BILL ANALYSIS
SB 960
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2009-2010 Regular Session
BILL NO: SB 960
AUTHOR: Dutton
AMENDED: March 15, 2010
FISCAL: Yes HEARING DATE: April 5, 2010
URGENCY: No CONSULTANT: Randy Pestor
SUBJECT : AIR RESOURCES BOARD ECONOMIC ANALYSIS OF
REGULATIONS
SUMMARY :
Existing law :
1) Under the California Global Warming Solutions Act of 2006
(CGWSA):
a) 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. ARB must adopt regulations for reporting and
verification of GHG emissions, monitoring and compliance
with the program, and achieving GHG emission reductions
from sources or categories of sources by January 1,
2011, to be operative on January 1, 2012, subject to
certain requirements. (Health and Safety Code 38500 et
seq.).
b) Requires ARB to prepare and approve a scoping plan
for achieving the maximum technologically feasible and
cost-effective reductions in GHG emissions from sources
or categories of sources of GHGs by 2020. ARB must
evaluate the total potential costs and total potential
economic and noneconomic benefits of the plan for
reducing GHGs to the state's economy, and public health,
using the best economic models, emission estimation
techniques, and other scientific methods. The plan must
be updated at least once every five years. (38561).
2) Under various air quality statutes, requires ARB to adopt
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and enforce regulations to reduce air pollution and to meet
state and federal ambient air quality standards.
3) Under the Administrative Procedure Act (APA) (Government
Code 11340 et seq.) establishes rulemaking procedures and
standards for state agencies. State regulations must also
be adopted in compliance with regulations adopted by the
Office of Administrative Law (OAL). The APA, among other
things:
a) Requires every agency to prepare and submit a
specified notice of the proposed action and make certain
information available to the public (e.g., draft
regulation in "plain English;" statement of reasons for
proposing the adoption, amendment, or repeal of a
regulation; evidence to support a determination that the
action will not have a significant adverse economic
impact on business). (11346.2). The statement of
reasons must identify each technical, theoretical, and
empirical report upon which the agency relies in
proposing the regulation (11346.2(b)(2)), and ARB must
make this information public that is related to, but not
limited to, air emissions, public health impacts, and
economic impacts before the comment period for any
regulation proposed for adoption by the ARB (Health and
Safety Code 39601.5).
b) Requires state agencies in proposing to adopt, amend,
or repeal any regulation to assess the potential for
adverse economic impact on California business
enterprises and individuals. In assessing the potential
for adverse economic impact, state agencies must meet
certain requirements (e.g., be based on adequate
information concerning the need for, and consequences
of, proposed action; consider industries affected
including the ability to compete with businesses in
other states). State agencies must also assess whether,
and to what extent, regulations will affect certain
matters (e.g., creation or elimination of jobs in the
state, creation of new businesses or elimination of
existing businesses in the state, expansion of
businesses currently doing business in the state).
(Government Code 11346.3).
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c) Requires the notice of proposed adoption, amendment,
or repeal of a regulation to include certain matters
(e.g., include specified information if there may be a
significant, statewide adverse economic impact;
description of all cost impacts to be incurred by a
private person or business; statement of the results of
the economic impact assessment). (11346.5).
d) Requires OAL to either approve a submitted regulation
and transmit it to the Secretary of State for filing, or
disapprove it, within 30 working days. If OAL fails to
act within 30 days, the regulation is deemed approved
and OAL must transmit it to the Secretary of State.
(Government Code 11349.3).
This bill :
1) Requires ARB to submit any major regulation to OAL
immediately upon completion of ARB's economic analysis.
ARB must submit with the regulation all background
information used in conducting the economic analysis and
information on a specified form.
2) Requires OAL to submit an analysis to ARB and the
Legislature within 90 days of receiving the regulation from
the ARB that includes, but is not limited to, all of the
following:
a) Estimated costs of compliance by the regulated
community with standards in the regulation.
b) Estimated impact of the regulation on state tax
revenue.
c) A determination whether the pollution reduction
assumptions are accurate, feasible, and achievable.
d) Estimated costs of alternative technologies.
e) Estimated cumulative costs of all regulatory
requirements that become effective within the same year
on the regulated community.
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f) A determination whether the proposed adoption,
amendment, or repeal is technologically feasible.
g) A determination whether any identified alternative
technologies are technologically feasible.
3) Requires ARB to reimburse OAL for the cost of the above
analysis, and ARB must include that reimbursement cost in
the cost of developing the regulation. The requirement for
OAL to prepare the analysis does not apply if the
reimbursement has not been provided.
4) Requires ARB to complete certain portions of the Department
of Finance state economic and fiscal impact statement
standard form 399, which is based on 6601 to 6616 of the
State Administrative Manual.
5) Defines "major regulation" to be any proposed adoption,
amendment, or repeal of a regulation having a total cost of
$10 million or more on state government, business
enterprises, or citizens, as estimated by ARB.
COMMENTS :
1) Purpose of Bill . According to the author, "The bill seeks
to accomplish greater accountability in the creation of
[ARB] regulations by requiring that the independent,
non-partisan [LAO] conduct an economic analysis of all new
[ARB] regulations with an expected cost [of] $10 million or
more. The bill would require the LAO to determine whether
or not the regulations are cost effective and
technologically feasible. The bill allows the LAO to
contract out this work with an independent party. It
further requires [ARB] to reimburse the LAO for the cost of
producing this analysis."
The author cites concerns about cost and other matters
relating to certain regulations. According to the author,
for example, [ARB's] economic analysis of the AB 32 Scoping
Plan was highly criticized by peer reviewers and the LAO
who found that [ARB] underestimated the cost that
implementing AB 32 would have on businesses. Furthermore,
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the LAO found that the expected cost savings were based on
a few key assumptions with no sensitivity analysis of the
effects of variation in those assumptions."
According to the author, "[ARB] has broad authority to create
regulations, and there are no safeguards to ensure that
their economic analyses are accurate."
2) Response to concerns over ARB analysis . SB 295 (Dutton)
was an effort by the author to respond to the LAO's
recommendations by requiring additional ARB analysis of the
AB 32 scoping plan. SB 295 failed in the Environmental
Quality Committee May 20, 2009 (3-4). ARB released an
updated economic analysis of the scoping plan March 24,
2010. According to the ARB, the analysis shows fuel
expenditures drop by 4.9% in 2020 with a total cost savings
of $3.8 billion in reduced consumption of gasoline and
diesel as a result of increased investment in energy
efficiency and cleaner fuels, 2 million jobs will be
created by 2020 which is consistent with the
business-as-usual case, the economy will continue to grow
at a rate of 2.4% per year, and divergence from the AB 32
Scoping Plan (i.e., limiting requirements for oil companies
or utilities) increases costs and shifts them to
Californians and small businesses.
Economic analyses by other interests have also been reviewed
by the LAO. For example, Assemblymember DeLeon requested
the LAO to analyze the methodologies, data, and reliability
of the findings of two studies by Varshney and Associates -
"Cost of State Regulations on California Small Business
Study" (September 2009) concluding that the state's
regulations of all types resulted in reduction in the gross
state product of $493 billion, and "Cost of AB 32 on
California Small Business" (June 2009) concluding that AB
32 will cost the state's small business $183 billion in
lost output each year. The LAO concluded that "Both of the
two studies you have asked us to review have major problems
involving both data, methodology, and analysis. As a
result of these shortcomings, we believe that their
principal findings are unreliable."
3) Costs of inaction . While some parties may disagree over
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various economic studies, delays in acting on certain
matters can also result in costs. A recent Climate Action
Team (CAT) draft assessment on climate change provides
analyses on climate change impacts relating to various
matters, such as warming trends, precipitation, sea-level
rise, agriculture, forestry, water resources, and public
health.
For example, regarding sea level rise the report notes that
"Sea level measured over several decades at California tide
gage stations has risen at a rate of about 17 cm (7 inches)
per century. The sea-level rise projections in the 2008
Impacts Assessment indicate that the rate and total
sea-level rise in future decades may increase substantially
above the recent historical rates. The 2008 estimates
represent a significant departure from those in the 2006
CAT report." According to the report, "By 2050, sea-level
rise could range from 30 to 45 cm (11 to 18 inches) higher
than in 2000, and by 2100, sea-level rise could be 60 to
140 cm (23 to 55 inches) higher than in 2000. As sea level
rises, there will be an increased rate of extreme high
sealevel events, which can occur when high tides coincide
with winter storms and their associated high wind wave and
beach run-up conditions. The draft CAT report notes that
"analysis reveals that $100 billion of property and 475,000
people are located in Bay and open coast areas vulnerable
to inundation in 2099. However, risk is not evenly
distributed among the counties in the San Francisco Bay,
with San Mateo and Alameda counties having 40 percent of
assets at risk, the greatest amount in the Bay Area.
Marin, Santa Clara, and San Francisco counties are also
exposed to a high degree of risk; exposure to risk in these
counties is higher than in all other counties along the
Pacific coast, with the exception of Orange County.
Exposure to risk in Sonoma and Napa counties is relatively
modest. While all sectors are vulnerable to the impacts
from sea-level rise, 70 percent of all assets at risk are
residential, followed by the commercial sector with 20
percent. In addition to buildings and their contents, a
wide range of other critical infrastructure, such as roads,
hospitals, schools, emergency facilities, water and
wastewater treatment plants, and others will also be at
increased risk of flooding. Continued development in
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vulnerable areas would put additional assets and people at
risk."
4) What about health impacts and costs ? The author of SB 960
cites costs to businesses relating to certain regulations.
Others, however, also note the effect on California
residents and their health from poor air quality and costs
relating to those effects. According to ARB regarding
regulations requirements on heavy-duty diesel-fueled
vehicles for particulate matter (PM) emissions and nitrous
oxides (NOx) emissions, for example, "The regulation is
projected to provide significant diesel PM and NOx
emissions reductions that would have a substantial positive
air quality impact throughout California. PM emissions are
projected to be reduced by about 13 tons per day in 2014
and 3.5 tons per day in 2023. NOx emissions are projected
to be reduced by about 124 tons per day and 98 tons per
day, for 2014 and 2023, respectively. These reductions are
critical towards meeting federal clean air standards. The
regulation would also reduce diesel PM emissions by the
maximum level achievable from inuse on-road diesel
vehicles. Staff estimates that approximately 9,400
premature deaths statewide would be avoided by the year
2025 from the implementation of the regulation, and would
provide associated health benefits of $48 to $69 billion."
ARB also notes that "The cost impact of the regulation is not
expected to be significant. While it is expected that most
fleets will pass through these costs to their customers,
this is expected to result in a negligible impact on
consumers, equating to about a few cent increase for a pair
of shoes, less than one one hundredth of a cent increase
per pound of produce, or an increase of from $3 to $10 for
a new car."
According to a recent RAND Corporation report, "Meeting
federal clean air standards would have prevented an
estimated 29,808 hospital admissions and ER visits
throughout California over 2005-2007." The report notes
that Medicare spent $103,600,000 on air pollution-related
hospital care during 2005-2007, Medi-Cal spent $27,299,199,
and private health insurers spent about $55,879,780 on
hospital care. According to the RAND report, "These
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results suggest that the stakeholders of public programs
may benefit substantially from meeting federal clean air
standards. Private health insurers and employers (who
contribute to employee health insurance premiums) may also
have sizable stakes in improved air quality."
5) Outstanding issues . As noted above, the California Global
Warming Solutions Act of 2006, other ARB requirements, the
Administrative Procedure Act, and Department of Finance
procedures currently contain numerous requirements relating
to economic impact analysis. Is additional economic
analysis of ARB regulations necessary?
Since OAL does not prepare economic analyses and relies on
economic impact information provided by state agencies
proposing the adoption, amendment, or repeal of a
regulation, how will OAL provide the analyses required in
this bill?
What sources of funds are available to cover ARB and OAL costs
in implementing this bill?
Is it reasonable for an OAL economic analysis to be
prepared in 90 days, and what are the consequences of
adding 90 days to the regulatory process with the potential
for delays in the regulatory process and missed legislative
deadlines? For example, because a regulation is deemed
approved if OAL fails to act within 30 days, under SB 960
an ARB regulation would be deemed approved while OAL is
preparing this bill's required economic analysis.
SOURCE : Senator Dutton
SUPPORT : American Council of Engineering Companies of
California, American Fence Contractors'
Association (CA Chapter), Associated Builders
and Contract Contractors of California,
Automotive Aftermarket Industry Association,
California Asphalt Pavement Association,
California Automotive Wholesalers' Association,
California Beer and Beverage Distributors,
California Business Properties Association,
California Chamber of Commerce, California
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Construction and Industrial Materials
Association, California Dump Truck Owners
Association, California Fence Contractors'
Association, California Forestry Association,
California Grocers Association, California
League of Food Processors, California
Manufacturers & Technology Association,
California Independent Oil Marketers
Association, California Retailers Association,
California Taxpayers Association, Chemical
Industry Council of California, Delta
Construction Company Inc., Engineering
Contractors' Association, Engineering & Utility
Contractors Association, Frasher/Barricade
Association, Industrial Environmental
Association, Inland Action, Marin Builders'
Association, National Federation of Independent
Business, San Bernardino Area Chamber of
Commerce, Soap and Detergent Association,
Weatherford, Western Growers, Western States
Petroleum Association, Yucca Valley Chamber of
Commerce
OPPOSITION : African American Environmentalist Association,
American Lung Association in California,
Breathe California, California League of
Conservation Voters, Center on Race, Poverty
and the Environment, Coalition for Clean Air,
Environmental Defense Fund, Friends of the
Earth, Natural Resources Defense Council,
Pacific Forest Trust Planning and Conservation
League, Parents for a Safer Environment, Sierra
Club California, The Greenlining Institute,
Union of Concerned Scientists