BILL ANALYSIS �
AB 768
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Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 768 (Gatto) - As Amended: April 25, 2011
SUBJECT : California Global Warming Solutions Act of 2006: Low
Carbon Fuel Standard
SUMMARY : Requires the California Air Resources Board (ARB) to
allow out of state producers of "renewable natural gas" (i.e.
biomethane) to generate credits for compliance with the Low
Carbon Fuel Standard (LCFS), notwithstanding the ARB's adopted
regulatory requirement that affected parties demonstrate a
physical pathway for delivery of the fuels to California.
Specifically, this bill :
1)Requires ARB to allow out of state producers of "renewable
natural gas" (i.e. biomethane) to generate credits for
compliance with the LCFS, notwithstanding the ARB's adopted
regulatory requirement that affected parties demonstrate a
physical pathway for delivery of the fuels to California.
2)Establishes that allowed credits be generated through the sale
of renewable natural gas produced out of state, but
distributed to consumers in the state through displacement
trade contracts (i.e. gas swaps).
EXISTING LAW :
1)Pursuant to the California Global Warming Solutions Act (AB
32), Nunez, Chapter 455, Statutes of 2006, requires ARB to
adopt a statewide greenhouse gas (GHG) emissions limit
equivalent to 1990 levels by 2020, and to adopt rules and
regulations to achieve maximum technologically feasible and
cost-effective GHG emission reductions. AB 32 also required
ARB to adopt early action measures (EAM) to reduce GHG
emissions prior to this date.
2)Pursuant to the Governor's Executive Order S-01-07, sets a
statewide goal to reduce the carbon intensity of California's
transportation fuels by at least 10% by 2020. The order
required ARB to consider adopting a LCFS to implement this
goal, either as an EAM or in another regulatory proceeding.
In 2009, ARB adopted the LCFS as a regulation. The LCFS
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permits producers of certain alternative fuels, including
biomethane, that inherently meet the 2020 standards to opt in
to LCFS regulation for the purpose of generating credits,
which can be banked and used for compliance, sold to other
regulated parties, and purchased and retired by regulated
parties. In addition, LCFS credits can be exported to other
GHG emissions reductions programs, including possibly the
overall cap and trade program ARB has adopted under AB 32.
Entities that opt in are subject to LCFS requirements,
including the requirement to demonstrate a physical pathway
for delivery of the fuels to California to ensure that low
carbon fuels produced outside of California are actually the
source of fuels used in the state.
3)Requires, through the LCFS regulation, the Executive Officer
of ARB to complete and present to the ARB two reviews of the
LCFS regulation; the first by January 1, 2012, and the second
by January 1, 2015. The regulation requires the Executive
Officer to establish an advisory panel for these reviews.
FISCAL EFFECT : Unknown
COMMENTS :
Background : In 2007, Governor Schwarzenegger issued Executive
Order S-1-07, calling for a reduction of at least 10% in the
carbon intensity of California's transportation fuels by 2020.
The Order instructed the California Environmental Protection
Agency to coordinate activities between the University of
California, the California Energy Commission and other state
agencies to develop and propose a draft compliance schedule to
meet the 2020 target.
Furthermore, the Order directed ARB to consider initiating
regulatory proceedings to establish and implement the LCFS. In
response, ARB identified the LCFS as an early action item and
adopted a regulation in 2009, to be implemented beginning in
2010. The adopted LCFS regulation includes provisions
permitting credits to be generated from certain alternative
fuels and requiring that all fuels, including those used to
generate credits, demonstrate a physical pathway into the state.
Credits are awarded based on fuel performance that exceeds a
regulatory standard. Credits can be banked indefinitely and
used for compliance, sold to other regulated parties, and
exported to other GHG emissions reduction programs. To ensure
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that low carbon fuels produced outside of California are
actually the source of fuels used in the state, the LCFS
requires regulated parties to demonstrate that a physical
pathway exists by which the fuel is expected to arrive in
California, including any combination of truck delivery routes,
rail tanker lines, gas/liquid pipelines, electricity
transmission lines, and any other fuel distribution routes.
The LCFS recognizes that certain alternative fuels, including
biomethane, inherently meet the 2020 standards and allows them
to opt in to LCFS regulation for the purpose of generating
credits. The anaerobic digestion of biodegradable organic
matter produces biogas, which consists of methane, carbon
dioxide, and other trace amounts of gases. Depending on where
it is produced, biogas can be categorized as landfill gas or
digester gas. Landfill gas is produced by decomposition of
organic waste in a municipal solid waste landfill. Digester gas
is typically produced from livestock manure, sewage treatment,
or food waste. Like natural gas from fossil sources, methane
derived from these sources can be compressed or liquefied, or
converted to hydrogen, and used as a transportation fuel.
The Clean Energy example : Clean Energy is a supplier of natural
gas transportation fuels. According to the company's website:
Clean Energy owns and operates a landfill gas processing
facility in Dallas, Texas, that produces renewable
biomethane that is currently delivered into the nation's
gas pipeline network and displaces conventional natural
gas. The McCommas Bluff landfill gas operation is one of
the largest biomethane landfill gas operations in the
United States. The landfill, owned by the City of Dallas,
is not scheduled to close until 2042, and it is estimated
that biogas will continue to be produced for approximately
30 years after the landfill closes... Clean Energy has the
ability to transport biomethane from its McCommas Bluff
operations or other biomethane production sites to its
national network of CNG and LNG fueling stations for use as
a vehicle fuel. Clean Energy is actively pursuing
additional opportunities to develop biomethane production
sites and acquire biomethane for sale as a vehicle fuel to
its customers.
Clean Energy has indicated that it is possible to demonstrate a
physical pathway via pipeline from its source in Texas to
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California, but gas utility pipeline tariffs make proving
delivery of the same gas to California uneconomic, so it can't
meet all of ARB's physical pathway criteria. The use of
displacement trades, swapping the gas it injects into pipelines
in Texas for gas withdrawn from pipelines in California,
overcomes the commercial barriers, but is not recognized in the
LCFS rules as an acceptable alternative to physical delivery.
An additional issue is the fact that the gas withdrawn from the
pipeline is not "renewable," so it would be less valuable as a
source of LCFS credits.
Clean Energy points to the Renewables Portfolio Standard for
electricity, which permits limited trading of unbundled
renewable energy credits (RECs) from sources located anywhere in
the interconnected western transmission grid, as an example in
support of this bill. In theory, the REC example is analogous,
although the RPS rules limit trading of unbundled RECs and
impose a stringent tracking system to assure credits originate
from eligible sources and aren't counted more than once. An
additional distinction is that the western electricity
transmission grid is generally west of the Rockies and does not
extend to Texas.
ARB regulation review : The LCFS regulatory law requires the
Executive Officer of ARB to complete and present to the ARB two
reviews of the LCFS regulation; the first by January 1, 2012,
and the second by January 1, 2015. The regulation also requires
the Executive Officer to establish an advisory panel for these
public reviews. The reviews will address a broad range of
implementation topics and may include recommended amendments to
the LCFS regulation. A final staff report is expected to be
completed by the end of 2011. Accordingly, one can question why
this legislation is necessary and should precede the advisory
panel reviews that are currently underway.
Double referral : This bill is double-referred and passed out of
the Assembly Committee on Natural Resources on April 11, 2011.
REGISTERED SUPPORT / OPPOSITION :
Support
Cambrian Energy
Clean Energy
Coalition for Clean Air
AB 768
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Opposition
None on file
Analysis Prepared by : Ed Imai / TRANS. / (916) 319-2093