BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2585


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          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,  








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            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.









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          "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  








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            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




          










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          Opposition


          None on file




          Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)  
          319-2092