BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  June 27, 2016


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          SB  
          1387 (De León) - As Amended April 7, 2016


          SENATE VOTE:  22-13


          SUBJECT:  Nonvehicular air pollution:  market-based incentive  
          programs:  South Coast Air Quality Management District board


          SUMMARY:  Adds three members to the South Coast Air Quality  
          Management District (SCAQMD) Governing Board, as specified, and  
          creates a process by which the Air Resources Board (ARB) is  
          required to review and approve, disapprove, or amend and  
          approve, any plan for, changes to, or rules implementing, a  
          local air district's market-based incentive program (e.g., the  
          SCAQMD's Regional Clean Air Incentives Market, or RECLAIM)


          EXISTING LAW:   


          1) Provides ARB with primary responsibility for control of  
             mobile source air pollution and provides that air pollution  
             control districts (APCDs) and air quality management  
             districts (AQMDs) have primary responsibility for controlling  
             air pollution from all sources, other than emissions from  
             mobile sources, and establishes certain powers, duties, and  
             requirements for those districts.








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          2) Creates certain AQMDs, with related authority, including the  
             SCAQMD under the Lewis-Presley Air Quality Management Act.   
             SCAQMD covers portions of Los Angeles, Orange, Riverside, and  
             San Bernardino counties within the South Coast Air Basin.


          3) Establishes the SCAQMD Governing Board, and specifies the  
             Board consist of 13 members, where one member each is  
             appointed by the Governor, Senate Rules Committee, and the  
             Speaker of the Assembly, and the other 10 members are  
             appointed by regional government entities in the South Coast  
             Air Basin, as specified.


          4) Requires SCAQMD adopt a plan to achieve and maintain the  
             state and federal ambient air quality standards for the South  
             Coast Air Basin, and requires that plan and subsequent  
             revisions contain deadlines for compliance with federal air  
             quality standards, as well as schedules and deadlines to  
             achieve the state ambient air quality standards by the  
             earliest date achievable, including by use of best available  
             retrofit control technology (BARCT).


          5) Makes findings and declarations that other options for air  
             quality improvement, including market-based incentive  
             programs, should be explored, provided those programs provide  
             equivalent emission reductions.


          6) Authorizes a district to adopt a market-based incentive  
             program as an element of the district's plan for attainment  
             of state or federal ambient air quality standards, if that  
             plan meets specified requirements. 


          7) Requires a district's plan for attainment or plan revision  
             submitted to the state prior to January 1, 1993, be designed  
             to achieve equivalent emission reductions and reduced cost  








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             and job impacts compared to current command and control  
             regulations and future air quality measures that would  
             otherwise have been adopted as part of the district's plan  
             for attainment.


          8) Prohibits a district from implementing a market-based  
             incentive program unless the state board determines the above  
             requirements are met. 


          9) Requires a district's plan or plan revision submitted on or  
             after January 1, 1993, be designed to allow the trading of  
             reductions among a variety of sources and requires ARB to  
             approve the above plan or plan revision prior to program  
             implementation and make their determination no later than 90  
             days from submission of the plan or plan revision.


          10)Requires the district, upon adoption of rules and regulations  
             to implement the market-based program, to submit the rules  
             and regulations to ARB, and requires ARB, within 90 days, to  
             determine whether the rules and regulations meet specified  
             requirements.


          THIS BILL:


           1) Makes findings and declarations that other options for air  
             quality improvement, including market-based incentive  
             programs, may be explored, provided those programs provide  
             greater emission reductions and ensure disadvantaged  
             populations are not disproportionately impacted. 
           2) Strikes the January 1, 1993 date for plan or plan revision  
             submission, and requires any district plan or plan revision  
             achieve equivalent emission reductions and reduced cost and  
             job impacts compared to current command and control  
             regulations and future air quality measures that would  








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             otherwise have been adopted as part of the district's plan  
             for attainment.


           3) Prohibits a district from implementing any revisions to an  
             adopted market-based incentive program, unless ARB determines  
             the plan or plan revision complies with the above  
             requirements.


           4) Requires, if ARB determines a plan or plan revision does not  
             meet the specified requirements for a market-based incentive  
             program, that ARB notify the district, revise the plan or  
             plan revision so that it complies with specified  
             requirements, and approve the plan or plan revision.


           5) Specifies that the above plan or plan revision approved by  
             ARB shall take effect immediately and is binding on the  
             district.  


           6) Requires, if ARB determines a district rule does not meet  
             the specified requirements for a market-based incentive  
             program, ARB notify the district, revise the rule so that it  
             complies with specified requirements, and adopt the rule.


           7) Specifies that the above rule approved by ARB shall take  
             effect immediately and have the same legal force and effect  
             as a district rule. 


           8) Expands the SCAQMD Governing board by three to increase the  
             membership to 16, with the additional members appointed by  
             the Governor, the Senate Committee on Rules, and the Speaker  
             of the Assembly.










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           9) Requires the above appointees be representatives of a bona  
             fide nonprofit environmental justice organization that  
             advocates for clean air and pollution reductions in one or  
             more communities within the South Coast Air Basin. 


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, unknown, likely significant, costs to the ARB (Air  
          Pollution Control Fund).


          COMMENTS:  




          1)Background.  The SCAQMD board is made up of 13 members, where  
            three are appointed by the state (one each by the Senate Rules  
            Committee, the Speaker of the Assembly, and the Governor) and  
            10 are appointed by local governments.  The members of the  
            board serve four-year terms.  Currently, Dr. William Burke,  
            appointed by the Speaker of the Assembly, serves as the  
            Chairman of the SCAQMD Board. 




            Under the federal Clean Air Act, the United States  
            Environmental Protection Agency (US EPA) establishes National  
            Ambient Air Quality Standards that apply for outdoor air  
            throughout the country.  These federal standards exist for  
            several air pollutants due to their negative impact on public  
            health above specified concentrations, including ozone and  
            particulate matter, among others.  Nonattainment areas are  
            regions that do not meet the national ambient air quality  
            standard for one of those pollutants. 


            The South Coast Air Basin has some of the worst air quality in  








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            the nation, and is in serious nonattainment for particulate  
            matter (<2.5 microns, or PM 2.5) and extreme nonattainment for  
            ozone.  As a result of its nonattainment status, state law  
            requires the district to adopt an Air Quality Management Plan  
            (AQMP) to achieve and maintain the state and federal ambient  
            air quality standards and submit this plan to the ARB for  
            inclusion into the state implementation plan (SIP).  The AQMP  
            was originally adopted in 1982, and is formally reviewed every  
            two years.  The SCAQMD is currently working on the 2016 AQMP. 


            AB 1054 (Sher, Chapter 1160, Statutes of 1992) authorizes  
            local air districts to adopt a market-based incentive program  
            as a substitute for command and control regulations and future  
            air quality measures that would otherwise have been adopted as  
            part of the district's plan for attainment. 


            Pursuant to AB 1054, the SCAQMD adopted the Regional Clean Air  
            Incentives Market, or RECLAIM in 1993.  RECLAIM was designed  
            and adopted amidst an economic recession in the region with  
            widespread industry and electrical utility support.  The  
            program replaced a series of existing command and control  
            rules and was intended to allow for the most efficient  
            emission reduction projects within the sector to achieve the  
            desired emissions reductions with the lowest economic cost to  
            industry.


            Instead of permitting individual equipment and devices, the  
            program sets individual emissions limits on nitrogen oxide  
            (NOx) and sulfur oxide (SOx) for facilities as a whole.   
            Credits, (called RECLAIM Trading Credits, or RTCs) are  
            provided to the facility in an amount equivalent to their  
            emissions limit assigned under the program.  RECLAIM sources  
            may choose to install emission control equipment that enables  
            them to operate within their allocation, or they may exceed  
            emissions allocations as long as they acquire sufficient RTCs  
            from other sources.  In 2013, there were 275 facilities in the  








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            program, including refineries, power plants, and other  
            industrial sources.


            RECLAIM has been criticized over the years for an oversupply  
            of credits, starting from the original allocation of credits  
            where the initial distribution of RTCs in 1994 exceeded actual  
            NOx emissions by 60%.  This significant over-allocation was  
            due in part to incorrect economic growth assumptions for the  
            region.  Other than a few notable exceptions, the oversupply  
            of credits has kept credit prices relatively low compared to  
            costs associated with installing pollution control equipment.   
            As a result, the largest polluters in the region have  
            primarily chosen to comply by purchasing RTCs to exceed their  
            NOx emissions cap under the program, instead of by reducing  
            NOx through installation of readily available pollution  
            control equipment. 


            In March of this year, the US EPA disapproved portions of the  
            2012 AQMP related to the achievement of the 2006 PM 2.5  
            standard, citing deficiencies in the 2010 version of the  
            RECLAIM program that allowed for excess of credits and delay  
            of pollution controls for some facilities.  According to the  
            SCAQMD Web site, district staff expects that recent RECLAIM  
            amendments last December will address the disapproval and  
            ensure compliance with federal Clean Air Act requirements.


            Despite the initial excess allocation of credits, RECLAIM has  
            only been amended twice to reduce excess RTCs for NOx (called  
            a credit "shave"), once in 2004, and again in December 2015. 


            According the SCAQMD staff report, amendments to the program  
            were needed to address BARCT requirements in state law.  BARCT  
            evaluation is required by California law to assess the  
            advancement in control technology to ensure that RECLAIM  
            facilities achieve the same emission reductions that would  








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            have occurred under a command-and-control approach and that  
            emissions reduction from the program fully contribute to the  
            efforts in the Basin to achieve federal ambient air quality  
            standards. 


            Specifically, the SCAQMD staff proposal recommended amendments  
            to shave NOx RTC credits from 26.5 tons/day (tpd) to 14 tpd  
            with a front-loaded implementation schedule.  The proposal  
            notes that the 14 tpd day value represents the emissions  
            reductions necessary to comply with state law BARCT  
            requirements, with a 10% compliance margin, adjustments for  
            projected growth, and uncertainties in the BARCT analysis.   
            The staff proposal also recommended amendments to retire RTCs  
            from larger NOx emitting facilities that have shut down to  
            help address oversupply of credits.


            During the public comment portion of the hearing, support was  
            expressed among industry representatives for a reduced shave  
            of 12 tpd, a back-loaded implementation schedule, and a  
            removal of the proposal to retire credits from facility shut  
            downs from consideration at the hearing.  A motion to approve  
            these amendments, in lieu of the staff-proposed amendments,  
            passed by a vote of 7-5 at the December 4, 2015 SCAQMD  
            Governing Board meeting. 


            In January, Richard Corey, Executive Officer of ARB, wrote a  
            letter to Dr. Barry Wallerstein, the former executive officer  
            of the SCAQMD, expressing significant concerns over the  
            December SCAQMD Board vote, including whether the RECLAIM  
            amendments meet requirements in state law. 


            On February 6, 2016, Dr. Wallerstein replied to Mr. Corey's  
            letter, stating, "We believe that several of CARB staff's  
            conclusions are incorrect and do not accurately reflect the  
            public process for the referenced rulemaking."  The letter  








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            also noted that SCAQMD would be submitting the December 4th  
            RECLAIM amendments to ARB for inclusion into the SIP in late  
            February of this year.  ARB is currently reviewing the  
            amendments, which is expected to be complete later this  
            summer.


          10)Author's statement:


               The SCAQMD is one of the leading voices for clean air and  
               climate pollution reductions in the southern California  
               region.  In the past six months, with its recent changes in  
               governance, it has voted to dismiss its longstanding  
               executive officer and weaken clean air regulations over its  
               expert staff's recommendations.  Outside parties have  
               worked to reduce diversity on the board and to install a  
               majority that is more concerned with polluters than with  
               public health.  SB 1387 seeks to modernize the membership  
               of the governing board and to ensure the ARB can conduct  
               speedy oversight of any amendments to smoke stack  
               regulations made by the new board.


          11)Related/prior legislation:


            AB 2616 (Burke) adds three members to the Coastal Commission,  
            appointed by the Governor, the Senate Rules Committee, and the  
            Speaker of the Assembly, who are required to work directly  
            with communities in the state that are most burdened by, and  
            vulnerable to, high levels of pollution and issues of  
            environmental justice, including, but not limited to,  
            communities with diverse racial and ethnic populations and  
            communities with low-income populations.  AB 2616 is pending  
            in the Senate Natural Resources and Wildlife Committee.


            AB 1288 (Atkins, Chapter 586, Statutes of 2015) adds two  








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            members to ARB, appointed by the Senate Rules Committee and  
            the Speaker of the Assembly, who are required to work directly  
            with communities in the state that are most significantly  
            burdened by, and vulnerable to, high levels of pollution,  
            including communities with diverse racial and ethnic  
            populations and low-income populations.


            SB 886 (Negrete McLeod, Chapter 664, Statutes of 2007)  
            increased the board membership of SCAQMD from 12 to 13 members  
            by adding a seat for the City of Los Angeles and deleted  
            prohibitions on a member serving more than two consecutive  
            terms as chair of the SCAQMD and other specified air  
            districts.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          American Lung Association in California


          California Environmental Justice Alliance


          Clean Power Campaign


          Coalition for Clean Air


          Communities for a Better Environment










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          Community Action and Environmental Justice


          East Yard Communities for Environmental Justice


          Liberty Hill Foundation


          Physicians for Social Responsibility-Los Angeles


          Sierra Club California


          Transform


          Union de Vecinos




          Opposition


          American Coatings Association
          American Forest & Paper Association
          Associated Builders and Contractors of California
          Automotive Specialty Products Alliance
          Building Industry Association of Southern California
          Building Owners & Managers Association of California
          California Asphalt Pavement Association
          California Association of Realtors
          California Auto Body Association
          California Building Industry Association


          California Business Properties Association








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          California Chamber of Commerce
          California Chapter of the International Warehouse Logistics  
          Association
          California Construction and Industrial Materials Association
          California Cotton Ginners and Growers Association
          California Independent Oil Marketers Association
          California Independent Petroleum Association
          California League of Food Processors
          California Manufacturers & Technology Association
          California Metals Coalition
          California Paint Council
          California Railroad Industry
          California Small Business Alliance
          California Small Business Association
          California Taxpayers' Association
          California Trucking Association
          Chemical Industry Council of California
          City of Glendora
          City of Lake Forest
          City of Laguna Hills
          Coalition of Energy Users
          Commercial Real Estate Development Association
          Construction Industry Air Quality Coalition
          Consumer Specialty Products Association
          El Monte/South El Monte Chamber of Commerce
          Engineering Contractor's Association
          Fullerton Association of Concerned Taxpayers
          FuturePorts
          Glass, Molders, Pottery, Plastics and Allied Workers  
          International Union
          Grocery Manufacturers Association
          Haddick's Towing


          Harbor Trucking Association
          Howard Jarvis Taxpayers Association
          Independent Oil Producers Agency
          Industrial Association of Contra Costa County
          Industrial Environmental Association








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          Inland Empire Economic Partnership


          International Council of Shopping Centers
          International Warehouse Logistics Association
          Kern Country Taxpayers Association
          Long Beach Chamber of Commerce
          Los Angeles Area Chamber of Commerce
          Los Angeles County Business Federation
          Los Angeles County Division of the League of California Cities
          Metal Finishing Association of Northern California
          Metal Finishing Association of Southern California
          National Federation of Independent Business/California
          Printing Industries Association of Southern California
          Redondo Beach Chamber of Commerce
          Regional Hispanic Chamber of Commerce
          San Bernardino Associated Governments
          Santa Barbara Taxpayers Association
          Santa Barbara Technology and Industry Association
          Small Business Action Committee
          South Bay Association of Chambers of Commerce
          South Coast Air Quality Management District
          Torrance Area Chamber of Commerce
          Valley Industry & Commerce Association
          West Coast Protective League
          Western Agricultural Processors Association
          Western States Petroleum Association
          Western States Trucking Association


          One Individual




          Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)  
          319-2092










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