BILL ANALYSIS �
AB 523
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 523 (Valadao) - As Amended: March 31, 2011
SUBJECT : Ethanol: Alternative and Renewable Fuel and Vehicle
Technology Program
SUMMARY : Makes ethanol derived from corn ineligible for funding
from the Alternative and Renewable Fuel and Vehicle Technology
Program (ARFVTP) and repeals related requirements.
Specifically, this bill :
1)Makes ineligible for funding from ARFVTP, ethanol derived from
corn.
2)Eliminates the California Ethanol Producer Incentive Program
(CEPIP) two years prior to the established sunset date.
EXISTING LAW :
1)Establishes the ARFVTP to support alternative vehicle
technologies and fuels as part of the California Alternative
and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon
Reduction Act of 2007 (AB 118 (Nunez), Chapter 750, Statutes
of 2007). The ARFVTP is administered by the California Energy
Commission (CEC) and receives approximately $100 million per
year from temporary surcharges on vehicle and vessel fees.
Collection of these fees currently is authorized until 2016.
Projects to improve alternative and renewable low-carbon fuels
are eligible for funding, including ethanol.
2)Pursuant to AB 118, establishes the CEPIP. Makes inoperative
the CEPIP on July 1, 2013, and sunsets its provisions on
January 1, 2014. Imposes specific requirements and deadlines
on recipients of CEPIP loans to assure that producers achieve
additional reductions in the carbon intensity of their fuels.
Requires payback provisions from grant recipients under
certain conditions.
3)Requires CEC, in partnership with the California Air Resources
Board (ARB), to develop and adopt a State Alternative Fuels
Plan to increase the use of alternative fuels without
adversely affecting air quality and water quality or causing
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negative health effects (AB1007 (Pavley) Chapter 371, Statutes
of 2005).
4)Under federal law, requires the federal Environmental
Protection Agency to set renewable fuel standards, including
cellulosic biofuel standards.
FISCAL EFFECT : Unknown
COMMENTS : AB 118 authorizes the CEC to develop and deploy
alternative and renewable fuels and advanced transportation
technologies to help attain the state's climate change policies.
The CEC has an annual program budget of approximately $100
million and provides financial support for a range of eligible
projects, including California ethanol production. The statute
requires the CEC to adopt and update annually an investment plan
to determine funding priorities and opportunities.
Pursuant to AB 118, CEPIP provides payments to California
ethanol producers under specific unfavorable market conditions
and, in return requires reimbursement by participants to the
California Alternative Energy and Advanced Transportation
Financing Authority (Cal Financing Authority) of any outstanding
CEPIP payment balances under specifically identified favorable
market conditions.
The incentive paid is based on calculation of the "ethanol crush
spread" (ECS) - the average monthly difference between ethanol
prices and corn prices. If the monthly average ECS value is
less than 55 cents per gallon, eligible producers receive up to
25 cents per gallon. CEPIP participants are required to
reimburse the Cal Financing Authority up to 20 cents per gallon
when the ECS value is greater than $1.00 per gallon.
To participate in CEPIP, ethanol producers must commit to reduce
the carbon intensity of their fuel by 10% or displace at least
20% of the current corn feedstock with waste-based materials.
These enhancement goals were enshrined in statute in 2010 by SB
855, a budget trailer bill. $6 million is currently allocated
to fund CEPIP.
CEPIP support by ARB : In a June 17, 2010 letter to the Senate
Budget Committee, the ARB chair indicated that "The California
Energy Commission's CEPIP is an example of thoughtful AB 118
implementation. Low carbon California produced fuel will play a
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critical role in the success of the State's low carbon fuel
standard. These corn facilities rank as the lowest carbon
producers in the nation from that feedstock and the AB 118 CEPIP
provides incentives to help lower the carbon score even more and
to introduce other lower carbon feedstocks. In addition, it is
not a grant; the program is structured so that the recipients
repay the fund."
Ethanol and food prices : A Congressional Budget Office report,
April 2009, indicates the following:
Over the past several years, the use of ethanol as a motor
fuel in the United States has grown at an annual average
rate of nearly 25%. That growth was driven by rising
prices for gasoline coupled with long-standing subsidies
for producing ethanol, which encouraged makers of ethanol
to increase production. All told, despite a slowdown in
production in the last quarter of 2008 as a result of
falling prices for gasoline, overall consumption of ethanol
in the United States last year hit a record high, exceeding
9 billion gallons.
In 2008, nearly 3 billion bushels of corn were used to
produce ethanol in the United States. That amount
constituted an increase over the previous year of almost a
billion bushels. The demand for corn for ethanol
production, along with other factors, exerted upward
pressure on corn prices, which rose by more than 50%
between April 2007 and April 2008. Rising demand for corn
also increased the demand for cropland and the price of
animal feed.
Those effects in turn raised the price of many farm
commodities (such as soybeans, meat, poultry, and dairy
products) and, consequently, the retail price of food.
Pushed up in part by those effects and by surges in the
price of energy, food prices rose by almost 2% in 2006, by
4% in 2007, and by more than 5% in 2008. That those
increases coincided with higher prices for corn raises
questions about the link between ethanol production, the
demand for corn, and food prices.
Tariffs : According to CEC's State Alternative Fuels Plan ,
"There are two U.S. tariffs on ethanol. One is a 54
cents-per-gallon tariff; the other is a 2.5 percent-of-value
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tariff. There is a vigorous debate over whether the domestic
ethanol industry needs protection versus whether the country
would benefit more from importing low-carbon, lower-cost
ethanol from Brazil. This debate is relevant to the question
of whether state-level incentives for ethanol production,
conversion, or use would be more or less effective or
expensive in the absence of the tariff."
Opposition : According to several companies in opposition to
this bill, "As you may know, according to ARB, ethanol produced
in California is the lowest carbon intensity fuel in the nation.
Moreover, California ethanol plants also produce the highest
value, lowest cost feed that is available to the dairy and
livestock industry. Without these highly sophisticated, state
of the art ethanol plants, California will lose fuel supply and
feed supply - forcing higher cost corn based ethanol and grain
feed from the Midwest into the California marketplace. Any
reduction in the high-quality, lower cost animal feed supply
could potentially result in increased pressure on food prices,
which have risen significantly in recent months. AB 523 would
eliminate the successful CEPIP, which allocates funds from the
CEC's AB 118 program. Our companies strongly support the CEPIP
program. CEPIP is a performance based program that incents
lower carbon fuel production from California's ethanol
facilities. Funds are available in times of low margin and are
paid back in times of high margin. The plants only receive the
funds when they are producing low carbon fuel and only receive
funds if they commit to further reducing their carbon impact.
Last year, the CEC, with significant legislative input, entered
into a 4 year agreement with California's ethanol producers on
the CEPIP program. The agreement required California's ethanol
producers to further reduce their carbon footprint. Reversing
state policy at this point will end up costing California
businesses and agriculture millions of dollars in steel-in-the
ground investments. To date, California ethanol producers have
already raised and spent more in private funds to repair and
restart idled plants than the entire year's state allocation for
CEPIP, thus demonstrating our long-term commitment to lower
carbon intensity fuel and lower cost animal feed.
Author's amendments : The author intends to amend the bill to
reinstate the CEPIP but restricting eligible recipients to
biofuel producers that are not corn-based.
Suggested amendments : The committee suggests that, with the
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reinstatement of CEPIP, corn-based ethanol plants be eligible
for transitional funding until January 1, 2013.
Double referral : This bill is double-referred and passed out of
the Assembly Committee on Natural Resources on April 25, 2011,
on a 5-4 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
Agricultural Council of California
Alliance of Western Milk Producers
Association of California Egg Farmers
California Cattlemen's Association
California Dairies
California Dairy Campaign
California Farmers Union
California Poultry Federation
Central Coast Fryers/Fulton Valley Farms
Dairy Farmers of America, Western Area Council
Diestel Turkey Ranch
Food and Water Watch
Foster Farms
Hilmar Cheese Company
Land O' Lakes
Milk Producers Council
Pacific Egg and Poultry Association
Pittman Farms
Sierra Club California
Squab Producers of California
Union of Concerned Scientists
United Food and Commercial Workers Union 8
Western United Dairymen
Zacky Farms
Opposition
Advanced Ethanol Council
Aebiofuels
BlueFire Renewables
California Labor Federation
California State Pipe Trades Council
Calgren Renewable Fuels
Calstart
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International Brotherhood of Electrical Workers
Lignol
Pacific Ethanol
Propel
State Building and Construction Trades Council
Western States Council of Sheet Metal Workers
Zymetis
Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093