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,
AB 2585
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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
AB 2585
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Opposition
None on file
Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)
319-2092