BILL ANALYSIS Ó
AB 2585
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2585 (Williams) - As Amended March 15, 2016
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|Policy |Natural Resources |Vote:|8 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill requires the California Air Resources Board (ARB) to
review any AB 32 market-based compliance (cap-and-trade)
regulation to consider the intended purpose and consistency of
requirements aimed to prevent resource shuffling, among all
fuels subject to that regulation. Specifically, this bill:
1)Requires ARB to complete the review no later than July 1,
2018.
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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:
1)Potential first year increased costs for ARB of $154,000 for
staff and $250,000 in contracts (Cost of Implementation Fund)
if amendments to the cap-and-trade regulation are pursued
after the consideration of existing anti-shuffling provisions
for fuels across all sectors, compared with the requirements
of the bill.
2)Ongoing staff costs of between $230,000 and $300,000 (Cost of
Implementation Fund) for years two and three.
The potential amendments to the cap-and-trade regulation would
include removing all anti-shuffling provisions and resetting
the annual caps to be lower, based on an estimate of the
potential shuffling that may occur. To understand how much to
lower the caps, ARB would need to understand the potential
amount of existing low carbon fuels that could be delivered to
California. This also requires ARB to understand if low
carbon fuels are shuffled to California, what fuels would be
used to meet those pre-existing demands where low carbon fuel
is no longer available. The caps in the regulation are meant
to limit the amount of greenhouse gases emitted to the
atmosphere, regardless of location.
Based on a recent contract that evaluated market conditions
for industry emissions leakage to outside of California, ARB
staff estimates a contract of $250,000 over a year and a half
to survey the sources and existing uses of low carbon fuels
outside of California that would be diverted to California.
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COMMENTS:
1)Rationale. Biomass derived fuels used for transportation are
generally exempt from the AB 32 cap-and-trade regulation.
According to the author, unlike most biomass derived fuels,
biomethane is subject to additional eligibility requirements
in order to claim an AB 32 exemption. The additional
requirements are designed to prevent a fuel provider from
substituting fuel deliveries from sources with lower emissions
with higher emission deliveries as a means of reducing the AB
32 compliance obligation (resource shuffling).
According to the author, 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). This bill adds a statutory
definition for resource shuffling and requires ARB to review
AB 32 cap-and-trade regulations for consistency.
2)Biogas. Biogas is produced from various sources, like
dairies, landfills and wastewater treatment plants, and
municipal and commercial green and food waste. It is
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comprised primarily of ethane, 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.
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, the delivery of pipeline
biomethane is similar 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 reduction
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
may be an issue with pipeline biomethane, particularly from
out-of-state sources.
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3)The California Global Warming Solutions Act of 2006 (AB 32).
AB 32 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. AB 32
authorizes ARB to permit the use of market-based compliance
mechanisms to comply with GHG reduction regulations and
emission caps.
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, electricity importers, and
distributors of transportation fuels, including gasoline,
diesel, and natural gas.
The cap-and-trade regulation generally prohibits and defines
resource shuffling 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 establishes a definition of resource shuffling that
applies to a "fuels provider." This term is not defined in
this bill or the AB 32 regulation. The author may wish to
define the term "fuels provider" to clarify the intent of the
bill.
Analysis Prepared by:Jennifer Galehouse / APPR. / (916)
319-2081
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