BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 687 Hearing Date: 4/7/2015 ----------------------------------------------------------------- |Author: |Allen | |-----------+-----------------------------------------------------| |Version: |2/27/2015 As Introduced | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Renewable gas standard. DIGEST: This bill establishes the renewable gas standard (RGS). The RGS requires all sellers of natural gas to provide to retail end-use customers in California increasing amounts of "renewable gas," so that, by January 1, 2030, at least ten percent of the natural gas supplied is "renewable gas." ANALYSIS: Existing law: 1. Directs the California Air Resource Board (ARB) to monitor and regulate sources of emissions of greenhouse gases (GHG) that cause global warming in order to reduce GHG emissions to 1990 levels by 2020. (Health & Safety Code §38510 et seq.) ARB instituted a low-carbon fuel standard as one element of achieving the GHG emission reduction goal. 2. Requires investor-owned utilities (IOU), community choice aggregators (CCAs), and electric service providers (ESPs) (collectively referred to as retail sellers) and local publicly-owned utilities (POU) to increase purchases of renewable energy such that at least 33 percent of total retail sales are procured from renewable energy resources by December 31, 2020. This is known as the Renewables Portfolio Standard (RPS). 3. Defines a renewable electrical generation facility and SB 687 (Allen) PageB of? includes in that definition a facility that uses landfill gas or digester gas delivered through a common carrier pipeline if the source and delivery of the fuel can be verified by the California Energy Commission (CEC). 4. Requires the CPUC to adopt standards that specify the concentrations of constituents of concern that are found in biomethane, and to adopt monitoring, testing, reporting, and recordkeeping protocols, to ensure the protection of human health and the integrity and safety of pipelines and pipeline facilities. (Health & Safety Code §25421 et seq.) 5. Requires the CPUC to adopt pipeline access rules that ensure that each gas corporation provides nondiscriminatory open access to its gas pipeline system to any party for the purposes of physically interconnecting with the gas pipeline system and effectuating the delivery of gas. (Public Utilities Code §784.) 6. Requires the CEC to hold public hearings to identify in its Integrated Energy Policy Report impediments that limit procurement of biomethane in California, including, but not limited to, impediments to interconnection, and to offer solutions. (Public Resources Code §25326.) This bill: 1. Requires the ARB, on or before June 30, 2016, and in consultation with the CEC and the CPUC, to adopt a carbon-based renewable gas standard (RGS) that requires each gas seller to provide a certain percentages of "renewable gas" to retail end-use customers. The requirement adopted by ARB will conform to a compliance schedule so that, by December 31, 2029, and thereafter, each gas seller supplies at least 10 percent "renewable gas" to retail end-use customers. 2. Limits "renewable gas" that qualifies under the RGS to gas that is: Used onsite by an end-use customer in California. Used by an end-use customer in California and delivered through a dedicated pipeline. Delivered to end-use customers in California through a common carrier pipeline and: (1) the source of SB 687 (Allen) PageC of? renewable gas injects the renewable gas into a common carrier pipeline that physically flows within California or toward the end-use customers for which the renewable gas was procured under the purchase contract; and (2) the source of renewable gas did not inject the renewable gas into a common carrier pipeline prior to March 29, 2012, or the source commenced injection of sufficient incremental quantities of renewable gas after March 29, 2012, to satisfy the purchase contract requirements; and (3) the seller or purchaser of the renewable gas demonstrates that the capture and injection of renewable gas into a common carrier pipeline directly results in specified environmental benefits in California. 1. The bill requires the ARB notify all gas sellers in California how to comply with the RGS; maintain a list of eligible "renewable gas" providers; and adopt "flexible compliance mechanisms," such as tradable "renewable gas" credits. Background What Is Renewable Gas ? Bioenergy is renewable energy produced from biomass wastes including forest and other wood waste, agriculture and food processing wastes, organic urban waste, waste and emissions from water treatment facilities, landfill gas and other organic waste sources. Biomass waste can be used to generate renewable electricity, liquid fuels and biogas. Biogas is a gas produced by converting biomass to a gaseous mixture of carbon dioxide and methane. Depending on where it is produced, biogas can be categorized as landfill gas or digester gas. Landfill gas is produced by decomposition of organic waste in a municipal solid waste landfill. Digester gas is typically produced from livestock manure, sewage treatment or food waste. Biogas can be used directly to produce electricity or can be converted to biomethane by removing carbon dioxide and other impurities. Biomethane can replace fossil sources of natural gas in homes and factories and compressed or liquefied natural gas used in vehicles. Biomethane can also be used to produce renewable hydrogen in fuel cells. <1> This bill defines "renewable gas" as biogas produced from organic waste or other renewable resources organic waste or --------------------------- <1> 2012 Bioenergy Action Plan ( SB 687 (Allen) PageD of? organic materials. Why is Biogas Considered Low Carbon ? Combustion of biogas produces carbon dioxide (CO2), just like the combustion of natural gas. However, the combustion of biogas destroys methane, a gas which is a much more potent GHG than is CO2. In addition, biogas can be used to displace the use of fossil fuels, such as natural gas, thereby further decreasing its carbon intensity. Mind the Gap . There are many state programs that, directly or indirectly, encourage or the use of "renewable gas." Utilities can meet the RPS through the use of biogas if produced from qualifying renewable resources. Recently enacted statute (SB 1122, Rubio, 2012) requires IOUs to collectively procure at least 250 MW of generation eligible for the RPS from bioenergy generation projects, including biogas projects. The CEC has invested more than $49 million in 13 biomethane feasibility, demonstration and production projects throughout the state. And biogas can be used to help satisfy the requirements of the ARB's Low-Carbon Fuels Mandate, which requires a reduction of at least 10 percent in the carbon intensity of California's transportation fuels by 2020. In addition, efforts are underway that should ease the further development and commercialization of "renewable gas." The IOUs have been wary of injecting biogas into their natural gas pipelines for fear of introduction of contaminants that could damage the pipelines or harm human health. In response, the Legislature in 2012 enacted AB 1900 (Gatto). That bill directs the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system. The CPUC is still in the process of completing this work. The Legislature, also in 2012, enacted related legislation (AB 2196, Chesbro). That bill ensures that biogas qualifies for RPS credit, provided its production, delivery and use meet certain conditions. The bill's proponents, despite these various state programs supporting and encouraging biogas development and use, contend there is a gap in the state's clean energy and climate policies. SB 687 (Allen) PageE of? As evidence of that gap, the proponents point to the continued low use of renewable natural gas as a proportion of the state's overall natural gas use, which produces about one-quarter of the state's emissions of GHG. Proponents further contend that the state needs a statewide policy commitment that provides long-term certainty to the biogas market. The author intends this bill to provide that certainty. Using the RPS as a model, this bill, in its current form, would establish a RGS that would require "gas sellers" to provide specific percentages of "renewable gas" to end use customers in California, according to the following schedule: January 1, 2016, to December 31, 2019 - not less than 1 percent. January 1, 2020, to December 31, 2022 - not less than 3 percent. January 1, 2023, to December 31, 2024 - not less than 5 percent. January 1, 2025, to December 31, 2029, and thereafter - not less than 10 percent. The bill would task the ARB, in consultation with the CEC and CPUC, to adopt the RGS. The bill also includes language similar to existing statute, contained in 2012's AB 2196, to ensure the environmental and economic benefits of the use of "renewable gas" accrue to California. The bill further directs ARB to adopt flexible compliance mechanisms and to develop an investment plan that directs any resulting monies to the state's alternative fuel and energy program (the CEC-administered Alternative Fuel and Vehicle Technology Program) and related air-quality program (the ARB-administered Air Quality Improvement Program). Proponents cite numerous benefits that they conclude will flow from successful implementation of the RGS. Those benefits include: Additional reduction of GHG emissions. Reduced landfilling of organic wastes. Improved air quality and public health. Reduction of wildfires and burning of agricultural waste. Job creation. Reduced dependence on fossil fuels, especially out-of-state natural gas. Market certainty that drives down the cost of "renewable SB 687 (Allen) PageF of? gas." The author has proposed amendments that recast the RGS from a relative-volume-based standard to a "carbon-intensity standard." The main difference between the current version of the bill and the proposed amendments is a change in the compliance obligation. Under the amendments, a gas seller would be required to reduce the average carbon intensity of its natural gas sales, rather than provide specific percentages of "renewable gas" as part of its natural gas sales. Too Much ? According to the CEC, 358 megawatts (MW) is potentially available from new biogas development. Despite this potential, it is not clear there will be enough "renewable gas" available to meet the admittedly modest schedule required by this bill. Proponents believe the RGS will drive down the cost of "renewable gas" just as the bill's model - the RPS - has driven down the cost of renewable electricity. However, shortages of "renewable gas" could drive up the cost of compliance significantly. The RPS legislation includes numerous cost-containment "off ramps". These off ramps allow RPS-covered entities to be excused from their RPS obligations if the cost of procuring electricity from renewable resources exceeds statutorily defined limits. The author and the committee may wish to amend the bill to include similar cost-containment "off ramps" to the RGS. Too Soon ? The bill directs ARB to adopt the RGS by June 30, 2016. Depending upon when the bill were to be signed by the Governor, that schedule might provide the ARB less than one year to develop and adopt the RGS. The author and committee may wish to delay the bill's implementation schedule to allow ARB and the other state agencies sufficient time to comply with the implementation deadlines. A Complicated, Shifting Policy Mix . California has robust clean-energy policies. For example, current statute requires the state to receive at least 33 percent of its electricity from renewable sources by 2020, and tasks the ARB with reducing the emissions of GHG from most economic sectors of the state, including electricity generation. Those policies are likely to morph and expand. Governor Brown has called for generating half of the state's electricity from renewable resources and cutting petroleum use in cars and trucks by half, a goal many presume SB 687 (Allen) PageG of? would be achieved by shifting a large portion of transportation fuel from petroleum-based sources to electricity. The Senate pro tem has proposed to codify these goals in SB 350, a bill under consideration in this committee. And Senator Pavley has introduced SB 32, which would require ARB to adopt a very ambitious GHG emissions limit for 2050. It is worth considering how this bill fits in to this complex, evolving clean-energy context. The author and proponents accurately note that California cannot meet its GHG reduction targets, especially the targets envisioned in the Senate's climate package, without significantly reducing GHG emissions from the natural gas sector. However, the ARB has, under existing law, broad authority to require a wide variety of GHG reduction measures, including, presumably a biogas standard like the RGS proposed by this bill. The committee should consider this bill in the context of that existing authority, as well as any expanded authority it is contemplating, as it evaluates the necessity and use of this bill. Double Referral . Should this bill be approved by the committee, it will be re-referred to the Senate Committee on Environmental Quality for its consideration. Prior/Related Legislation SB 360 (Cannella) would authorize the CPUC to consider providing the option to all gas corporations to engage in competitive bidding and direct investment in ratepayer financed biomethane collection equipment in California. The bill has been referred to this committee for consideration. AB 1900 (Gatto, Chapter 602, Statutes of 2012) directs the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system. AB 2196 (Chesbro, Chapter 605, Statutes of 2012) ensures that biogas qualifies for RPS credit, provided its production, delivery and use meet certain conditions. SB 1122 (Rubio, Chapter 612, Statutes of 2012) requires IOUs to SB 687 (Allen) PageH of? collectively procure at least 250 MW of generation eligible for the RPS from bioenergy generation project, including biogas projects. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No SUPPORT: American Biogas Council Bioenergy Association of California Biosynthetic Technologies Clean Energy and Clean Energy Renewable Fuels Eisenmann Corporation Harvest Power, Inc. Hitachi Zosen Inova U.S.A. LLC Las Gallinas Valley Sanitary District Organic Waste Systems Phoenix Energy TSS Consultants OPPOSITION: Agricultural Council of California Agricultural Energy Consumers Association California Citrus Mutual California Cotton Ginners and Growers Associations California Dairies Inc. California Farm Bureau Federation California Fresh Fruit Association California League of Food Processors California Municipal Utilities Association California Poultry Federation California Tomato Growers Association Milk Producers Council Nisei Farmers League Western Agricultural Processors Association Western Growers Association ARGUMENTS IN SUPPORT: Proponents contend the state needs a statewide "renewable gas" policy to provide certainty to the SB 687 (Allen) PageI of? market. Such certainty will incentivize "renewable gas" development and innovation to bring down costs. Ultimately, proponents argue, expanded use of "renewable gas" will help to state meet it GHG reduction goals, improve public health through cleaner air, reduce the state's dependence on fossil fuels, keep billions of dollars in state, and create jobs ARGUMENTS IN OPPOSITION: Opponents primarily argue that this bill will increase industrial costs - such as the cost to process foods - by requiring the purchase of relatively expensive "renewable gas." Opponents note that the state already has a robust clean-energy policy that encourages the use of biogas. Some opponents also contend that the RGS represents "double taxation," in that they would pay a premium for "renewable gas" in addition to the premium they already must pay as part of the AB 32 cap-and-trade program to offset their natural gas use. -- END --