food waste, is made up primarily of methane, with significant quantities of carbon dioxide and trace amounts of other gasses including hydrogen, carbon monoxide, nitrogen, oxygen, and hydrogen sulfide. Biogas can be processed further to produce high purity, or "pipeline" quality methane, and is termed "biomethane" to differentiate it from natural gas. Biomethane is carbon neutral or even carbon negative, in contrast to extracted natural gas, since the carbon in biomethane was recently removed from the atmosphere and because it is used to offset fossil fuel use. "Biomass Derived Fuels" are generally exempt under AB 32 when used in transportation. However, biomethane is uniquely subject to additional eligibility requirements in order to claim an exemption. These requirements are intended to prevent "resource shuffling." Anti-resource shuffling regulations prevent a fuel provider from substituting fuel deliveries from sources with lower emissions with deliveries with relatively higher emissions in order to meet the fuel provider's compliance obligation. As such, biomethane vehicle fuel providers must provide historical records for each production facility. No other biomass derived fuel (such as corn ethanol, biodiesel or renewable diesel) is required to meet anti-resource shuffling requirements, though those fuels are sold in much larger quantities in California. As a result of uneven regulatory treatment, biomethane fuel purchasers are paying compliance costs under AB 32 even though it has lowest carbon intensity of any commercially available fuel under the State's Low Carbon Fuel Standard (LCFS). 2)First deliverer of electricity vs. fuels provider? The resource shuffling rules in the cap-and-trade regulation apply AB 2585 Page 4 to "first deliverers of electricity," which are in-state generators and importers of electricity. This bill establishes a definition of resource shuffling that applies to a "fuels provider," a term which is not defined in the bill or the regulation. This discrepancy may lead to questions about the intent and meaning of the bill. 3)There appear to be legitimate reasons for treating biomethane different from other biomass-derived fuels. Biofuels such as ethanol, biodiesel and renewable diesel typically are delivered to an in-state destination via tanker (ship, rail and/or truck). In contrast, "delivery" of pipeline biomethane is much more akin to electricity, where a volume of gas injected into a pipeline is fungible and is not physically delivered to any particular destination. In order to confirm that biofuel produces a GHG benefit, ARB must confirm that it displaces fossil fuel and that it is additional. While resource shuffling should not be an issue with biofuels that are physically delivered, it is an issue with pipeline biomethane, particularly from out-of-state sources. REGISTERED SUPPORT / OPPOSITION: Support Bioenergy Association of California AB 2585 Page 5 Opposition None on file Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916) 319-2092