BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 1213 Hearing Date: 3/29/2016 ----------------------------------------------------------------- |Author: |Wieckowski | |-----------+-----------------------------------------------------| |Version: |2/18/2016 As Introduced | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Renewable energy: biosolids: matching grants DIGEST: This bill makes a continuous annual appropriation of $20 million from the Greenhouse Gas Reduction Fund (GGRF) to the California Energy Commission (CEC) for a competitive grant program. The program will make available grants for capital projects that use biosolids to generate useful heat energy or electricity, liquid or gaseous fuels, or useful byproducts. This bill also makes a one-time appropriation from the GGRF to fund a regional biosolids-to-energy project located in the San Francisco Bay Area. ANALYSIS: Existing law: 1)Declares the policy goal of the state that not less than 75 percent of solid waste generated be source reduced, recycled, or composted by the year 2020, and annually thereafter but prohibits the Department of Resources Recycling and Recovery from establishing or enforcing a diversion rate on a city or county that is greater than the 50 percent diversion rate. (Public Resources Code § 41780.01) 2)Requires the California Air Resources Board (ARB), pursuant to the California Global Warming Solutions Act of 2006, to adopt rules and regulations that would reduce greenhouse gas emissions (GHGs) in the state to 1990 levels by 2020. (Health and Safety Code §§38500 to 38599) 3)Establishes the GGRF, and requires all monies collected by ARB SB 1213 (Wieckowski) PageB of? from the auction or sales of allowances, pursuant to a market-based compliance mechanism, be deposited in the fund and made available for appropriation. (Government Code §16428.8) 4)Establishes the GGRF Investment Plan and Communities Revitalization Act to set procedures for the investment of regulatory fee revenues derived from the auction of GHG allowances, including the requirement that such revenue be used to reduce emissions of GHGs. (Health and Safety Code §§39710 to 39720) 5)Requires the GGRF Investment Plan to allocate: (a) at least 25 percent of the available monies in the fund to projects that provide benefits to disadvantaged communities, and (b) at least 10 percent of monies in the fund to projects located within disadvantaged communities. (Health and Safety Code §§39711 to 39723) This bill: 1)Defines a "biosolids to clean energy capital project" as one that uses biosolids to generate useful heat energy or electricity, liquid or gaseous fuels, or useful byproducts using nonincineration technology in a manner or location that also reduces GHGs compared with other biosolids management practices in use at the time of enactment of this bill. 2)Directs the CEC to establish the "Biosolids Clean Energy Grant Program" of competitive grants available to local wastewater agencies to provide 50-percent matching funds for "biosolid to clean energy capital projects," based (a) cost-effectiveness and (b) any other factors deemed appropriate by the CEC. 3)Continuously appropriates $20 million from the GGRF to the CEC for the competitive grant program. 4)Makes a one-time appropriation in fiscal year 2016-17 from the GGRF to provide a 50-percent matching grant to the Bay Area Biosolids to Energy Coalition for the design and construction of a regional "biosolids to clean energy project" located in the San Francisco Bay Area. Background SB 1213 (Wieckowski) PageC of? Uses of AB 32 auction revenue must reduce GHGs. ARB, in implementing The Global Warming Solutions Act (aka "AB 32), established by regulation a cap-and-trade program for GHGs. Under the program, ARB distributes tradable allowances to emit specific quantities of GHGs. ARB has given away for free about 51 percent of the allowances, while it has auctioned most of the remainder of the allowances each quarter since November 2012. Incidental to the reduction of GHGs, the auctioning of allowances has generated billions of dollars in state revenue. The Legislative Analyst's Office (LAO) estimates ARB's allowance auctions will generate $2.4 billion in fiscal year 2015-16 and $2.3 billion in fiscal year 2016-17. Existing statute provides thresholds and parameters for the use of auction revenues, consistent with their status as proceeds of a regulatory fee. Statute directs auction revenue to the GGRF, available for appropriation by the Legislature. Statute further requires that GGRF revenues be used for GHG reductions. Finally, statute mandates that at least 25 percent of money in the GGRF go to projects that provide benefits to disadvantaged communities, and at least 10 percent of monies in the fund go to projects located within disadvantaged communities. Legislature allocates billions in GGRF revenues through the budget. Through several annual budgets, the Legislature has allocated GGRF revenues to a variety of projects anticipated to reduce GHGs, in the nearer or longer term. 60 percent of the expenditures represent continuous appropriations, meaning defined portions of GGRF expenditures go to specific programs each year: 25 percent for high-speed rail; 20 percent for affordable housing and sustainable communities grants; 10 percent for intercity rail capital projects; and five percent for low-carbon transit operations. The GGRF budget appropriations for fiscal years 2013-14 through 2015-16 are shown in the following figure.<1> ---------------------------------------------------- | | |Cap-and-trade Expenditures (in millions) | ---------------------------------------------------- |----------------------------+-------+-------+-------| |Program |2013-14|2014-15|2015-16| --------------------------- --------------------------- <1> See http://www.lao.ca.gov/Publications/Detail/3328 . SB 1213 (Wieckowski) PageD of? SB 1213 (Wieckowski) PageE of? | | | | <2> | |----------------------------+-------+-------+-------| | High-speed rail| -- | $250 | $600 | |----------------------------+-------+-------+-------| | Affordable housing and | -- | 130 | 480 | | sustainable communities| | | | |----------------------------+-------+-------+-------| | Transit and intercity rail | -- | 25 | 240 | | capital| | | | |----------------------------+-------+-------+-------| | Transit operations| -- | 25 | 120 | |----------------------------+-------+-------+-------| | Low-carbon transportation| $30 | 200 | 70 | |----------------------------+-------+-------+-------| | Low-income weatherization | -- | 75 | 70 | | and solar| | | | |----------------------------+-------+-------+-------| | Agricultural energy and | 10 | 25 | 40 | | operational efficiency| | | | |----------------------------+-------+-------+-------| | Urban water efficiency| 30 | 20 | 20 | |----------------------------+-------+-------+-------| | Sustainable forests and | - | 42 | - | | urban forestry| | | | |----------------------------+-------+-------+-------| | Waste diversion| - | 25 | - | |----------------------------+-------+-------+-------| | Wetlands and watershed | - | 25 | - | | restoration| | | | |----------------------------+-------+-------+-------| | Other administration| 2 | 10 | 31 | |----------------------------+-------+-------+-------| | Totals| $72 | $852 |$1,691 | | | | | | ---------------------------------------------------- If the LAO's estimates of cap-and-trade auction revenue hold true, there will be a $1.6 billion balance in the GGRF at the end of fiscal year 2015-16. In addition, auction revenues in 2016-17 should add billions more to the GGRF. It therefore appears there is abundant room for the Legislature to express its GHG reduction priorities through additional appropriations from the GGRF, continuous appropriations notwithstanding. --------------------------- <2> Based on LAO projections. SB 1213 (Wieckowski) PageF of? Bill creates new program, continuously appropriates $20 million. This continuously appropriates $20 million from the GGRF. The money will fund a competitive grant program, administered by the CEC, available to local wastewater agencies that provide a 50-percent match for a "biosolids to clean energy capital project." This bill defines such a project as a capital project that uses biosolids to generate useful heat energy or electricity, liquid or gaseous fuels, or useful byproducts using nonincineration technology in a manner that or location that also reduces GHGs as compared to current biosolids management practices. Those current practices tend to be agricultural application or use as cover at landfills. The bill directs the CEC, in awarding grants, to consider the cost-effectiveness of a project, as well as any other factors deemed appropriate by the CEC, one of which, consistent with existing statute, must be potential to reduce GHGs. Proponents - a collection of Bay Area wastewater and sanitation agencies - describe biosolids-to-energy projects as proven on a small scale. Yet, the cost of such projects currently exceeds the cost of conventional biosolids management techniques. Proponents intend the competitive matching grant program to facilitate large-scale development, which will lead to cost reductions while reducing GHGs and criteria pollutants and producing a small amount of useful energy. Bill also makes one-time appropriation of $12 million for a specific project. In addition to the ongoing $20 million appropriation from the GGRF for a competitive grant program, the bill appropriates $12 million one-time from the GGRF. The one-time grant is to provide, via the CEC, a 50-percent matching grant for the Bay Area Biosolids to Energy Coalition for the design and construction of a regional biosolids-to-clean-energy project in the San Francisco Bay Area. Not coincidentally, proponents describe a planned biosolids-to-energy project in the Dublin San Ramon Services District with a total estimated cost of $24 million. GGRF allocations better made in the budget; project-specific awards better not made at all. As shown above, for the last several years, the Legislature has appropriated GGRF monies through the budget process. Currently, the Legislature, again through the budget process, is considering the governor's proposed $3 billion GGRF spending plan for 2016-17. SB 1213 (Wieckowski) PageG of? The budget process seems the appropriate venue for considering GGRF spending proposals, such as the biosolids proposal in this bill. The budget allows the Legislature to consider GGRF funding proposals comprehensively: eligible funding programs can be compared; tradeoffs assessed; competing policy goals prioritized. This bill makes unavailable for any other purpose $12 million from the GGRF in the budget year and $20 million from the GGRF, ongoing. There are other GGRF funding bills currently under consideration by the Legislature. (There are many - see below for a partial list.) Legislative one-offs, such as this bill, do not provide lawmakers the opportunity to balance competing priorities. If the committee, nonetheless, decides to approve this bill, it may wish to delete the one-time funding for the Bay Area biosolids project. This bill establishes a program in which the CEC makes out-year grants according to discrete, discernable criteria. Curiously, this bill provides the CEC no such gatekeeper role for the one-time award: if there is a qualifying biosolids project in the Bay Area (and it seems there is), the CEC gives it the money. In addition to?Similarly, if the committee decides to approve this bill, it may wish to limit funding eligibility to entities not subject to the AB 32 cap. According to ARB, wastewater treatment plants are included in the cap-and-trade program. However, only two wastewater treatment plants had emissions above the cap-and-trade program's 25,000 metric ton threshold in 2012: the Los Angeles County Sanitation District Joint Water Pollution Control Plant and the San Jose and Santa Clara Regional Wastewater Facility. Recently, the LAO noted that spending auction revenue on GHG reductions is likely not necessary to meet the state's GHG reduction goals and likely increases the overall costs of emission reduction activities.<3> According to the LAO, "this is because, in certain cases, spending on GHG reductions interacts with the regulation in a way that changes the types of emission reduction activities, but not the overall level of emission reductions." More specifically, entities covered by the AB 32 cap -such as some larger wastewater treatment plants - must limit their GHGs to meet the cap. This is true regardless of any GGRF funding received by the covered entity. The likely effect of receipt of GGRF monies by a covered entity, therefore, --------------------------- <3> http://www.lao.ca.gov/Publications/Report/3328 SB 1213 (Wieckowski) PageH of? is reduced compliance costs for the covered entity, but not increased GHG reduction, either by that covered entity or overall. However, funding GHG-reducing projects undertaken by entities not covered by the AB 32 cap may lead to additional GHG reductions that would not have otherwise occurred. Double-referred. Should this bill be approved by this committee, it has been referred to the Senate Committee on Environmental Quality. Prior/Related Legislation AB 1555 (Gomez, 2016) states the intent of the Legislature to enact future legislation that would appropriate $1.7 billion from the GGRF for a variety of programs to be allocated in amounts to be determined in that future legislation. The bill has been referred to the Assembly Committee on Natural Resources. AB 1657 (O'Donnell, 2016) creates two new programs - the Port Building and Lighting Efficiency Greenhouse Gas Reduction Fund Program the Zero- and Near-Zero-Emission Intermodal Terminals Program - each of which the bill declares eligible to receive money from the GGRF, upon appropriation. The bill has been referred to the Assembly Committee on Natural Resources and the Assembly Committee on Transportation. AB 1982 (Bloom, 2016) specifies the characteristics of the traffic signal synchronization that is eligible for GGRF funding under current law. The bill has been referred to the Assembly Committee on Natural Resources and the Assembly Committee on Transportation. AB 2146 (Patterson, 2016) makes available to CAL FIRE, upon appropriation, $200 million from the GGRF for activities that reduce GHG in the state caused by uncontrolled forest fires. The bill has been referred to the Assembly Committee on Natural Resources. AB 2223 (Gray, 2016) continuously appropriates $100 million from the GGRF to the ARB to make manure digester market development payments of an unspecified dollar amount per kW of electricity produced from California-generated manure by California-based manure digesters. The bill has been referred to the Assembly Committee on Natural Resources and the Assembly Committee on Agriculture. SB 1213 (Wieckowski) PageI of? AB 2343 (Garcia, C., 2016) recasts the requirement that 10 percent of GGRF funds be spent on projects located in disadvantaged communities. The bill has been referred to the Assembly Committee on Natural Resources. AB 2576 (Gray, 2016) continuously appropriates $20 million from the GGRF to the Department of Resources Recycling and Recovery for market development payments to glass container manufacturers of state-generated cullet utilized for manufacturing in the state. The bill has been referred to the Assembly Committee on Natural Resources. AB 2715 (Garcia, E., 2016) establishes the Agricultural Working Poor Energy Efficient Housing Program and states the intent of the Legislature that not less than $25 million be appropriated annually from the GGRF for the program. The bill has been referred to the Assembly Committee on Natural Resources. AB 2722 (Burke, 2016) appropriates $250 million from the GGRF to the Strategic Growth Council to administer the Transformative Climate Communities Program. The bill has been referred to the Assembly Committee on Natural Resources. SB 398 (Leyva, 2015) established the Green Assistance Program to provide technical assistance to small businesses and small nonprofits and disadvantaged communities in equitably applying for an allocation of the monies deposited in the GGRF. The bill passed the Senate 31-9 and was held in Assembly Committee on Appropriations. SB 471 (Pavley, 2015) directed the State Water Resources Control Board, upon appropriation from the GGRF, to establish a grant and loan program for water projects that result in the net reduction of water-related GHGs. The bill passed the Senate 37-2 but was held in Assembly Committee on Appropriations. SB 523 (McGuire, 2015) would have continuously appropriated $5 million from the GGRF to fund the purchase of new school buses to replace existing school buses. The bill died in the Senate Committee on Environmental Quality. SB 590 (Dahle, 2015) allowed monies from the GGRF to be used by the CEC to maintain the current level of biomass power SB 1213 (Wieckowski) PageJ of? generation and geothermal energy generation in the state and to revitalize currently idle facilities in strategically located regions. The bill was held in Senate Committee on Appropriations. SB 698 (Canella) would have continuously appropriated an unspecified percent of the annual proceeds of the GGRF for school zone safety projects within the Active Transportation Program. The bill died in the Senate Committee on Environmental Quality. FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No SUPPORT: Bay Area Biosolids to Energy (Source) Central Marin Sanitation Agency City of Richmond Delta Diablo Dublin San Ramon Services District Ironhouse Sanitary District North San Mateo County Sanitation District San Francisco Public Utilities Commission OPPOSITION: CalTax ARGUMENTS IN SUPPORT: According to the author, proponents seek to develop projects that convert biosolids into clean energy in a manner that will result in GHG emissions reductions. The technology for doing so is up to three times as expensive as the current practice for biosolids disposal. This increased cost would fall entirely on ratepayers without this bill. SB 1213 would have the state pay 50 percent of the cost of investing in new cutting-edge green technology to help the ratepayers pay for the highest and best use of biosolids. Over time the costs will decline as the technology becomes more widespread and technological advancements ensue. Current law does not devote any money from the GGRF for biosolids conversion. SB 1213 would change the law so that a very small percentage of GGRF funds are invested in biosolids conversion. SB 1213 (Wieckowski) PageK of? ARGUMENTS IN OPPOSITION: CalTax contends the use of cap-and-trade revenue proposed by this bill is inconsistent with the statutorily legitimate uses of a regulatory fee. -- END --