BILL ANALYSIS �
AB 2202
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 2202 (Logue) - As Introduced: February 20, 2014
SUBJECT : Greenhouse gas reduction
SUMMARY : Exempts "small independent fuel marketers" from the
Air Resources Board (ARB) mandatory reporting and cap-and-trade
regulations.
EXISTING LAW , pursuant to the California Global Warming
Solutions Act (AB 32):
1)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)Requires ARB to adopt regulations to require the reporting and
verification of statewide GHG emissions, including monitoring
and annual reporting of GHG emissions sources, beginning with
the sources that contribute most to statewide emissions. ARB
has adopted a Mandatory Reporting Regulation (MRR) for
operators of certain facilities that directly emit GHGs,
suppliers of certain fuels and carbon dioxide, electric power
entities, verifiers of GHG emissions data reports and offset
project data reports submitted pursuant to the cap-and-trade
regulation, and verification bodies. The MRR supports ARB's
GHG emissions inventory and AB 32 regulatory programs.
3)Authorizes ARB to permit the use of market-based compliance
mechanisms to comply with GHG reduction regulations, once
specified conditions are met. ARB has adopted a cap-and-trade
Regulation which applies to an estimated 600 regulated
entities engaged in stationary combustion, cement
manufacturing, cogeneration, petroleum refining, hydrogen
production, aluminum production, facility operators calcining
carbonates, carbon dioxide (CO2) supplier or transfer
recipient, electricity generation, glass production, iron and
steel production, lime production, natural gas transmission
and distribution, nitric acid production, oil and gas
extraction field operation, production of industrial gases,
pulp and paper production, soda ash production, electricity
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deliverers, transportation fuel deliverers, and natural gas
deliverers. Beginning in 2015, transportation fuels will be
included in the cap-and-trade regulation.
THIS BILL :
1)Exempts "small independent fuel marketers" from the MRR and
cap-and-trade regulation.
2)Defines "small independent fuel marketers" as companies with
less than $10 billion gross annual revenues from motor vehicle
fuel sales in California.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background . According to ARB, a total reduction of 80 million
metric tons (MMT), or 16 percent compared to business as
usual, is necessary to achieve the 2020 limit. Approximately
78 percent of the reductions will be achieved through
identified direct regulations. ARB proposes to achieve the
balance of reductions necessary to meet the 2020 limit
(approximately 18 MMT) through a cap-and-trade program that
covers an estimated 600 entities. Transportation fuels will
be included in cap-and-trade beginning January 1, 2015. For
purposes of cap-and-trade, ARB counts transportation fuels at
the refinery terminal, or "rack."
According to ARB, fuels are assessed at the rack level because
that's the most efficient way to make sure the fuel is
captured. The rack is where all fuel is blended before it is
distributed and it's the point at which all fuel taxes are
assessed in California. Independent fuel suppliers may
purchase fuel above the rack and therefore be subject to the
obligation to purchase allowances to cover the emissions
associated with the fuel they purchase under cap-and-trade.
2)Sponsors contend they have been inappropriately included in
cap-and-trade due to the point of regulation . The sponsor of
this bill, California Independent Oil Marketers Association
(CIOMA) commissioned a report late last year to investigate
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problems small fuel transactors might face as obligated
parties under cap-and-trade (AB 32 Cap-And-Trade Impacts on
California Independent Fuel Suppliers, December 2013, Trinity
Consultants). The report found particular problems regarding
the sale and supply of unbranded fuel in this state, which is
the primary fuel distributed by the small independent fuel
transactors.
The report's conclusions included:
Independent fuel suppliers will have substantial
compliance costs relative to market position
No industry assistance or free allowances provided for
independent fuel suppliers
No emission reduction technologies available for
independent fuel suppliers
Independent fuel suppliers lack the financial means and
resources to bank credits or speculate on carbon
Unlike refineries, independent suppliers cannot easily
pass along cap-and-trade costs
Significant loss of competition in the wholesale fuels
market
Consolidation of statewide fuel pricing power into very
few companies
Potential supply shortages of unbranded fuels
1)If independent fuel marketers are exempt, will the emissions
be covered by the refiner ? CIOMA suggests that exempting
their members will move the compliance obligation for the fuel
upstream to the refiner, leaving no gap in cover emissions
from fuels. However, the bill simply exempts these entities
without addressing whether the fuels they purchase above the
rack would be covered by another entity. It would appear the
bill would create a gap, at least until ARB amended its
regulation to clarify or change the point of regulation, which
could result in delays or other complications in the
cap-and-trade program.
2)Is $10 billion in annual revenues "small" ? "Small independent
fuel marketer" is defined in this bill only by annual revenues
of $10 billion or less. This may create an exemption that is
broader than intended, potentially including smaller refiners.
Gasoline isn't cheap, so even the "small" marketers count
their revenues in the billions, but $10 billion may be higher
than necessary and other conditions may be necessary to limit
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the bill its intended beneficiaries.
REGISTERED SUPPORT / OPPOSITION :
Support
California Independent Oil Marketers Association (sponsor)
Cox Petroleum Transport
Greg's Petroleum Service
Rinehart Oil
Opposition
Breathe California
California League of Conservation Voters
California Municipal Utilities Association
Coalition for Clean Air
Environmental Defense Fund
Natural Resources Defense Council
Nature Conservancy
Sierra Club California
Union of Concerned Scientists
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092