BILL ANALYSIS �
AB 1992
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 1992 (Quirk) - As Amended: April 21, 2014
SUBJECT : California Global Warming Solutions Act of 2006:
very low carbon transportation fuels
SUMMARY : Authorizes the Air Resources Board (ARB) to require
fuel suppliers subject to the Low Carbon Fuel Standard (LCFS) to
include specified minimum percentages of very low carbon fuel,
as defined.
EXISTING LAW :
1)Pursuant to the California Global Warming Solutions Act (AB
32), 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.
2)Pursuant to Governor Schwarzenegger's Executive Order S-01-07,
sets a statewide goal to reduce the carbon intensity (CI) of
California's transportation fuels by at least 10 percent by
2020. The order required ARB to consider adopting a LCFS to
implement this goal. In 2009, ARB adopted the LCFS as a
regulation. The LCFS attributes CI values to a variety of
fuels based on direct and indirect GHG emissions, including
land use changes caused by production of biofuels. The LCFS
permits producers of certain low-CI fuels to opt in to LCFS
regulation for the purpose of generating credits, which can be
banked and used for compliance, sold to regulated parties, and
purchased and retired by regulated parties. In addition, LCFS
credits can be exported to other GHG emission reduction
programs.
THIS BILL :
1)Authorizes ARB to require transportation fuel suppliers to
include minimum percentages, ranging from one-quarter of one
percent to two percent, of "very low carbon transportation
fuel."
2)Defines "very low carbon transportation fuel" as fuel having a
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CI no greater than 50 percent of the closest comparable
petroleum fuel for that year, as measured by the LCFS
methodology. Examples of currently eligible fuels are biogas
from dairy or landfill sources, biodiesel from used cooking
oil or tallow, and ethanol from molasses by-products.
3)Requires CI to include the indirect land use change (iLUC)
emission, as defined, if a food crop is used as a feedstock.
4)Provides that the bill shall become inoperative five years
after ARB determines, and notifies the Secretary of State,
that very low carbon fuels reach two percent of state
transportation fuel sales.
5)Makes related findings.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background on LCFS . In 2007, Governor Schwarzenegger issued
Executive Order S-1-07, calling for a reduction of at least 10
percent in the CI 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.
The Order further directed ARB to consider initiating
regulatory proceedings to establish and implement the LCFS.
In response, ARB adopted the LCFS regulation in 2009, to be
implemented beginning in 2010. 2010 was a reporting year and
the first CI reduction requirement of 0.25 percent began in
2011. The target increased to 0.5 percent in 2012 and 1.0
percent in 2013. To date, fuel suppliers have over-complied,
predominantly by blending ethanol with gasoline, which is
preferred in the near term because ethanol blending is
required by the federal Renewable Fuel Standard and does not
require significant changes in fueling and vehicle
infrastructure. However, natural gas, biodiesel and
electricity have also been used in significant amounts to
comply with the LCFS.
In 2009 and 2010, three lawsuits were filed against the LCFS
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by ethanol interests - two in federal court and one in state
court. The federal lawsuits were brought by trade
associations of ethanol producers and refiners who claim that
the LCFS is preempted under the Energy Independence and
Security Act of 2007 and violates the Commerce Clause of the
U.S. Constitution (e.g., by assigning corn ethanol from the
Midwest a CI value above that of corn ethanol made in
California). Plaintiffs claimed that corn ethanol will
eventually be excluded from the California market in favor of
more advanced biofuels that have a lower CI value. ARB
contended that many corn ethanol producers from the Midwest
have in fact registered with ARB with CI values that are well
below gasoline and, indeed, even less than California corn
ethanol. Plaintiffs also claimed that California is
impermissibly regulating interstate commerce beyond its
borders by regulating aspects of a fuel's lifecycle that occur
outside of the state's borders. The combined federal lawsuit
(Rocky Mountain Farmers Union v. Goldstene) was heard by the
Ninth Circuit Court of Appeals, which considered ARB's appeal
of several adverse rulings and a preliminary injunction that
were issued by the lower federal court in Fresno in December
2011. In April 2012, the Ninth Circuit granted ARB's request
for a stay of the preliminary injunction, which allowed ARB to
resume enforcement of the LCFS during the pendency of the
lawsuit. In September 2013, the Ninth Circuit ruled that the
LCFS provisions were not facially discriminatory, leaving the
LCFS in place while the plaintiffs petition for review by the
U.S. Supreme Court.
The state lawsuit (Poet, LLC v. California Air Resources
Board), brought by a major ethanol producer, alleges that ARB
did not fully comply with the Administrative Procedure Act
(APA) and the California Environmental Quality Act (CEQA) when
adopting the LCFS regulation. In November 2011, the Fresno
Superior Court ruled in favor of ARB on all 14 causes of
action raised by the plaintiffs. Plaintiffs then appealed the
case to the Court of Appeal in Fresno, which found both APA
and CEQA defects with ARB's process of adopting the LCFS. As
a result, ARB has proposed adopting an alternative regulation
for diesel and readopting the LCFS regulation to comply with
the court's instructions. Meanwhile, the LCFS is frozen at
its 2013 (1.0 percent CI reduction) level. In addition to
revising the regulation to comply with the Court of Appeal
ruling, ARB has proposed several other modifications related
to adjusting compliance schedules, determining CI, cost
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containment in the credit market, and other assorted issues.
2)Author's statement :
Very low-carbon fuels will almost certainly be necessary to
meet long term GHG reduction and LCFS goals. Current
alternative transportation fuels, including corn ethanol
and sugar cane ethanol provide only reductions of 5-25
percent in GHG emissions than the petroleum fuels they seek
to displace. The status quo has not seen the advanced
low-carbon fuel industry develop at a sufficient rate to
provide the volume of low-carbon fuels necessary to meet
future targets.
Current law, through the LCFS, creates an insufficient
incentive to produce advanced low-carbon fuels. Current
LCFS targets, and those expected in the immediate future,
can be met with existing corn and sugarcane based ethanol,
plus renewable diesel and biodiesel from waste oils. Both
corn and sugarcane ethanol have significant environmental
concerns, stemming from land use change, and provide only
small reductions in life cycle GHGs compared to the
gasoline they displace.
Compared to conventional diesel, waste-based renewable
diesel and biodiesel both provide large GHG reductions,
however there is an insufficient amount of waste oil
available to meet long-term fuel demand. Other
commercial-scale fuels will need to be developed to achieve
California's long term targets.
Current law creates a financial incentive to produce very
low carbon fuels, but does not address the inherent risk in
this market sector. For any given low-carbon fuel project,
there is substantial risk to any investors due to market
conditions (alternative fuels become less competitive when
the price of gasoline is low), technological uncertainty
(none of these technologies has been deployed at commercial
scale in the U.S. yet), and regulatory uncertainty (capital
providers are uncertain about whether the LCFS or other
low-carbon fuel policies will remain in place).
There are no administrative alternatives to address market
risk. ARB has the ability to effectively increase the
price of very low-carbon fuels, but cannot directly reduce
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the risk that capital investment will not be repaid.
3)Existing commercial fuels are available to meet the mandate
proposed by the bill . According to ARB, the following fuels
would meet the definition set by AB 1992:
Biodiesel produced from used cooking oil, corn oil
by-product, or tallow
Renewable diesel produced from used cooking oil, corn
oil by-product, tallow, or fish oil
Biomethane from landfills, dairy digesters, and food and
green waste digesters
Ethanol produced from molasses by-product
Fuels meeting the AB 1992 definition made up .95 percent of
the total volume of fuels produced in 2013. It's not clear
the bill would achieve the author's intent, because a purchase
mandate, even at two percent, might be met by these existing
waste-based fuels, which tend to come from sources out of
state and abroad, including Central and South America and
Asia.
The existing LCFS program seems to create a stronger incentive
to produce very low-carbon fuels by placing the highest market
value on fuels that achieve the lowest CI (and therefore
generate the most credits). Of course, this incentive depends
on the LCFS remaining in effect, with increasing targets.
1) Related legislation . AB 2390 (Muratsuchi), approved by
this Committee April 7 and pending in Appropriations
Committee, establishes a Green Credit Reserve to purchase
LCFS credits from developers of renewable fuel production
facilities in California for the purpose of supporting the
financing and construction of these facilities.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
AB 1992
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319-2092