BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                               Senator Wieckowski, Chair
                                 2015 - 2016  Regular 
           
          Bill No:            SB 970
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          |Author:    |Leyva                                                |
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          |-----------+-----------------------+-------------+----------------|
          |Version:   |3/28/2016              |Hearing      |4/6/2016        |
          |           |                       |Date:        |                |
          |-----------+-----------------------+-------------+----------------|
          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Joanne Roy                                           |
          |           |                                                     |
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          SUBJECT:  Organic food waste diversion

            ANALYSIS:
          
          Existing law:  
          
          1) Existing law, pursuant to the Integrated Waste Management Act  
             of 1989 (Public Resources Code (PRC) §40000 et seq.):

             a)    Establishes a statewide diversion goal of 75% by 2020.  

             b)    Requires local agencies to divert, through source  
                reduction, recycling, and composting, 50% of solid waste  
                disposed by their jurisdictions.  

             c)    Requires a commercial waste generator, including  
                multi-family dwellings, to arrange for recycling services  
                and requires local governments to implement commercial solid  
                waste recycling programs designed to divert solid waste from  
                businesses.

             d)    Requires generators of specified amounts of organic waste  
                to arrange for recycling services for that material. 


          2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the  
             State Treasury, requires all moneys, except for fines and  
             penalties, collected pursuant to a market-based mechanism be  
             deposited in the fund and requires the Department of Finance,  
             in consultation with ARB and any other relevant state agency,  







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             to develop, as specified, a three-year investment plan for the  
             moneys deposited in the GGRF.  (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.   
             (Health and Safety Code §39712). 

          4) Requires the Department of Resources Recycling and Recovery  
             (CalRecycle) to administer a grant program to provide financial  
             assistance to reduce GHG emissions by promoting in-state  
             development and infrastructure to process organics and other  
             recyclable materials into new value-added products, using  
             funding from GGRF.  Specifies that the funding may be used for  
             projects including organics composting, anaerobic digestion, or  
             recyclable material manufacturing infrastructure projects or  
             other related activities that reduce GHG emissions.  (PRC  
             §42999).

          This bill:  

          1) By June 1, 2017, requires CalRecycle, in consultation with the  
             State Air Resources Board (ARB) and the State Energy Resources  
             Conservation and Development Commission (CEC), to develop a  
             pilot demonstration program to award matching funding for cost  
             effective and efficient integrated food waste diversion  
             projects at existing wastewater treatment facilities (WWTF).

          2) Prioritizes projects that provide various benefits, such as:

             a)    Maximizing food waste diversion in a cost-effective  
                manner that uses existing facilities and infrastructure; 

             b)    Maximizing resource recovery of diverted waste, including  
                production of clean energy, or low or negative carbon  
                transportation fuels.

          3) Requires CalRecycle to identify three to five regional projects  
             for matching grant funds.

          4) Authorizes CalRecycle to award matching grants of up to $10  
             million for each project.








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          5) Funds this proposed grant program using moneys from GGRF.

          6) Makes several findings and declarations.
            
          Background  
           
          1) Statewide waste diversion goals.  

          CalRecycle is tasked with diverting at least 75% of solid waste  
             statewide by 2020.  Currently, an estimated 31 million tons of  
             waste are disposed of in California's landfills annually, of  
             which 37% is compostable organic materials, 20% is inert and  
             other construction and demolition debris, and 17% is paper and  
             paperboard, 10% plastics, 3% metal, with the remaining 12%  
             consisting of various materials such as glass and other waste.   


          In addition, CalRecycle is charged with implementing Strategic  
             Directive 6.1, which calls for reducing organic waste disposal  
             by 50% by 2020.  According to CalRecycle, significant gains in  
             organic waste diversion (through recycling technologies or  
             organic waste, including composting and anaerobic digestion)  
             are necessary to meet the 75% goal and to implement Strategic  
             Directive 6.1.

          2) Recycling organic waste.  

          For purposes of recycling, "organic waste" is defined as food  
             waste, green waste, landscape and pruning waste, nonhazardous  
             wood waste, and food-soiled paper waste that is mixed in with  
             food waste.  Organic material represents over one-third of the  
             solid waste sent to landfills even though a large percentage  
             can be recycled or composted - Approximately 6 million tons of  
             food scraps are thrown away each year.  

          Recycling technologies for organic waste include anaerobic  
             digestion, composting, and other types of processing that  
             generate renewable fuels, energy, soil amendments, and mulch.   
             Anaerobic digestion, which produces biogas that can be  
             processed into biomethane fuel, is particularly suited to  
             handle food waste.  

          3) Waste reduction and GHGs.  








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          According to the California Air Resources Board (ARB), a total  
             reduction of 80 million metric tons (MMT), or 16% compared to  
             business as usual, is necessary to reduce statewide GHG  
             emissions to 1990 levels by 2020.  ARB intends to achieve  
             approximately 78% of the reductions through direct regulations.  
              ARB proposes to achieve the balance of reductions necessary to  
             meet the 2020 limit (approximately 18 MMT) through its  
             cap-and-trade program.  

          Landfill gas is generated by the anaerobic decomposition of  
             organic materials such as food, paper, wood, and green  
             material.  50% of landfill gas is methane, a GHG with a much  
             shorter life (also known as a short-lived climate pollutant),  
             but much higher global warming potential than carbon dioxide  
             (methane is approximately 25 times more efficient at trapping  
             heat than carbon dioxide over a 100-year time span).  Depending  
             on the types of solid waste, the chemical makeup of landfill  
             biogas can vary greatly from the biogas produced from dairy  
             farms, municipal solid waste, and wastewater treatment  
             facilities.  While most modern landfills have systems in place  
             to capture methane, significant amounts continue to escape into  
             the atmosphere.  According to ARB's GHG inventory,  
             approximately 7 million tons of carbon dioxide equivalent are  
             released annually by landfills.  That number is expected to  
             increase to 8.5 million tons of carbon dioxide equivalent by  
             2020.

          Composting and other organics processing technologies, including  
             anaerobic digestion, reduce GHGs by avoiding the emissions that  
             would be generated by the material's decomposition in a  
             landfill.  For example, in the case of anaerobic digestion, the  
             process produces methane from the organic waste in a controlled  
             environment for use as a renewable fuel, and results in climate  
             benefits by both reducing GHGs from landfills, and displacing  
             fossil fuels.  Recycling organic waste provides significant GHG  
             reductions over landfilling.  

          4) Cap-and-trade auction revenue.  

          Since November 2012, ARB has conducted 14 cap-and-trade auctions,  
             generating over $4 billion in proceeds to the state.  

             State law specifies that the auction revenues must be used to  








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             facilitate the achievement of GHG emissions reductions and  
             outlines various categories of allowable expenditures.  Statute  
             further requires the Department of Finance, in consultation  
             with ARB and any other relevant state agency, to develop a  
             three-year investment plan for the auction proceeds, which are  
             deposited in the GGRF.  

             Disadvantaged communities. 

             SB 535 (de León, Chapter 830, Statutes of 2012) requires the  
             Department of Finance, in the investment plan, to allocate at  
             least 25% of available moneys in the GGRF to projects that  
             provide benefits to disadvantaged communities, and at least 10%  
             to projects located within disadvantaged communities.  

             To meet the SB 535 mandate, the Office of Environmental Health  
             Hazard Assessment, under CalEPA's guidance, developed a tool  
             (termed CalEnviroScreen) to assess and rank census tracts  
             across the state that are disproportionately affected by  
             multiple types of pollution and areas with vulnerable  
             populations. CalEPA has designated 25% of census tracts in  
             California as disadvantaged communities for the purpose of  
             investing cap-and-trade proceeds.  

             Additionally, SB 862 (Committee on Budget and Fiscal Review,  
             Chapter 36, Statutes of 2014) requires ARB to develop  
             guidelines on maximizing benefits for disadvantaged communities  
             by agencies administering GGRF funds. 

             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  








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             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.  In February of 2014,  
             the plaintiffs filed an appeal with the 3rd District Court of  
             Appeal in Sacramento. That case is currently pending.

             Budget allocations.  

             SB 862 (Committee on Budget and Fiscal Review, Chapter 36,  
             Statutes of 2014) established a long-term cap-and-trade  
             expenditure plan by continuously appropriating portions of the  
             funds for designated programs or purposes.  The legislation  
             appropriates 25% for the state's high-speed rail project, 20%  
             for affordable housing and sustainable communities grants, 10%  
             to the Transit and Intercity Rail Capital Program, and 5% for  
             low-carbon transit operations.  The remaining 40% is available  
             for annual appropriation by the Legislature. 

             The Governor's proposed 2016-17 budget allocates $3.1 billion  
             GGRF revenues to a variety of transportation, energy, and  
             resources programs aimed at reducing GHG emissions.  
            
          Comments
          
          1) Purpose of Bill.  

          According to the author: 

               California must achieve deep reductions in short-lived  
               climate pollutants by 2030 in order to meet future greenhouse  
               gas emission targets and air quality goals.  Short lived  
               climate pollutants (SLCP), also known as "Super Pollutants,"  
               have a much greater warming effect than CO2.  This means that  
               reducing SLCPs such as methane will have a significant impact  
               on reducing our greenhouse gas emissions.  Cutting methane  
               emissions from solid waste disposal is a key state strategy  
               to slow global warming and reduce the impacts of climate  
               change.

               SB 970 will help California achieve its world-leading climate  
               change goals by demonstrating effective and efficient food  
               waste diversion through utilizing existing anaerobic  
               digestion capacity at publicly owned treatment works (POTWs).  
                This bill would create a program that demonstrates regional  








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               cooperation between POTWs, local governments, waste haulers,  
               and local businesses to divert food waste and other organics  
               to centralized digesters.  The demonstration projects will be  
               designed to maximize resource recovery and better position  
               the state to achieve its organic waste diversion and GHG  
               reduction goals.

          2) Anaerobic digestion project grant funding opportunities  
             available now.

             For the types of projects that this bill targets, multiple  
             funding programs currently exist, such as the following: 

             a)    Organics Grant Program (OGP).  

             OGP includes a competitive grant program created for the  
                purpose of lowering overall GHG emissions by expanding  
                existing capacity or establishing new facilities in the  
                state to reduce the amount of California-generated green  
                materials, food materials, or alternative daily cover being  
                sent to landfills.  Eligible projects include construction,  
                renovation or expansion of facilities in California that  
                compost, anaerobically digest, or use other related  
                digestion or fermentation processes to turn green or food  
                materials into value-added projects.  The projects must  
                result in permanent, annual, and measurable: i) reductions  
                in GHG emissions from the handling and landfilling of  
                California-generated green and food materials; and, ii)  
                increases in quantity (tons) of California-generated green  
                materials, food materials, or alternative daily cover  
                diverted from landfills and composted, digested or diverted  
                to other fermentation processes.  The parameters for  
                eligibility to receive moneys through OGP overlap with this  
                bill. 

             In FY 2014-15, OGP allocated approximately $14.521 million in  
                grants to five projects.  Among the grants awarded, $3  
                million was awarded to Recology to help increase the tonnage  
                of organic wastes diverted from landfills to anaerobic  
                digestion at the East Bay Municipal Utility District (EBMUD)  
                WWTF.  

             CalRecycle has proposed to increase the total amount of  
                organics grants awarded for FY 2016-17 to $86 million as  








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                well as $6 million for demonstration projects and $5 million  
                for loans.

             OGP guidelines provide a maximum of $3 million per grant.  The  
                author has stated concern that the projects subject to this  
                bill cost more than the grants awarded in OGP.  However, the  
                $3 million maximum per grant is not set in statute.   
                Perhaps, CalRecycle may consider adjusting the maximum  
                project grant in the guidelines given the potential and  
                substantial increase from $14.5 million to $86 million for  
                grants in OGP.

             b)    The Alternative and Renewable Fuel and Vehicle Technology  
                Program (AB 118).  

             AB 118 (Núñez, Chapter 750, Statutes of 2007), created the  
                Alternative and Renewable Fuel and Vehicle Technology  
                Program.  Among the provisions of the statute, which was  
                subsequently amended and reauthorized, AB 118 allows CEC to  
                develop and deploy alternative and renewable fuels and  
                advanced transportation technologies to help meet the  
                state's goals for reducing GHG emissions and petroleum  
                dependence in the transportation sector.  CEC has an annual  
                program budget of approximately $100 million to support  
                projects such as the ones proposed in SB 970.

             For example, as of March 22, 2016, EBMUD was awarded $1,000,000  
                to develop a process to convert fats, oil, and grease to  
                biodiesel at WWTFs; the City of San Mateo was awarded  
                $2,450,000 to produce low carbon vehicle fuel from the  
                unused digester gas generated at the city's WWTF; and,  
                Environ IEUA, received $2,442,740 for a 200 tons per day  
                (TPD) foodwaste anaerobic digester in Chino.  

             c)    Electric Program Investment Charge (EPIC) Program.  

             EPIC Program supports investments in clean energy technologies  
                and provides approximately $162 million annually from  
                2012-2020 to address policy and funding gaps related to the  
                development, deployment, and commercialization of next  
                generation clean energy technologies.  For example, Organic  
                Energy Solutions was awarded $5,000,000 to install and  
                operate an innovative anaerobic digestion system using a  
                high-rate biodigester technology that will process  








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                approximately 50 TPD of organic waste from a large  
                supermarket distribution center and 50 TPD of high-strength  
                slurry created by recovering and concentrating organics in  
                wastewater streams.

             As shown above, a substantial amount of state grant funding is  
             available for projects such as the WWTF projects for which this  
             bill seeks to provide grants.  It may be noted that in some  
             cases, even though a WWTF may not be the applicant for a grant,  
             it may still benefit from grants awarded to organizations that  
             utilize its facilities.  For example, the sponsor states that  
             it was not the lead agency in an AB 118 grant awarded to  
             Burrtec for a small fueling station, but that its food waste  
             operation is operated by Burrtec at IEUA facilities - and  
             although the station would not be sufficient to handle all  
             biogas with an expanded facility, the station could help the  
             sponsor work out potential issues and better understand the  
             conversion to fuel process as they consider increasing biogas  
             production.  

             The sponsor contends that the point of this bill is to create a  
             program that looks at a project as a whole - from processing  
             through to creation of renewable biomethane for pipeline  
             injection or transportation fuel.  However, a question arises  
             as to whether this particular type of project - organic food  
             waste diversion projects at existing WWTFs - is sufficient to  
             distinguish it from other types of eligible projects in order  
             to warrant a narrowly tailored grant program when they are  
             already eligible for hundreds of millions of dollars of  
             existing funding opportunities.

          3) Big money, small pool.

          As mentioned above, OGP is very similar to this bill.  The primary  
             difference is that that this bill limits the pool of potential  
             applicants to WWTFs.  Furthermore, the sponsor of this bill  
             states that it anticipates about eight agencies throughout the  
             entire state that would possibly be interested in applying to  
             the proposed grant program, which would provide matching funds  
             of up to $10 million/project for three to five projects.  A  
             question arises as to whether a new and separate funding  
             mechanism needs to be created for eight agencies that are  
             already eligible for, and some of which have already benefitted  
             from, grants provided by multiple, existing grant programs.








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          4) Creating another grant program?

          Establishing a new program takes effort and money to administer.   
             For example, public engagement/outreach and workshops are  
             necessary to create the program; staff time is required to  
             review proposals and process funds.  For FY 2016-17, CalRecycle  
             expects OGP administration costs of $3 million.  Also, anytime  
             a new program is created, and funded through GGRF, there are  
             various requirements that need to be met by the agency  
             administering the program as well as ARB.  ARB must provide new  
             program guidance on how to report and quantify GHG reductions  
             and on how to maximize benefits to disadvantaged communities.   
             Each administering agency has to do an expenditure report to  
             document how the program will reduce GHG emissions.  Creating  
             new programs that overlap with existing programs that serve the  
             same purpose may create governmental inefficiencies and  
             avoidable expenses. 

          The committee may wish to consider whether it would be prudent to  
             create another grant program funded by GGRF considering the  
             staff time, cost, and effort in establishing a new program when  
             food waste diversion WWTF projects are already eligible for  
             multiple funding opportunities, including GGRF, already in  
             existence.

          5) Piece by piece. 

          GGRF investments must facilitate the achievement of GHG emissions  
             reductions.  However, after that requirement is fulfilled,  
             there are a number of other policy goals that should be  
             considered, including benefits to environmental quality,  
             resource protection, public health and the economy, as well as  
             benefits to disadvantaged communities.  Various policy  
             committees have been referred proposals for investing GGRF  
             moneys, and these committees will likely consider whether  
             proposals meet basic statutory requirements and align with  
             legislative priorities.  However, in order to create an  
                                                  optimized investment strategy from GGRF moneys, proposals  
             should not be considered in isolation, but be assessed in  
             aggregate to evaluate which set of proposals best meets the  
             requirements of the fund, uses resources most efficiently, and  
             maximizes policy objectives.  As the budget committees are  
             considering the Governor's proposal of GGRF expenditures, the  








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             budget process may be an ideal way to comprehensively consider  
             the numerous policy bills, including SB 970, that propose new  
             programs funded through the GGRF. 

          6) Work with what we already have.

          As mentioned above, the grant program proposed in SB 970 is  
             substantively similar to OGP, which is expected to increase the  
             amount of grants allocated from $14.5 million in FY 2014-15 to  
             $86 million in FY 2016-17.  PRC §42999 provides the types of  
             projects eligible for OGP funding. However, the statute does  
             not include guiding principles for granting the money.  

          Rather than creating another GGRF funded program, the committee  
             may wish to replace the contents of this bill with amendments  
             to PRC §42999 requiring CalRecycle, when awarding OGP grants,  
             to consider the following: 
             
             a)    The amount of GHG emissions reductions that may result; 
             b)    The amount of organic material that may be diverted from  
                landfills;
             c)    If, and how, the project may benefit disadvantaged  
                communities;
             d)    Project readiness and permitting required; and, 
             e)    Air and water quality benefits.

          
            
          SOURCE:                    Inland Empire Utilities Agency  

           


          SUPPORT:               

          California Association of Sanitation Agencies  

           OPPOSITION:    

          None received  


           
                                           








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