BILL ANALYSIS �
AB 523
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Date of Hearing: January 9, 2012
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 523 (Valadao) - As Amended: January 4, 2012
SUBJECT : Ethanol: Alternative and Renewable Fuel and Vehicle
Technology Program
SUMMARY : Makes projects for the production of ethanol that is
derived from corn ineligible for funding from the Alternative
and Renewable Fuel and Vehicle Technology Program (ARFVTP).
1)Makes ineligible for funding from the ARFVTP after July 1,
2013, projects for the production of ethanol that are derived
from corn.
2)Eliminates provisions for extending in statute the ARFVTP's
loan program pertaining to the California Ethanol Producer
Incentive Program (CEPIP).
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 requirements for biorefiners
to receive loans from 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
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Plan to increase the use of alternative fuels without
adversely affecting air quality and water quality or causing
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, through the ARFVTP, has an annual program budget of
approximately $100 million and provides financial support for a
range of eligible projects, including CEPIP's California ethanol
production.
Pursuant to AB 118, as a component of the ARFVTP, the 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.
Currently, there are three operating ethanol facilities that
were eligible for CEPIP payments. According to the CEC, Calgren
received $2 million for their ethanol facility and Pacific
Ethanol received $2 million for their Stockton facility. AE
Advanced Fuels Keys received another $1.8 million in funding.
The remaining balance was paid to the Cal Financing Authority
and the trustee to cover administrative costs.
According to Ethanol Producer Magazine, "CEPIP is a unique
program in a few ways. It is based on ethanol crush spreads,
rather than oil prices or other more commonly known triggers.
It also requires producers to repay most of the incentives
during times of good margins ? The program also requires
producers to invest in technologies to transition their
facilities away from corn in favor of nonfood, lower-carbon
feedstocks."
While CEPIP may be viewed as an effective incentive program for
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California, Geoff Cooper, vice president of research and
analysis at the Renewable Fuels Association, says "it would not
be a popular proposal at the federal level because basing
incentives on the crush margin essentially guarantees a profit
margin for producers. It would also be an exorbitantly
expensive program to implement in Corn Belt states."
The CEPIP-incentive paid is based on the 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. Currently, $6 million is allocated
to fund CEPIP. The CEPIP limits total annual funding to $3
million per year for any single production facility.
Additionally, the Ethanol Producer Magazine indicates that
"California's lack of funding for ethanol to this point
coincides with the technology options for ethanol production.
The state has consistently favored other feedstocks and
renewable fuels over corn-based ethanol and one of the
requirements of CEPIP is that producers meet specific deadlines
to either transition away from corn or implement technologies
that will lower the facility's carbon footprint. Specifically,
plants must either lower their carbon footprints by eight points
from the ARB's boiler plate rating of 80 gCO2e/MJ or replace 20%
of corn feedstock with cellulose or waste sugar/starch-based
material."
According to a recent Global Biofuel Market Analysis RNCOS
report (November 29, 2011), "the global biofuel industry has
been witnessing rapid growth over the past few years in the
backdrop of depleting fossil fuels and degradation of
environmental conditions. Many economies have turned their
attention to next-generation biofuels which have shown a notable
growth in the recent years. These biofuels are inherently more
efficient than first-generation biofuels. The report infers
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potential feedstocks for the next-generation biofuels that
include forest residues, industry residues, agricultural
residues (corn stover), municipal waste, and sustainable biomass
crops including jatropha, camelina, and switchgrass.
Cellulosic ethanol, a second-generation ethanol, is the only
foreseeable renewable feedstock for sustainable production of
transport fuels. Cellulose-based biofuels offer substantial
advantages over current corn ethanol; they can be grown at low
cost on marginal land where they will not compete with
traditional food crops. The market for cellulosic ethanol will
amount to around $75 to $140 billion worldwide by 2020."
Last year, the author attempted to modify the CEPIP by
eliminating the program two years prior to its established
sunset date. Representatives from the ethanol companies, as
well as construction and electrical groups, testified in
opposition to that proposal. Subsequently, the author has
amended the bill to no longer eliminate the CEPIP earlier than
required by statute and ensure that CEPIP funding beyond July 1,
2013 (should the CEPIP be resurrected after its statutory
expiration date), is limited to cellulose-based biofuel
production, specifically excluding corn.
Lastly, the committee may wish to question whether it is prudent
or appropriate for the Legislature to encumber or "bind the
hands" of future incoming legislators seeking changes to CEPIP
as currently authorized under AB 118.
Support : Writing in support of the bill, the California
Cattlemen's Association indicates that "Efforts led by Senator
Dianne Feinstein (D-CA) in Congress resulted in the expiration
of federal corn ethanol subsidies on January 1, 2012.
California should join this effort and send a clear message to
livestock producers, consumers and the market that the nation's
largest economy will join Congress to end state subsidies for
corn ethanol. AB 523 would only limit subsidies for corn
ethanol production and would not limit funds to be used to
encourage the production of other alternative fuels like
cellulosic ethanol. Cellulosic ethanol converts many products,
including waste, to fuel and provides long-term sustainability
for renewable fuels production unlike corn ethanol that diverts
food to fuel."
Double referral : This bill is double-referred and passed out of
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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 Inc.
California Dairy Campaign
California Poultry Federation
Central Coast Fryers/Fulton Valley Farms
Dairy Farmers of America - Western Area Council
Diestel Turkey Ranch
Foster Farms
Hilmar Cheese Company
Land O'Lakes
Milk Producers Council
Pitman Farms
Squab Producers of California
Western United Dairyman
Zacky Farms
Opposition
None on file
Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093