BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1402 (Pavley) - Low-carbon fuels
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|Version: March 28, 2016 |Policy Vote: E.Q. 4 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 9, 2016 |Consultant: Narisha Bonakdar |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1402 creates
the California Low-Carbon Fuels Incentive Program, to be
administered by the California Air Resources Board (ARB), in
conjunction with the State Energy Resources Conservation and
Development Commission (CEC) to provide incentives for the
in-state production of low-carbon transportation fuels from new
and existing facilities using sustainable feedstock. The program
will be funded from moneys appropriated from the Greenhouse Gas
Reduction Fund (GGRF), and must prioritize projects providing
direct benefits to disadvantaged communities.
Fiscal
Impact:
Between $150,000 annually (GGRF) and approximately $928,000
(GGRF) annually to the ARB to administer the program depending
upon how the bill is implemented. (See staff comments).
Unknown, likely minor, costs to the CEC.
Cost pressures, potentially in the millions of dollars, to
fund the incentive program.
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Background:
Several programs in California have been established to create
markets for low-carbon fuels, in furtherance of meeting GHG
emissions reduction goals. 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 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.
According to the ARB, "The requirements of the bill would likely
be met by ARB's "price per gallon" production incentive program,
which is included in the Governor's proposed 2016-17 budget.
This production incentive program would be distributed on a
first-come/first-served basis, and may encourage (1) In-state
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very low carbon fuel producers to ramp up to their maximum
production; (2) In-state very low carbon fuel producers who are
about to come online to begin producing; and (3) In-state very
low carbon fuel producers who are producing very low carbon
fuels, but who are not receiving maximum credit for their fuel,
to register in all pertinent systems. ARB has requested one
position for this work in the Governor's proposed budget,
although it is unknown whether the Legislature will approve this
BCP."
Proposed Law:
1) This bill:
1) Creates the California Low-Carbon Fuels Incentive Program,
funded through the GGRF, and administered by ARB, in
conjunction with the 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.
Related
Legislation:a)
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.
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
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additional fees on vehicle registrations and vessel
registrations.
Staff
Comments: ARB staff notes that this bill could be implemented
through ARB's "price per gallon" incentive program, which is
included in the Governor's proposed 2016-17 budget. However,
per ARB, discussions with the author's office suggest that they
would like ARB to implement a "contracts for differences"
program to incentivize the construction of low carbon fuel
production facilities within the state by guaranteeing either a
minimum fuel price or a minimum "strike price" for finished fuel
after adjusting for other state and federal incentives and the
selling price of the fuel. This program is beyond the scope of
the approach proposed in the budget.
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