BILL ANALYSIS
SB 696
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2009-2010 Regular Session
BILL NO: SB 696
AUTHOR: Wright
AMENDED: June 17, 2009
FISCAL: Yes HEARING DATE: August 26,
2009
URGENCY: Yes CONSULTANT: Randy Pestor
SUBJECT : EMISSION REDUCTION CREDITS
SUMMARY :
Existing law :
1) Provides the California Air Resources Board (ARB) with
primary responsibility for control of mobile source air
pollution, including adoption of rules for reducing vehicle
emissions and the specification of vehicular fuel
composition. (Health and Safety Code 39000 et seq. and
39500 et seq.). The ARB must coordinate efforts to attain
and maintain ambient air quality standards. (39003).
2) 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. (40000 et seq.).
3) Creates certain AQMDs, with related authority, including
the South Coast Air Quality Management District (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.
(40400 et seq.).
4) Requires every air pollution control district in a federal
nonattainment area for any national ambient air quality
standard to establish by regulation a system by which air
contaminant emission reductions that are to be used to
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offset future emission increases can be banked prior to use
to offset future emission increases. The system must
provide that only those emission reductions not otherwise
required by any federal, state, or district requirement are
approved by the district before they may be banked and used
to offset future emission increases. (40709). The system
must meet certain requirements (e.g., identification of
tracking sources possessing emission credit balances,
periodic analysis of increases or decreases in emissions
occurring when credits are used, procedures for emission
reductions credited to the bank or accruing to internal
accounts). (40709.5).
5) Under the California Environmental Quality Act (CEQA),
requires lead agencies with the principal responsibility
for carrying out or approving a proposed project to prepare
a negative declaration, mitigated declaration, or
environmental impact report (EIR) for this action, unless
the project is exempt from CEQA (CEQA includes various
statutory exemptions, as well as categorical exemptions in
the CEQA guidelines). (Public Resources Code 21000 et
seq.).
This bill :
1) Abrogates the decisions of the court in Natural Resources
Defense Council v. South Coast Air Quality Management
District (Super. Ct. Los Angeles County, 2007, No. BS
110792), where the court declared SCAQMD actions in
promulgating SCAQMD Rule 1315 (seeking to create emission
reduction credits from previous air quality gains and
placed into SCAQMD administered accounts) and amending
SCAQMD Rule 1309.1 (allowing power plants to access credits
in these accounts) violated CEQA.
2) Requires SCAQMD Rules 1309.1 and 1315, relating to, among
other things, creation of internal accounts for essential
public services, small sources, exempt sources, and
eligible powerplants to be continued in full force and
effect without interruption.
3) Exempts adoption and implementation of SCAQMD Rules 1309.1,
1315, and 1304 (relating to exempt facilities), and any
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amendments to these rules required by the U.S.
Environmental Protection Agency, from CEQA.
4) Establishes two accounts of offset credits (operating
account and set-aside account), sets the account balances
by type of pollutant, and exempts use of credits in the
operating account from CEQA if certain conditions are met.
The CEQA exemption does not apply to the licensing or
permitting of any project.
5) Authorizes any amendment to the operating offset account to
increase the amount of emission credits above amounts
established by this bill, and requires a powerplant to
receive offset credits from amounts added to the operating
account beyond the starting balances set in this bill, if
the power plant: a) will provide power to southern
California customers and the capacity is authorized by the
Public Utilities Commission (PUC) in accordance with
certain requirements, and b) has entered into a binding
contract for purchase of the power by an electrical
corporation subject to PUC regulation and certain
conditions are met.
6) Requires SCAQMD to establish a fee paid by the powerplant
for use of offset credits.
7) Contains related legislative intent.
8) Contains an urgency clause.
COMMENTS :
1) Purpose of Bill . According to the author, "Under the
Federal Clean Air Act, air pollution agencies must adopt
programs to require that major new or modified sources of
contaminants for which the area has not attained the
federal standards must provide emissions offsets for their
emissions increases. They must also meet stringent
emission limits requiring the best available technology.
Offsets are equivalent emission reductions from other
sources that go beyond legal requirements, and are usually
generated from equipment shutdowns. Offsets can be either
privately owned 'Emission Reduction Credits', where the
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source shutting down or overcontrolling applies to the
SCAQMD for a credit. Alternatively, if a source fails to
apply for an ERC, the SCAQMD claims the offsets as 'orphan
shutdowns' and deposits them in its internal bank."
The author notes that "The SCAQMD uses these offsets to supply
the needed offsets for essential public services and for
projects that are exempt from offsets under SCAQMD,
primarily small facilities, including small businesses, and
equipment replacements, relocations, and pollution control
projects, as well as emergency equipment. In addition, in
2006 SCAQMD amended its rules to allow power plants meeting
specified requirements, and paying significant mitigation
fees, to access the SCAQMD bank."
The author also notes that certain environmental groups "filed
a lawsuit challenging the SCAQMD's rules under CEQA . . .
the court ruled that the SCAQMD's CEQA document was
inadequate . . . the court ordered the SCAQMD to stop
issuing permits relying on the internal bank, and to set
aside several permits already issued . . . [and]
Legislation is needed to correct the situation."
SB 696 establishes "starting balances" for five air pollutants
under two accounts. The operating account contains a
balance that SCAQMD believes is needed to accommodate
expected activities over a four-year period, including
three large powerplants - NRG El Segundo, Sentinel, and
Walnut Creek Energy Center. The set aside account is not
defined, but seems to be what the SCAQMD believes is the
remainder of what would be available if the balance in the
account was established using the methodology in the
disputed Rule 1315. SB 696 also allows any amendment of
the operating account to increase the emission credits
above the operating account limits for power plants meeting
certain conditions.
2) SCAQMD rule changes . Emission Reduction Credits (ERCs) can
be created when pollution is reduced in certain ways, and
those ERCs can later be sold or used to allow other
pollution to occur at a later time or in a different place
- a practice referred to as "offsetting" pollution.
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Several years ago, under SCAQMD Rule 1309.1, SCAQMD exempted
essential public services (e.g., schools, hospitals, fire
stations) from the need to obtain ERCs, allowing offsets to
instead be provided through a Priority Reserve without
charge. SCAQMD adopted Rule 1315 a second time on August
3, 2007, after a Court found that the rule must undergo
CEQA analysis, to establish a process for adding additional
credits to their internal accounts. These credits could
then be distributed to facilities under Rule 1304 (exempt
facilities) and 1309.1. SCAQMD also amended Rule 1309.1 on
August 3, 2007, so that new electrical generating
facilities could also access credits from the Priority
Reserve.
3) Challenging rule changes - Natural Resources Defense
Council v. South Coast Air Quality Management District .
Certain environmental justice and environmental
organizations subsequently challenged the adequacy of
SCAQMD's project description, analysis, and mitigation
measures under CEQA when adopting Rule 1315 and amending
Rule 1309.1. The Superior Court found on July 28, 2008,
that SCAQMD violated CEQA by failing to adequately
describe, analyze, and mitigate the impacts of this action.
According to the court, "Rule 1315 is much more than a simple
codification of the District's existing tracking system.
As acknowledged by the District, the passage of Rule 1315,
with the interplay of 1309.1, results in the anticipated
emission of hundreds of tons of pollution into the Basin
every day . . . Rule 1315 has expanded exponentially the
universe of pollution credits available to entities needed
to increase emissions into an already polluted Basin . . .
How big to make the Priority Reserve, whether to allow
certain credits historically unavailable for use as credits
to be captured and re-sold, and whether to take credits
retroactively from clean air improvements already attained
have real, foreseeable and substantial consequences."
The Court also noted that "The environmental effects of Rule
1315, in conjunction with the current and future amendments
to Rule 1309.1 are real, capable of being quantified and
not remote or speculative."
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4) SCAQMD response to Court decision . SCAQMD responded to the
decision in three ways. First, SCAQMD appealed the case -
although on June 9, 2009, parties stipulated to an
extension of the briefing schedule with an August 11, 2009,
deadline for the Appellant. Second, SCAQMD issued a notice
of preparation for a new environmental document on March
17, 2009, and a consulting firm is preparing the document -
although that document is not yet complete. Third, SCAQMD
sponsored SB 696 to abrogate the Court decision and exempt
the issuance and use of offsets from CEQA - thereby seeking
to avoid the Court's direction while also involving the
Legislature in pending litigation.
5) SCAQMD and plaintiffs seek to resolve concerns over
essential public services and small businesses following
Energy, Utilities, and Commerce Committee hearing . When SB
696 was heard by the Energy, Utilities, and Commerce
Committee, some committee members discussed whether
essential public services and small businesses relying on
SCAQMD ERCs should proceed while issues relating to SCAQMDs
compliance with state and federal requirements are under
review by the courts.
SCAQMD and the plaintiffs exchanged letters on these issues
between June 19, 2009, and July 7, 2009.
SCAQMD also wanted to address existing permits. According to
the plaintiffs, "Our position is, and always has been, that
nothing in Judge Jones' Writ and Injunction requires the
district to revoke permits issued between the time the
District adopted Rule 1315 and the date of final issuance
of the Writ and Injunction." Nevertheless, SCAQMD and the
plaintiffs agreed on language to clarify this issue.
With regard to essential public services and small businesses,
disagreement focused on two issues. First, plaintiffs
referred to "small business" as those facilities qualifying
for assistance offered by SCAQMD's Small Business
Assistance Office as defined Rule 102 (total gross receipts
of $5 million or less, or a business with 100 or fewer
employees) and public agencies. SCAQMD disagreed,
believing this to be too narrow.
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Second, SCAQMD wanted to rely on Rule 1315 in accounting for
the ERCs. According to the plaintiffs, "Rule 1315 is the
subject of ongoing litigation, and a vital, non-severable
part of the project the District must analyze under CEQA.
The District's proposal to rely on Rule 1315 as the vehicle
to 'account for' credits in the internal bank during this
interim period is unacceptable."
The SCAQMD and plaintiffs could therefore not agree on a way
to address the essential public services and small
businesses while issues relating to SCAQMDs compliance with
state and federal requirements are under review by the
courts.
Nevertheless, there is continuing interest by various parties
in addressing essential public services and small
businesses, rather than powerplants, in a manner that does
not affect the NRDC decision, pending litigation, or
federal litigation.
There are also concerns that allowing credits for these
powerplants will adversely affect efforts to encourage
renewable energy sources - and place the Legislature in a
decision-making role with litigation pending.
6) Federal court actions . The plaintiffs also filed a
complaint in federal court on August 18, 2008, for
Declaratory and Injunctive Relief under the federal Clean
Air Act, arguing that the SCAQMD credits violate
requirements that credits be real, surplus, enforceable,
quantifiable, and permanent - and are therefore invalid.
SCAQMD filed a Motion to Dismiss this action on October 8,
2008, asserting that the court did not have jurisdiction to
hear the Complaint. The parties made various appearances
before the federal court on the SCAQMD's motion.
Plaintiffs informed the Court on July 9, 2009, that they do
not intend to amend the complaint and would appeal a final
decision to dismiss the case for lack of jurisdiction, and
the Judge indicated it would take about 90 days to issue a
final decision on the matter. The Plaintiffs assert that
the decision does not mean the proposed Rule 1315 is legal
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and does not mean SCAQMD has legal credits in its bank. A
status conference in the case is scheduled for August 31,
2009.
7) Support and opposition concerns . According to the SCAQMD,
"Unless SB 696 is passed, many upgrade projects at aging
facilities will be stopped. That means many of these
facilities won't be able to replace older equipment with
cleaner and more energy efficient equipment and modern
pollution control equipment. Consequently, neither the air
quality goals of the State Implementation Plan (SIP) nor
the greenhouse gas emission reductions planned for in the
AB 32 Scoping Plan can be implemented."
According to opponents, "Because of the District's failure to
ensure that its pollution credit system complies with
federal law, there is a shortfall of credits in its banks.
We are actively trying to solve this problem, but SB 696
does not provide a viable path forward. Instead, it
increases air pollution in the most polluted area of the
country by allowing the construction of fossil-fueled power
plants."
8) Related legislation . AB 1318 (V. Manuel Perez) abrogates
the Natural Resources Defense Council v. South Coast Air
Quality Management District decision, requires SCAQMD to
transfer credits up to specified limits for a powerplant
meeting certain requirements (i.e., Sentinel powerplant)
and essential public services, and exempts these actions
from CEQA.
SB 579 (Lowenthal) allows Rule 1304 exempt facilities, and
Rule 1309.1 (as amended May 3, 2002 - prior to the 2007
litigated amendment) Priority Reserve essential public
services, to continue to operate if they are operating
under a permit in reliance on those rules; authorizes
SCAQMD to issue permits in reliance on Rule 1304 and Rule
1309.1 (as amended May 3, 2002); provides that nothing in
this bill affects the adoption, readoption, amendment, or
environmental review of Rule 1315; requires SCAQMD to track
offsets or credits relating to these actions; and requires
these provisions to be inoperative under certain
conditions.
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SOURCE : South Coast Air Quality Management District
SUPPORT : Adgraphics, Alston & Bird, Annex Group,
Ameresco, Archetype Design, Arevalo
Tortilleria, Inc.; Armorcast Products ,
Association of California Water Agencies, Azkel
Nobel Coatings, Baker Furnace, Inc.; Bay Valve
Service & Engineering, Black Chamber of
Commerce of Orange County, BlueScape
Environmental, Boilermakers Local 92,
Bricklayers Local 4, Buena Park Area Chamber of
Commerce, Burbank Chamber of Commerce, C T
Finishing, Inc.; California Manufacturers and
Technology Association, California State
Association of Electrical Workers, California
Auto Body Association (JK Sandoval
Enterprises), California Black Chamber of
Commerce, California Chamber of Commerce,
California Cleaners Association, California
Construction & Industrial, California Contract
Cities Association, California Council for
Environmental & Economic Balance, California
Dump Truck Owners Association, California Farm
Bureau Federation, California Fence
Contractors' Association
California Furniture, California Hispanic Chamber of Commerce,
California Hospital Association, California
Independent Oil Marketers Association,
California Independent Petroleum Association,
California League of Food Processors,
California Manufacturers & Technology
Association, California Metals Coalition,
California-Nevada Conference of Operating
Engineers, California Public Utilities
Commission, California Retailers Association,
California Small Business Alliance, California
Small Business Association, California State
Association of Electrical Workers, California
State Council of Laborers, California State
Pipe Trades Council, California Steel
Industries, Inc.; CalPortland Company, Camino
Cleaners, Career Partners, Carson Black Chamber
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of Commerce, Carson Chamber of Commerce,
Celebrity Cleaners, Cement Masons Local 600,
CEMEX, Chemical Industry Council of California,
Circle Dry Cleaners
CITIES OF: Artesia, Azusa, Baldwin Park,
Bellflower,
Bradbury, Calabasas, Carson, Cathedral City,
Cerritos, Chino, Claremont, Colton, Compton,
Corona,
Covina, Diamond Bar, Downey, Duarte, El Monte,
El Segundo, Fontana, Glendale, Glendora,
Huntington Beach, Indio, Industry, Irwindale,
La Mirada, La Puente, La Quinta, Laguna Hills,
Lakewood, Lomita, Long Beach, Lynwood,
Monrovia, Montebello, Monterey Park, Moreno
Valley, Murrieta, Newport Beach, Norco,
Ontario, Paramount, Pasadena, Pico Rivera,
Pomona, Rancho Cucamonga, Rancho Palos Verdes,
Redlands, Rialto, Riverside, Rosemead, San Juan
Capistrano, Santa Clarita, Santa Fe Springs,
Sierra Madre Department of Public Works, Signal
Hill, South El Monte, South Gate, Temple City,
Tustin, Walnut, West Covina Public Works
Department, Westminster
Coachella Valley Association of Governments,
Coachella Valley Water District, Coalition of
California Utility Employees, Conloo, Inc.;
Construction Industry Air Quality Coalition,
Corona Chamber of Commerce, County of San
Bernardino, Courtesy Cleaners, Crescenta Valley
Water District, Crown Cleaners, Culver City
Chamber of Commerce, DM Auto Body, Dallas Finer
Cleaners, Davenport Engineering, Inc.; Del Rey
Sandblasting, Del Amo Cleaners, Desert
Contractors Association, Diversified printers,
Inc.; Downey Unified School District, Dress for
Success Cleaners, Dulin and Boynton, Eastern
Municipal Water District, El Camino Cleaners,
El Monte / South El Monte Chamber of Commerce,
El Segundo Chamber of Commerce, Elsinore Valley
Municipal Water district, EMBEE, Inc.;
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Engineering Contractors' Association, Evergreen
Cleaners, Fifth Avenue Cleaners, Inc.,
Flasher/Barricade Association, FuturePorts,
Gallerie Cleaners, GEM Mobile Treatment
Services, Granite Construction Company, Greater
Corona Hispanic Chamber of Commerce, Greater
Lakewood Chamber of Commerce, Greater Los
Angeles African American Chamber of Commerce,
Greater Riverside Chambers of Commerce, Gruma
Corporation - Mission Foods, Happy Cleaners,
Harvey Cleaners, Hawthorne Cleaners, Heat &
Frost Insulators Local 5, Hillcrest Beverly Oil
Corp., Hilton Auto Collision Center, Holly Park
Cleaners, Huntington Memorial Hospital, Hyde
Park Cleaners, IBEW Local 441, Ironworkers
Local 453, Independent Cities Association,
Independent Energy Producers, Indio Chamber of
Commerce, Industrial Environmental Association,
Industry Compressor Co., Inland Action, Inland
Empire Utilities Agency, Irvine Ranch Water
District, Irwindale Chamber of Commerce, IUEC
Local 18, Joseph's Cleaners, Justice Brothers,
Inc.; Kaiser Permanente, Kern County Black
Chamber of Commerce, Korean Drycleaners-Laundry
Association + 284 individual members, KS 4000,
Inc.; L to Z Enterprises, Inc.; LA Works,
Laborers Local 300, Laborers Local 802, Lake
Arrowhead Communities Chamber of Commerce, Lake
Hemet Municipal Water District, Las Virgenes
Municipal Water District, League of California
Cities (Inland Empire Div), League of
California Cities (Los Angeles Co. Div), League
of California Cities (Riverside Div), Lindus
West, Local 345 Pipefitters, Local Union 105
Sheet Metal Workers, Long Beach Area Chamber of
Commerce, Los Angeles Area Chamber of Commerce,
Los Angeles County Business Federation, Los
Angeles County Sanitation District, Los Angeles
County Sheriff's Department, Los Angeles
Unified School District, Los Angeles/Orange
Counties Building and Construction Trades
Council, Lucky Cleaners, Manhattan Beach
Chamber of Commerce, Marin Builders'
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Association, Marty Village Cleaners, Maximum
Technical Services, Modern Way Cleaners,
Monrovia Chamber of Commerce, Nomura Dry
Cleaners, Moreno Valley Chamber of Commerce,
Norge Cleaners and Alterations, Norwalk-La
Mirada Unified School District, Orange County
Board of Supervisors, Orange County Business
Council, Orange County Fire Authority, Orange
County Sanitation District, Orange County Water
District, Pacific Energy Resources, Ltd.;
Pacific Graphics, Pacific States Environmental
Contractors, Inc., Palm Desert Chamber of
Commerce, Pass Area Legislative Council,
Pemaco-Alhambra, Pemaco Metal Processing,
Performance Mechanical, Plains All American
Pipeline-L.P., Plasterers Local 200, Plaza
Cleaners, PRI Real Estate Services, Printing
Industries Association of California, Processes
Unlimited International, Inc., Redlands Chamber
of Commerce, Redman Equipment and Manufacturing
Co., Regional Black Chamber of Southern
California, Regional Chamber of Commerce of San
Gabriel Valley, Regional Hispanic Chamber of
Commerce, Rio Hondo Community College,
Riverside County Board of Supervisors, Rix
Business Sales, Robertson's, Roofers Local 36,
Rosemead Chamber of Commerce, Sacramento Black
Chamber of Commerce, Saint John's Health
Center, San Bernardino Area Chamber of
Commerce, San Bernardino Associated
Governments, San Bernardino County Board of
Supervisors, San Gabriel Valley Coalition of
Chambers, San Gabriel Valley Council of
Governments, San Gabriel Valley Economic
Partnership, San Pedro Cleaners, San Pedro
Chamber of Commerce, Sanitation Districts of
Los Angeles County, Santa Clarita Valley
Chamber of Commerce, Santa Monica Chamber of
Commerce, Satin Enterprises/Norge Cleaners, Sea
Shield Marine Products, Inc.; Sempra Energy,
Silicon Valley Black Chamber of Commerce, Solar
Turbines, Inc.; South Bay Association of
Chambers of Commerce, South Bay Cities Council
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of Governments, South Orange County Chambers of
Commerce, South Orange County Wastewater
Authority, South Pasadena Chamber of Commerce,
Southern California Alliance of POTWs, Southern
California Association of Governments, Southern
California Edison, Southern California Valve,
Southwest California Legislative Council,
SunWest Engineering
Sprinkler Fitters UA Local 709, Teamsters Joint
Council 42
Teamsters Local 986, Techmer PM, Three Valleys
Municipal Water District, Thyssenkrupp Safeway,
Inc.; Tile, Marble & Terrazzo Local 18,
Torrance Area Chamber of Commerce, Tracey's
Cleaners, Turf Cleaners, Tustin Unified School
District, UA Plumbers Local Union 78, United
Association, United Union of Roofers, Water
Poofers & Allied Workers Local 220, Upland
Chamber of Commerce, Valley Industry and
Commerce Association, Valley Sanitary District,
View Cleaners, Villa Dry Cleaners, Village Dry
Cleaners, Vulcan Materials Company, West Covina
Chamber of Commerce, West San Gabriel Valley
Consortium (Career Partners), Western
Electrical Contractors Association, Western
Municipal Water District, Western Riverside
Council of Governments, Western States Council
of Sheet Metal Workers, Western States
Petroleum Association, Willow Cleaners,
Wilmington Chamber of Commerce, Woodwest
Concepts Inc., Wright Graphics, Wyatt-Bennett
Equipment Co., Inc.; 10 individuals
OPPOSE: Asian Pacific Environmental Network, Breathe
California, California Communities Against
Toxics, California Environmental Rights
Alliance, California League of Conservation
Voters, California Safe Schools, Center for
Race, Poverty and the Environment, City of
Commerce, Clean Power Campaign, Coalition for a
Safe Environment, Coalition for Clean Air,
Comite Del Amo, Communities for a Better
Environment, County of Los Angeles, Desert
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Citizens Against Pollution, Desert Communities
Against Pollution, Environmental Health
Coalition, Just Transition Alliance, LA
Community Legal Center and Educational Inc.,
Los Angeles County Board of Supervisors,
Natural Resources Defense Council, Pacific
Environment, Pacoima Beautiful, People
Organized to Demand Environmental and Economic
Rights, Physicians for Social
Responsibility-Los Angeles, Planning and
Conservation League, Sierra Club California,
Union of Concerned Scientists, Urban Assessment
Planners, Urban Semillas