BILL ANALYSIS Ó SB 20 Page 1 Date of Hearing: June 30, 2016 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair SB 20 (Pavley) - As Amended June 20, 2016 SENATE VOTE: (Not Relevant) SUBJECT: Low Carbon Fuels Council SUMMARY: Establishes the Low Carbon Fuels Council (Council) and requires the Council to have five members, including state agencies and appointees, with expertise and background on the production of low carbon fuels. EXISTING LAW: 1)Pursuant to the California Global Warming Solutions Act (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. 2)Establishes the California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007 [AB 118 (Nunez), Chapter 750, Statutes of 2007]. AB 118 is funded through temporary increases in vehicle registration fees ($3), smog abatement fees ($8), boat registration fees SB 20 Page 2 ($10/20), and special identification plate fees ($5). Collection of these fees is authorized until 2024 pursuant to AB 8 (Perea), Chapter 401, Statutes of 2013. The fees support three major programs: a) The Air Quality Improvement Program (AQIP), administered by the Air Resources Board (ARB) in consultation with local air districts, funds projects that reduce criteria air pollutants, improve air quality, and provide research for alternative fuels and vehicles, vessels, and equipment technologies. The two primary programs adopted by ARB pursuant to AQIP are the Clean Vehicle Rebate Program (CVRP) and the Hybrid and Zero Emissions Truck and Bus Voucher Incentive Program (HVIP). AQIP is funded by smog abatement fees, boat registration fees, and special identification plate fees and receives between $30-36 million per year from these sources. b) The Enhanced Fleet Modernization Program (EFMP), under which ARB, in consultation with the Bureau of Automotive Repair (BAR), pays to permanently remove cars and small trucks from operation through voluntary retirement by their owners. EFMP is funded by $1 of the vehicle registration fee and receives approximately $30 million per year. c) The Alternative and Renewable Fuel and Vehicle Technology Program (ARFVTP), administered by California Energy Commission (CEC), provides grants and other financial incentives to accelerate the development and deployment of clean, efficient, low carbon alternative fuels and technologies. ARFVTP is funded by $2 of the vehicle registration fee and receives approximately $100 million per year. 3)Pursuant to Governor Schwarzenegger's Executive Order S-01-07, sets a statewide goal to reduce the carbon intensity (CI) of California's transportation fuels by at least 10% by 2020. The order required ARB to consider adopting a Low Carbon Fuel Standards (LCFS) to implement this goal. In 2009, ARB adopted SB 20 Page 3 the LCFS as a regulation. The LCFS attributes CI values to a variety of fuels based on direct and indirect GHG emissions, including land use changes caused by production of biofuels. The LCFS permits producers of certain low CI fuels to opt in to LCFS regulation for the purpose of generating credits, which can be banked and used for compliance, sold to regulated parties, and purchased and retired by regulated parties. In addition, LCFS credits can be exported to other GHG emission reduction programs. 4)Defines "very low carbon transportation fuel" to mean a liquid or gaseous transportation fuel having no greater than 40% of the carbon intensity of the closest comparable petroleum fuel for that year, as measured by the methodology in the LCFS regulation. Requires the carbon intensity for the transportation fuel to include the indirect land use change emission if an agricultural commodity that is a food product is used as a feedstock for the production of the transportation fuel. THIS BILL: 1)Establishes the Council and requires Council to have five members and specifies the following members: a) Chair of ARB; b) Chair of the CEC; c) Two members with scientific, economic, or industry professional backgrounds in the production of low carbon fuels, one appointed by the Speaker of the Assembly and one by the Senate Committee on Rules; and, SB 20 Page 4 d) One member with educational and professional qualifications and general knowledge and interest in the production of low carbon fuels appointed by the Governor. 2)Requires members to serve a term of four years and allows reappointment. 3)Requires members to be reimbursed for actual and necessary expenses and requires members to be compensated a $100 each day per diem. 4)Requires Council meetings to comply with Bagley-Keene Open Meeting Act. 5)Requires the Council to do the following: a) Coordinate state agencies' activities that are related to acceleration and development of instate production of low carbon fuels; b) Identify and address gaps in existing programs, polices, or activities that could impede the instate construction of new or the expansion of existing, low carbon fuel production facilities; and, c) Provide recommendations to the Legislature for changes in the law needed to achieve the goals of the Council. 6)Authorizes the Council to sponsor conferences, symposia, and other public forums to seek a broad range of public advice. SB 20 Page 5 FISCAL EFFECT: Unknown COMMENTS: 1)Author's statement: CEC allocates approximately $40 million dollars every two years for grants (ranging from $3-5 M) for capital expenditures related to the construction or retrofitting of a low carbon fuels facilities located in-state. ARB is proposing to allocate $40 million for a low carbon fuels production incentive program. At this time the ARB is proposing to do a per gallon incentive based on the carbon intensity and whether the fuel provides benefits to the disadvantaged communities. Currently, there are no discussions about how the CEC and ARB programs will coordinate, whether those facilities that receive a grant from the CEC would be eligible for an ARB production incentive, or whether there is a process to streamline the application process. Low carbon fuel facilities are a large capital investment, and in order to convince a facility to come to California, the state needs to do everything it can to maximize funding opportunities and ensure they two programs are coordinating. 2)Low Carbon Fuels. In 2011, the state began implementing the LCFS, which requires the oil industry to gradually reduce the SB 20 Page 6 CI of gasoline and diesel by 10% by 2020 by phasing in lower carbon fuels. The regulations were adopted pursuant to Executive Order S-01-07 and were readopted in September 2015. ARB rates the CI of transportation fuels and establishes the level of credits generated by production of the fuel. Fuel producers can reduce the carbon intensity of their fuels or purchase credits to comply with the LCFS. According to ARB, the carbon-intensity of California's transportation fuel pool has been reduced by just over 2%. In 2007, AB 118 established three new programs intended to promote vehicle and fuel technology that reduces air pollution and GHG emissions statewide. These programs are the ARFVTP, the AQIP and EFMP. ARFVTP funds projects by various public and private groups that "develop and deploy innovative technologies that transform California's fuel and vehicle types to help attain the state's climate change policies." The CEC prepares an investment plan, in coordination with a stakeholder advisory committee, which outlines the ARFVTP's funding priorities. AB 118 requires the advisory committee to include representatives from state agencies; fuel and vehicle technology consortia; labor, environmental, and community-based justice and health organizations; academic groups; consumer advocates; workforce training groups; and private industry. Once an investment plan is completed, CEC receives and solicits bids for projects, awarding funds based on eligibility criteria. Monies appropriated to the ARFVTP come from temporary increases in smog abatement fees, vehicle registration fees, vessel registration fees and certain other vehicle fees. According to the CEC, as of December 31, 2015, it has awarded over $600 million to advance the goals of the program. Alternative fuel production and infrastructure has received over half of that funding. In addition to the ARFVTP, AB 118 also created the AQIP, to be administered by the ARB. According to CEC, while the ARFVTP focuses primarily on achieving state GHG reduction goals within the transportation sector, the AQIP is primarily responsible for reducing air pollutants from the SB 20 Page 7 transportation sector. Also, according to CEC, the two programs have worked in concert to maximize the benefits to the state and avoid duplication of efforts. For instance, the ARFVTP has invested in light-duty electric vehicle charging infrastructure, regional planning, and manufacturing projects, while the AQIP has provided deployment incentives for light-duty electric vehicles through the CVRP. ARFVTP has supported the demonstration of early hybrid and electric truck and bus models, while the AQIP has provided deployment incentives for such vehicles through the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project and other planned larger-scale pilot deployment projects. Finally, AQIP has also provided loans to assist fleets in modernizing their diesel trucks. Prior to the availability of GGRF, the ARFVTP provided $49.1 million in funding to backfill CVRP needs, as well as an additional $4 million in HVIP incentives. Beginning with fiscal year 2014-2015, ARB combined the AQIP and the Greenhouse Gas Reduction Fund (GGRF) Low-Carbon Transportation Investments into one funding plan. In AQIP's fiscal year 2016-17 funding plan ARB proposed a new program to allocate $40 million to very low carbon fuel production. This funding will be limited to renewable fuels that are produced in California and would be further limited to those fuels which meet a designated carbon intensity threshold. California Governor's Office of Business and Economic Development (GO-Biz) has appointed a Zero Emission Vehicle (ZEV) infrastructure deputy to assist in the development of ZEV infrastructure including the development of hydrogen production and fueling stations. The ZEV infrastructure deputy has worked with local governments and various companies to remove barriers to developing ZEV infrastructure. The Council established by this bill is designed to coordinate these different efforts and identify gaps and make recommendations to the legislature to address those gaps. However, the council lacks any environmental justice (EJ) voices to provide the perspective of Californians most SB 20 Page 8 impacted by pollution from transportation fuels. In addition, the bill requires the Council to address gaps in existing programs, polices, or activities but does not provide the Council authority over those programs. Finally, the bill fails to define low carbon fuels. This may be problematic because there is no definition of that term in statue. 4)Amendments. The author and Committee may wish to consider the following amendments: a) Ensure there is EJ representation on the Council; b) Add a representative from GO-Biz; c) Define low carbon fuels; d) Clarify the council's authority; and, e) Put an additional focus on very low carbon fuels. REGISTERED SUPPORT / OPPOSITION: Support Coalition for Renewable Natural Gas Opposition None on file SB 20 Page 9 Analysis Prepared by:Michael Jarred / NAT. RES. / (916) 319-2092