BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Wieckowski, Chair
2015 - 2016 Regular
Bill No: SB 706
-----------------------------------------------------------------
|Author: |Pavley |
-----------------------------------------------------------------
|-----------+-----------------------+-------------+----------------|
|Version: |4/6/2015 |Hearing | 4/29/15 |
| | |Date: | |
|-----------+-----------------------+-------------+----------------|
|Urgency: |No |Fiscal: |Yes |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Rebecca Newhouse |
| | |
-----------------------------------------------------------------
SUBJECT: Greenhouse Gas Reduction Fund: alternative fuels
ANALYSIS:
Existing law:
1. Under the California Global Warming Solutions Act of 2006 (also
known as AB 32), requires the California Air Resources Board
(ARB) to determine the 1990 statewide greenhouse gas (GHG)
emissions level and approve a statewide GHG emissions limit
that is equivalent to that level, to be achieved by 2020, and
to adopt GHG emissions reductions measures by regulation. ARB
is authorized to include the use of market-based mechanisms to
comply with these regulations. (Health and Safety Code §38500
et seq.)
2. Establishes the Greenhouse Gas Reduction Fund (GGRF) in the
State Treasury, and requires all moneys, except for fines and
penalties, collected pursuant to a market-based mechanism be
deposited in the fund. (Government Code §16428.8)
3. Prohibits the state from approving allocations for a measure or
program using GGRF moneys except after determining that the use
of those moneys furthers the regulatory purposes of AB 32, and
requires moneys from the GGRF be used to facilitate the
achievement of reductions of GHG emissions in California.
(HSC §39712)
4. Specifies that GGRF moneys may be allocated to reduce GHG
SB 706 (Pavley) Page 2
of ?
emissions through investments including, but not limited to,
development of state-of-the-art systems to move goods and
freight, advanced technology vehicles and vehicle
infrastructure, advanced biofuels, and low-carbon and
efficient public transportation. (HSC §39712)
This bill:
1. Makes legislative declarations and findings relating to the
need to support low-carbon fuels production that boosts
supply and diversity and provide energy security.
2. Requires that GGRF moneys be available to encourage the
in-state production of alternative fuels with low-carbon
intensity from new and existing facilities using sustainable
feedstock, with preference given to disadvantaged
communities.
Background
1.Use of Cap and Trade Auction Revenue.
ARB has conducted ten cap-and-trade auctions, generating almost
$1.6 billion in proceeds to the state.
Several bills in 2012, and one in 2014, provide legislative
direction for the expenditure of auction proceeds including SB
535 (De León), Chapter 830, Statutes of 2012, AB 1532 (J.
Pérez), Chapter 807, Statutes of 2012, SB 1018 (Budget
Committee), Chapter 39, Statutes 2012, and SB 862 (Budget
Committee), Chapter 36, Statutes of 2014.
SB 535 (De León), Chapter 830, Statutes of 2012, requires that
25% of auction revenue be used to benefit disadvantaged
communities and requires that 10% of auction revenue be invested
in disadvantaged communities.
AB 1532 (J. Pérez), Chapter 807, Statutes of 2012, directs the
Department of Finance to develop and periodically update a
three-year investment plan that identifies feasible and
cost-effective GHG emission reduction investments to be funded
SB 706 (Pavley) Page 3
of ?
with cap-and-trade auction revenues. AB 1532 requires moneys
from the fund facilitate the achievement of GHG emissions
reductions.
SB 1018 (Budget Committee), Chapter 39, Statutes of 2012,
created the GGRF, into which all auction revenue is to be
deposited. The legislation requires that before departments can
spend moneys from the GGRF, they must prepare a record
specifying: (1) how the expenditures will be used, (2) how the
expenditures will further the purposes of AB 32 (Núñez, Pavley),
Chapter 488, Statutes of 2006, (3) how the expenditures will
achieve GHG emission reductions, (4) how the department
considered other non-GHG-related objectives, and (5) how the
department will document the results of the expenditures.
SB 862 (Budget Committee), Chapter 36, Statutes of 2014,
requires the ARB to develop guidelines on maximizing benefits
for disadvantaged communities by agencies administering GGRF
funds, and guidance for administering agencies on GHG emission
reduction reporting and quantification methods.
Legal consideration of cap-and-trade auction revenues: The
2012-13 budget analysis of cap-and-trade auction revenue by the
Legislative Analyst's Office noted that, based on an opinion
from the Office of Legislative Counsel, the auction revenues
should be considered mitigation fee revenues, and their use
requires that a clear nexus exist between an activity for which
a mitigation fee is used and the adverse effects related to the
activity on which that fee is levied. Therefore, in order for
their use to be valid as mitigation fees, revenues from the
cap-and-trade auction must be used to mitigate GHG emissions or
the harms caused by GHG emissions.
In 2012, the California Chamber of Commerce filed a lawsuit
against the ARB claiming that cap-and-trade auction revenues
constitute illegal tax revenue. In November 2013, the superior
court ruling declined to hold the auction a tax, concluding that
it is more akin to a regulatory fee.
AB 32 auction revenue investment plan: The first three-year
investment plan for cap-and-trade auction proceeds, submitted by
Department of Finance, in consultation with ARB and other state
agencies in May of 2013, identified sustainable communities and
clean transportation as one of the key sectors that provide the
SB 706 (Pavley) Page 4
of ?
best opportunities for achieving the legislative goals and
supporting the purposes of AB 32. The plan recommended the
aforementioned sector receive the largest allocation of funds
from the GGRF, but did not specify a monetary amount.
Budget allocations: The 2014-15 Budget allocates $832 million in
GGRF revenues to a variety of transportation, energy, and
resources programs aimed at reducing GHG emissions. Various
agencies are in the process of implementing this funding. The
budget agreement specifies how the state will allocate most
cap-and-trade auction revenues in 2015-16 and beyond. For all
future revenues, the legislation appropriates 25% for the
state's high-speed rail project, 20% for affordable housing and
sustainable communities grants, 10% to intercity capital rail
projects, and 5% for low-carbon transit operations. The
remaining 40% is available for annual appropriation by the
Legislature.
Of that 40%, $15 million was appropriated to California
Department of Food and Agriculture to fund agricultural energy
and operational efficiency programs, with $12 million directed
for financial assistance for the installation of dairy
digesters, and $3 million to support deployment and use of
renewable natural gas, its analogues, and other low-carbon
renewable biofuels derived from agricultural waste, for use in
the transportation sector.
CalRecycle was also awarded $25 million of GGRF funds in
2014-15.
They have established multiple programs for some of these
funds to reduce GHG emissions through providing financial
assistance to expand existing capacity or establish new
facilities to process California-generated organic waste
through composting or anaerobic digestion to produce
low-carbon fuel.
The Governor's proposed 2015-16 cap-and-trade expenditures are
largely the same as the 2014-15 plan, albeit with larger amounts
proposed allocations for programs with continuous
appropriations.
2. Low-Carbon Fuel Standard.
The LCFS requires the reduction of the carbon intensity (CI)
SB 706 (Pavley) Page 5
of ?
of transportation fuels used in California by an average of
10% by 2020. CI is a measure of the direct and indirect GHG
emissions associated with each of the steps in the full
lifecycle of a transportation fuel. According to the 2008
Scoping Plan, the LCFS is projected to result in 15 MMTCO2e
of the 80 MMTCO2e of emissions reductions needed to reach the
2020 GHG emissions reductions goal.
A party's overall CI for its transportation fuels needs to
meet each year's specified CI level target. If the reduction
in intensity exceeds the target, the provider earns a credit,
which can be sold or carried forward. Providers of clean
fuels that meet the 2020 target are exempt from the
regulation but can opt in to earn credits. Regulated fuel
providers can meet their annual CI levels by making low-GHG
fuels, carrying forward credits from previous years from
their own production process, buying credits from other fuel
producers, or reducing the amount of fuel they sell.
The LCFS achieves a 10% reduction in average CI by
establishing an initial intensity level for specified
providers of transportation fuels ("regulated parties") and
incrementally lowering the allowable CI in each subsequent
year. For example, modest targeted reductions of 0.5% and
1.0% were required for 2012 and 2013, respectively. The
reductions become more substantial with each year, such that
by 2020, the 10% average reduction will be achieved. This
reduction makes room for low-CI alternative fuels to enter
the market.
3. AB 118.
AB 118 (Núñez), Chapter 750, Statutes of 2007, created the
Alternative and Renewable Fuels and Vehicle Technology
Program (ARFVTP) program. AB 118 provides, upon appropriation
by the Legislature, approximately $100 million annually for
the ARFVT program until 2024. These funds primarily come
from additional fees on vehicle registrations and vessel
registrations.
The program requires the California Energy Commission (CEC)
to implement the Alternative and Renewable Fuels and Vehicle
Technology Program (ARFVTP) to provide funding measures to
specified entities to develop and deploy technologies and
SB 706 (Pavley) Page 6
of ?
alternative and renewable fuels in the marketplace, without
adopting any one preferred fuel or technology, to help attain
the state's climate change policies. The CEC is required to
develop an investment plan for the program in consultation
with an advisory committee. Specifically, the CEC specifies
their $100 million budget supports the development of
alternative and renewable low-carbon fuels, optimization of
alternative and renewable fuels for existing and developing
engine technologies, production of alternative and renewable
low-carbon fuels in California and projects that decrease, on
a full fuel cycle basis, the overall impact and carbon
footprint of alternative and renewable fuels and increase
sustainability.
The 2014-15 Investment Plan update proposed funding for the
alternative fuel production category, including biomethane,
gasoline and diesel substitutes, of $20 million, and $20
million for hydrogen fueling infrastructure.
Comments
1. Purpose of Bill.
According to the author, "In his January state of the state
address, the Governor outlined three key climate goals to
help California achieve our overarching climate polices: 50%
generation from renewable resources, up to 50% petroleum
reduction from fuels, and doubling of energy efficiency in
buildings.
"As we have seen during the early months of 2015, California
is still vulnerable to price volatility from global markets.
Thus, California must strengthen our economy's resilience to
price volatility in oil markets in order to protect drivers,
while we further our state's climate objectives (e.g., the
Low-Carbon Fuel Standard and the 50% petroleum reduction
targets identified by the Governor and Senate pro Tem
President De León's SB 350).
"SB 706 will create well-paying 21st century jobs focused in
disadvantaged communities. The program, to be funded by the
Greenhouse Gas Reduction Fund, encourages the near-term
production of robust volumes of low-carbon intensity
alternative fuels from sustainable feedstocks at facilities
SB 706 (Pavley) Page 7
of ?
in California."
2. Setting Up a New Program.
Current law lists various categories of eligible expenditures
from the GGRF including reducing GHG emissions through energy
efficiency and clean and renewable energy distribution, water
use and supply, strategic planning, increased diversion of
municipal solid waste, and development of advanced technology
vehicles, and advanced biofuels, as well as other
investments.
Additionally, SB 535 (De León), Chapter 830, Statutes of
2012, requires a minimum of 25% of the GGRF moneys be spent
to benefit disadvantaged communities and a minimum of 10% of
GGRF moneys be spent within those communities. This
requirement, as well as other language in the statute
directing GGRF moneys in disadvantaged communities where
feasible and applicable, clearly articulates a prioritization
for investments in disadvantaged communities.
The bill specifies that funding "shall be available, with
preference for disadvantaged communities, to encourage the in
state production of alternative fuels with low-carbon
intensity from new and existing facilities using sustainable
feedstock." The author states that SB 706 establishes a
"program" to be funded by the GGRF, which encourages the
near-term production of robust volumes of low-carbon
intensity alternative fuels.
SB 706, however, does not specify any requirements or
provisions outlining how this program, funded through GGRF,
would operate.
For instance:
How much of GGRF moneys will be directed to these
investments? What types of fuels and technologies are
eligible?
Which entity is administering the program?
Will that agency be required to create guidelines
or specify program requirements for these incentives?
SB 706 (Pavley) Page 8
of ?
Will these incentives be awarded through a
competitive process based on GHG emission reductions?
How will progress be measured and tracked?
The author may want to add to the bill to answer these
questions as the bill moves through the process. If the bill
is amended moving forward, the Senate Environmental Quality
Committee should hear the measure again.
SOURCE: Author
SUPPORT:
Clean Energy and Clean Energy Renewable Fuels
OPPOSITION:
None on file
-- END --