BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Wieckowski, Chair
2015 - 2016 Regular
Bill No: SB 1402
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|Author: |Pavley |
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|Version: |3/28/2016 |Hearing |4/6/2016 |
| | |Date: | |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Rebecca Newhouse |
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SUBJECT: Low-carbon 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
emissions through investments including, but not limited to,
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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) Creates the California Low-Carbon Fuels Incentive Program,
funded through the GGRF, and administered by ARB, in
conjunction with the State Energy Resources Conservation and
Development Commission (CEC).
2) Requires the program to provide incentives for in-state
production of low-carbon transportation fuels from new and
existing facilities using sustainable feedstock and prioritizes
projects providing direct benefits to disadvantaged
communities.
Background
1) Increasing demand for low-carbon fuels. Several programs in
California have been established to create markets for
low-carbon fuels, in furtherance of meeting GHG emission
reduction goals.
a) Low-Carbon Fuel Standard. ARB established the Low-Carbon
Fuel Standard (LCFS) pursuant to authority under AB 32 in
2009, and began implementing the program in 2010. The LCFS
requires transportation fuels used in the state to meet
certain average annual carbon limitations. The program
ultimately requires a 10% reduction in the carbon intensity
(CI) of a particular fuel by 2020. The CI measures the net
carbon emissions of the entire life-cycle of the fuel,
including carbon emitted during production, refining,
transportation, and conversion of the fuel to useable
energy. Fuel suppliers can meet the standard by reducing
the carbon intensity of their fuels, or by purchasing
credits from other suppliers of other fuels that have carbon
intensities below state requirements.
The LCFS CI requirement was frozen at 1% from 2013 until
late last year as a result of litigation where the court
concluded that ARB's adoption of the LCFS violated
requirements of the California Environmental Quality Act and
the California Administrative Procedure Act. ARB readopted
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the LCFS to correct those administrative deficiencies last
fall and approved a modified CI reduction schedule that
still meets the original LCFS target of a 10% reduction by
2020.
In 2011, more than 75% of the credits in the program were
generated from ethanol and less than 25% were generated from
non-ethanol fuels. Through the third quarter of 2015,
however, credits from non-ethanol alternative fuels have
more than doubled and account for about 60% of the total
credits.
b) AB 692 (Quirk, Chapter 588, Statutes of 2015) requires 3%
of the aggregate amount of transportation fuel purchased by
state agencies to be procured from very low-carbon fuel
sources by January 1, 2017, and ratchets that requirement up
until it reaches 10% by January 1, 2024. AB 692 defines
"very low carbon transportation fuel" as a liquid or gaseous
transportation fuel having no greater than 40% of the carbon
intensity of the closest comparable petroleum fuel for that
year.
2) 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 to the CEC until 2024. These funds primarily
come from additional fees on vehicle registrations and vessel
registrations.
The program requires CEC to implement the ARFVTP to provide
funding measures to develop technologies and alternative and
renewable fuels in the marketplace to help attain the state's
climate change policies.
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 ARFVT 2015-16 Investment Plan update proposed funding for
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the alternative fuel production category, including biomethane,
gasoline and diesel substitutes, of $20 million. As of early
2015, the program has awarded a total of $51 million to 15
projects for biomethane production, $27.3 million to 12
projects for low-carbon gasoline substitutes, and $56.7 million
to 18 projects for biodiesel and renewable diesel fuels.
According to the 2015-16 Investment Plan, the Energy Commission
notes they have provided preferences for projects located in or
benefitting disadvantaged communities.
3) 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
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 census tracts across the
state that are disproportionately affected by multiple types of
pollution and areas with vulnerable populations.
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, and guidance for
administering agencies on GHG emissions 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
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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. The plaintiffs filed
an appeal with the 3rd District Court of Appeal in Sacramento
in February of 2014, and that case is pending.
Budget allocations. SB 862 (Committee on Budget and Fiscal
Review, Chapter 36, Statutes of 2014), a budget trailer bill,
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 2016-17 proposed budget appropriates over $3
billion to a variety of programs and projects in the
transportation, energy, natural resources, and waste diversion
sectors.
Comments
1) Purpose of Bill. According to the author, "With the passage of
SB 350 (de Leon, 2015), California cemented its climate
leadership by establishing a clear market signal to the clean
tech and energy sector that the state is committed to
renewables and energy efficiency for the long term.
"During the Paris Climate conference, a large business
contingent was present, signaling that businesses are willing
to step up and do their part if they have the market certainty
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and predictability they need to plan.
"Just this January, the Air Resources Board re-adopted the Low
Carbon Fuels Standard, ensuring that transportation fuels
consumed in California will be ten percent cleaner by 2020.
However, while the Low Carbon Fuel Standard drives the deep
emission reductions the state needs to meet our long term
climate policy, the lion's share of the credits are generated
out of state.
"SB 1402 will create well-paying 21st century jobs focused in
disadvantaged communities in California. The program will
encourage the near-term production of robust volumes of low
carbon transportation from sustainable feedstocks at facilities
in California.
"Through SB 1402, we send the right market signal and provide
the certainty that businesses need to do their part. The
home-grown clean energy economy is worth building -- not only
for our air, but for our economy and our businesses."
2) Implementing a budget proposal. The Governor's 2016-17 budget
proposal appropriates $500 million to ARB for Low Carbon
Transportation & Fuels. According to the administration's
budget change proposal for this appropriation, "$455 million
would be directed to continue and expand GGRF Low Carbon
Transportation investments from the 2015-16, 2014-15, 2013-14
budget cycles to meet consumer demand, including projects that
provide incentives for sustainable freight technology, near-
and zero-emissions passenger vehicles, and clean trucks and
buses to achieve GHG emission reductions. $40 million would be
directed to establish a new program to provide incentives for
in-state production of ultra-low carbon fuels." SB 1402
appears to contain the implementing statutory provisions for
the proposed $40 million to ARB for low-carbon fuel incentives.
3) 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
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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 budget process may be an ideal way to
comprehensively consider the numerous policy bills, including
SB 1402, that propose new programs funded through the GGRF.
4) Setting up a new program. SB 1402 does not specify any
requirements or provisions outlining how the Low-Carbon Fuels
Incentive Program, funded through GGRF, would operate.
For instance, what types of fuels and technologies are
eligible? What carbon intensity does a "low-carbon" fuel have
to meet? Will ARB and CEC be required to create guidelines or
specify program requirements for these incentives? What form
will these incentives take? Will these incentives be awarded
through a competitive process based on GHG emission reductions?
How will progress be measured and tracked?
As there is little specificity in the bill as to how this
program will operate, it is not clear how the bill will
accomplish the goals of the program.
5) Complements or Copies? As noted in the background, the AB 118
program, administered by the CEC, already provides substantial
grants for the production of low-carbon fuels. How will the
program created in SB 1402 differ from the CEC's AB 118
program? Can the objectives of this bill be met by either
augmenting AB 118's budget through GGRF moneys, or by amending,
as necessary, the AB 118 program?
Related/Prior Legislation
SB 706 (Pavley, 2015) 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. SB 706 was held on the Senate Appropriations
Suspense file.
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AB 692 (Quirk, Chapter 588, Statutes of 2015) requires 3% by
January 1, 2017, and 10% by January 1, 2024, of the aggregate
amount of transportation fuel purchased by state agencies to be
procured from very low-carbon fuel sources.
SOURCE: Author
SUPPORT:
Clean Energy
OPPOSITION:
None received
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