BILL ANALYSIS �
AB 523
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 523
AUTHOR: Valadao
AMENDED: June 6, 2012
FISCAL: Yes HEARING DATE: June 18, 2012
URGENCY: No CONSULTANT: Rebecca
Newhouse
SUBJECT : ALTERNATIVE FUELS: ETHANOL
SUMMARY :
Existing law :
1) Requires the State Energy Resources Conservation and
Development Commission (CEC), in partnership with the ARB,
and in consultation with specified state agencies, to
develop and adopt a state plan to increase the use of
alternative fuels, including ethanol, on or before June 30,
2007 (pursuant to Health and Safety Code �43865 et seq.).
2) Under the California Alternative and Renewable Fuel,
Vehicle Technology, Clean Air, and Carbon Reduction Act of
2007 (�44270 et seq.):
a) Requires the CEC to administer the Alternative and
Renewable Fuels and Vehicle Technology Program (ARFVT
program) to provide grants, revolving loans, loan
guarantees, loans, or other appropriate measures to
specified persons and entities to develop and deploy
alternative and renewable fuels and advanced
transportation technologies to help attain the state's
climate change policies. Under the program, projects to
develop and improve specified alternative and renewable
fuels, including ethanol, are eligible for funding. In
implementing the program, the CEC established the
California Ethanol Producers Incentive Program (CEPIP).
b) Requires that biorefiners receiving loans from the
CEPIP meet certain specified requirements and that those
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specified requirements will become inoperative July 1,
2013, and repealed on January 1, 2014, unless a later
enacted statute deletes or extends those dates.
This bill specifies that projects for the production of
ethanol from edible portion of corn plants are not eligible
for funding under the ARFVT program on and after July 1, 2013.
COMMENTS :
1) Purpose of Bill . According to the author, "AB 523 would
amend the Health and Safety Code by eliminating future
funding for ethanol derived from corn after July 1, 2013,
when the California Ethanol Producer Incentive Program
(CEPIP) expires. As the Legislature continues to work to
bridge the budget deficit, and California families and
businesses continue to struggle with the ongoing economic
downturn, it is fiscally irresponsible to subsidize any
future industry that negatively impacts food supplies and
price, other major California employers, and has shown
little if any positive environmental benefit. AB 523 will
level the playing field for all interested parties invested
in ethanol and will not provide below market rate for their
investments after 2013. Since close to 40% of corn in the
United States goes to ethanol it causes the price of food
and feed to go up. AB 523 will allow the Energy Commission
to decide where to spend or use the $6 million that will be
saved once this bill is enacted by protecting the people of
California from future state subsidies spent on corn-based
ethanol."
2) Background . AB 118 (N��ez), Chapter 750, Statutes of 2007,
created the Alternative and Renewable Fuel and Vehicle
Technology Program, which the CEC administers to provide
funding for eligible persons and projects to help attain
the state's climate change policies. Existing law
provides, upon appropriation by the Legislature,
approximately $100 million annually through 2015 for this
program. The CEC, through a competitive process, allocates
these funds to alternative fuel and vehicle technology
projects. To set priorities for the allocation of funds,
the CEC must develop an investment plan in consultation
with a wide array of stakeholders.
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The CEC created the CEPIP, pursuant to AB 118, and began
accepting applications for the CEPIP in June of 2010. The
program provides operators of existing corn-based ethanol
production plants in California with temporary financial
assistance during periods of tough economic times that
would be repayable under favorable market conditions.
According to the CEC, this program is intended to stimulate
operational improvements at existing ethanol facilities and
the use of advanced process technology to convert cellulose
and other low carbon feedstock, with the objectives to
increase statewide biofuel production, retain and create
California jobs and reduce greenhouse gas emissions.
The CEPIP is available only to owners and/or operators of
existing corn ethanol production facilities in California
that have an ethanol production capacity of at least 10
million gallons per calendar year. Currently, the maximum
funding available for the CEPIP is $6 million. Incentives
provided to California ethanol producers enrolled in the
CEPIP are based upon the "ethanol crush spread" (ECS) or
the difference between monthly ethanol and corn price
averages. If the ECS drops below 55 cents per gallon,
eligible producers receive up to 25 cents per gallon.
Repayment of up to 20 cents per gallon from the ethanol
producer to the CEPIP is required if the ECS rises above
$1.00 dollar per gallon.
Ethanol producers enrolled in the CEPIP must comply with
one of two Biorefinery Operational Enhancement Goals and
either reduce the carbon intensity of the fuel they produce
by 10% or displace a minimum of 20% of the existing
feedstock with a waste based and/or alternative feedstock
in a timeframe specified by the CEC.
3) Impacts of corn-based ethanol . An article published in the
journal Science in 2008 asserts that, although life-cycle
assessments have indicated greenhouse gases can be
moderately reduced by replacing gasoline with ethanol,
those studies have failed to account for the land use
changes that occur when farmers convert forests and
grasslands for use to replace diverted grain. According to
their model, which factors in worldwide land use change,
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switching to ethanol may actually double greenhouse gas
emissions over 30 years.
According to the Senate Transportation and Housing
Committee Analyses, the CEC acknowledges potential harm
associated with corn-based ethanol resulting from land use
change, commodity price increase and greater water use and
indicates that it intends to make no more AB 118 awards to
corn-based ethanol producers.
4) Future of the CEPIP . Because the CEPIP incentive is based
on the ECS, the program is designed for corn-based ethanol
projects. Passage of AB 523 would essentially halt the
CEPIP program and modifications to the CEPIP, including the
development of formulas to capture costs and revenue
streams specific to non-corn ethanol production processes,
would be required to accommodate and provide incentives to
ethanol producers using cellulosic feedstock (wood,
grasses, or non-edible parts of plants) or sugarcane.
According to the CEC, there are currently no California
facilities producing ethanol from cellulosic sources or
sugar cane in excess of 10 million gallons per year of
capacity.
5) Support concerns . Supporters say that corn-based ethanol
diverts approximately 40% of the corn produced in the US
and directs it to an industry that already has benefits
from a renewable portfolio standards as well as significant
federal financial subsidies and tax credits. They also
contend that ethanol has shown little promise as an
environmentally sound alternative, and that by subsidizing
ethanol derived from corn, funding is diverted from other
alternate fuel sources that possess greater potential to
reduce greenhouse gas emissions. They also assert that
increased demand and competition for corn has significantly
driven up the price of corn, negatively affects California
families and businesses, and disproportionally impacts
California poultry, dairy and cattle producers that provide
more than 500,000 California jobs. They also add that the
subsidies are fiscally irresponsible at a time when
California faces a $26 billion budget deficit.
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SOURCE : Assemblymember Valadao
SUPPORT : Agricultural Council of California
Alliance of Western Milk Producers
Association of California Egg Farmers
California Cattlemen's Association
California Dairy Campaign
California Dairies, Inc.
Californians Against Waste
California Poultry Federation
Center on Race, Poverty & the Environment
Central Coast Fryers/Fulton Valley Farms
Coalition for Clean Air
Dairy Farmers of America-Western Area Council
Diestel Turkey Ranch
Environment California
Foster Farms
Hilmar Cheese Company
Land O' Lakes
Milk Producers Council
Pacific Egg & Poultry Association
Pittman Farms
Sierra Club
Squab Producers of California
Union of Concerned Scientists
Western United Dairymen
Zachy Farms
OPPOSITION : None on file