BILL ANALYSIS �
AB 523
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 523 (Valadao)
As Amended June 6, 2012
Majority vote
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|ASSEMBLY: |73-2 |(January 30, |SENATE: |36-0 |(July 6, 2012) |
| | |2012) | | | |
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Original Committee Reference: NAT. RES.
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).
The Senate amendments clarify that the corn ethanol funding
exclusion as provided by the bill does not apply to ethanol
derived from corn stover, leaves, cobs, or other nonedible plant
portions of the corn.
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 (N��ez), 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)Establishes, pursuant to AB 118, requirements for biorefiners
to receive loans from the California Ethanol Producer
Incentive Program (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 ensure 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
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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
negative health effects (AB 1007 (Pavley), Chapter 371,
Statutes of 2005).
4)Requires, under federal law the federal Environmental
Protection Agency to set renewable fuel standards, including
cellulosic biofuel standards.
AS PASSED BY THE ASSEMBLY , this bill:
1)Made ineligible for funding from the ARFVTP after July 1,
2013, projects for the production of ethanol that are derived
from corn.
2)Eliminated provisions for extending in statute the ARFVTP's
loan program pertaining to CEPIP.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : 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 are
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
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feedstocks."
While CEPIP may be viewed as an effective incentive program for
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."
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 SB 855 (Budget and
Fiscal Review Committee), Chapter 718, Statutes of 2010, 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.
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
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
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required by statute as well as to 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.
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."
Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093
FN: 0004351