California Legislature—2013–14 Regular Session

Assembly Bill No. 2390

Introduced by Assembly Member Muratsuchi

February 21, 2014

An act to add Section 43870 to the Health and Safety Code, relating to air resources.

LEGISLATIVE COUNSEL’S DIGEST

AB 2390, as introduced, Muratsuchi. Low Carbon Fuel Standard: Green Credit Reserve.

Existing law requires that the State Energy Resources Conservation and Development Commission, in partnership with the State Air Resources Board, and in consultation with specified state agencies, develop and adopt a state plan to increase the use of alternative fuels, as defined, not later than June 30, 2007.

The California Global Warming Solutions Act of 2006 establishes the State Air Resources Board as the state agency responsible for monitoring and regulating sources emitting greenhouse gases. The act requires the state board to adopt a statewide greenhouse gas emissions limit, as defined, to be achieved by 2020, equivalent to the statewide greenhouse gas emissions levels in 1990. The state board is additionally required to adopt rules and regulations in an open public process to achieve the maximum technologically feasible and cost-effective greenhouse gas emissions reductions. Pursuant to the act, the state board has adopted the Low Carbon Fuel Standard (LCFS) regulations. Under federal law, the Renewable Fuel Standard (RFS) is administered by the United States Environmental Protection Agency.

This bill would require the Governor, by June 30, 2015, to designate a state agency to establish and administer a Low Carbon and Renewable Fuels Credit Reserve (Green Credit Reserve or Reserve) to facilitate and encourage the development of renewable and low carbon transportation fuel projects in California by providing stability and predictability for the value of credits generated by the production of those fuels pursuant to the low carbon fuel standard and the federal renewable fuel standard. The bill would provide for the Green Credit Reserve to enter into specified contracts with developers of projects that are intended to produce renewable transportation fuels that qualify for state and federal low carbon or renewable fuel credits, and that will commit the Reserve to purchase the LCFS and RFS credits at a contracted price when the renewable fuel is produced.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) On January 18, 2007, Governor Arnold Schwarzenegger
issued Executive Order S-01-07 ordering that a statewide goal be
established to reduce the carbon intensity of California’s
transportation fuels by at least 10 percent by 2020 and requiring
that a low carbon fuel standard for transportation fuels be
established for California.

(b) In January 2010, the State Air Resources Board adopted
regulations to implement the Low Carbon Fuel Standard (LCFS)
(Sections 95480 to 95490, inclusive, of Title 17 of the California
Code of Regulations), which will reduce greenhouse gas emissions
by reducing the full fuel-cycle, carbon intensity of transportation
fuels used in California by 10 percent by 2020. Under the LCFS,
all refiners, blenders, producers, or importers of transportation
fuels in California are required to purchase LCSF credits, as
necessary, to comply with the LCFS.

(c) The federal Renewable Fuel Standard (RFS), created under
the Energy Policy Act of 2005, established the first renewable fuel
volume mandate in the United States. Under the Energy
Independence and Security Act of 2007, the RFS was expanded
to include additional fuels, renewable fuel categories, and increased
volumes of renewable fuels. Under the program, petroleum refiners
and importers of gasoline are required by the United States
Environmental Protection Agency to obtain sufficient renewable
fuel credits, known as Renewable Identification Numbers (RINs),
to show that they have complied with their obligations.

(d) LCFS and RFS renewable fuel credits can have significant
value, over and above the market value of the fuel itself. When
the value of LCFS and RFS renewable fuel credits is combined
with the underlying value of the fuel, the renewable fuel can
command a premium price, far above the value of a nonrenewable
fuel. Yet companies that wish to invest in plants and equipment
to produce low carbon transportation fuels that qualify for the
state’s LCFS and the federal RFS often find it difficult to secure
adequate financing. This is because banks and other financing
sources will typically provide financing based only on the projected
value of the fuel produced and are reluctant to provide financing
based upon the anticipated but uncertain future value of LCFS and
RFS renewable fuel credits.

(e) Developers of projects to produce low carbon transportation
fuels, and institutions that finance those projects, need a mechanism
to provide stability and predictability for the value of credits earned
pursuant to the state’s LCFS and the federal RFS. That mechanism
would allow financial institutions to provide financing based on
the full value of low carbon fuel that is produced, including the
value of the LCFS and RFS credits generated by the production
of the fuel.

(f) It is in the interest of the state to establish a Low Carbon and
Renewable Fuels Credit Reserve (Reserve), to enter into long-term
voluntary contracts with developers of projects to produce
renewable transportation fuels that will commit the Reserve to
purchase the LCFS and RFS credits at a contracted price at such
time as the renewable fuel is produced. The Reserve would, at its
discretion, hold and eventually sell the credits to refiners, blenders,
producers, and importers of transportation fuels that are subject to
the LCFS and RFS.

(g) A Reserve will provide stability and predictability for the
value of LCFS and RFS credits and allow project developers to
obtain long-term financing based on the full value of the project.
It additionally will stimulate innovation, create jobs in California,
and further enhance the ability of parties subject to the LCFS and
RFS to comply.

SEC. 2.  

Section 43870 is added to the Health and Safety Code,
to read:

43870.  

(a) For purposes of this section, the following terms
have the following meanings:

(1) “Green Credit Reserve” or “Reserve” means the Low Carbon
and Renewable Fuels Credit Reserve.

(2) “LCFS” means the Low Carbon Fuel Standard administered
by the state board pursuant to Sections 95480 to 95490, inclusive,
of Title 17 of the California Code of Regulations.

(3) “RFS” means the Renewable Fuel Standard administered
by the United States Environmental Protection Agency pursuant
to the federal Energy Policy Act of 2005 as later modified by the
federal Energy Independence and Security Act of 2007 and any
future modifications to that program.

(4) “LCFS credit” means a marketable credit associated with
the production and use of a low carbon fuel pursuant to the
requirements of the state LCFS.

(5) “RFS credit” means a marketable credit, also referred to in
the RFS as a Renewable Identification Number, or RIN, that is
associated with the production and use of a renewable fuel pursuant
to the requirements of the federal RFS.

(b) Not later than June 30, 2015, the Governor shall designate
a state agency to establish and administer a Green Credit Reserve.
The purpose of the Reserve shall be to facilitate and encourage
the development of renewable and low carbon transportation fuel
projects in California by providing stability and predictability for
the value of credits generated by the production of those fuels
pursuant to the LCFS and RFS.

(c) In order to carry out its purpose, the Green Credit Reserve
shall do all of the following:

(1) Enter, at the discretion of the Reserve, into long-term
contracts with developers of projects, as defined in subdivision
(d), that are intended to produce renewable transportation fuels in
California that qualify for the state’s LCFS and the federal RFS.
The contracts shall commit the Reserve to purchase credits, at a
price established pursuant to paragraph (2), when the project
developer produces qualifying fuel.

(2) Guarantee, at the time of contract execution, a price or price
schedule for the purchase of LCFS and RFS credits.

(3) Hold credits purchased pursuant to paragraph (1) until such
time as the Reserve deems it appropriate to sell the credits.

(4) Sell credits to qualified parties under the LCFS and RFS.

(5) Manage the purchasing, holding, and selling of LCFS and
RFS credits so as to minimize the risk of financial loss to the state.

(6) Develop criteria to be used by the Reserve in evaluating
projects with which to contract, including consideration of whether
an auction mechanism should be employed and, if so, the type of
auction, in the event that suitable projects exceed the capital
resources available to the Reserve.

(7) Develop mechanisms for the Reserve to use when it sells
credits to qualified parties pursuant to the state’s LCFS and the
federal RFS, including consideration of whether an auction
mechanism should be employed, and if so, the type of auction.

(8) Develop contractual terms and conditions to be included in
contracts between project developers and the Reserve.

(9) Obtain any federal approvals necessary to authorize the bank
to purchase, hold, and sell RFS credits.

(10) Recommend any statutory changes necessary or useful to
the establishment or administration of the Reserve.

(d) For purposes of this section, projects that are intended to
produce renewable transportation fuels in California that qualify
for the state LCFS and the federal RFS include, but are not limited
to:

(1) Facilities that produce transportation fuels from agricultural
waste that is remaining after all reasonably usable food content is
extracted.

(2) Facilities that produce transportation fuel from forest waste
produced from sustainable forest management practices.

(3) Facilities that capture and clean landfill gas that is used for
transportation fuels.

(4) Sewage treatment facilities that produce transportation fuels.

(5) Digester gas facilities that produce transportation fuels.

(6) Facilities that produce transportation fuels from solid waste.

(e) Long-term contracts for the purchase of credits by the
Reserve shall be made available not later than September 1, 2015.
Contracts may be for a term that does not exceed the total amount
of time included in all of the following provisions:

(1) A time period, as specified in the contract, to finance, design,
and construct a facility to produce a low carbon and renewable
fuel that is expected to produce LCFS credits or RIN credits as
those credits are defined at the time the contract is entered into.

(2) A defined start-up period to begin commercial-scale
production of the fuel.

(3) A period of time, as specified in the contract, but not more
than 15 years after the start-up period for the production of a low
carbon or renewable fuel.

(f) The Reserve is obligated to purchase only those LCFS and
RFS credits that are actually produced by the fuel producer that is
a party to a contract with the Reserve and that meet the
requirements of the contract and the requirements of the LCFS or
RFS in effect at the time the contract is executed. Future
amendments, modifications, or changes to the RFS or LCFS that
are made after the contract execution date shall not affect the
requirements of the Reserve to purchase the RFS credits or LCFS
credits, or their equivalent, as those terms are defined at the time
the contract is executed.

(g) The Reserve shall not enter into contracts for the purchase
of LCFS or RFS credits from LCFS obligated parties or RFS
regulated parties that are required to obtain and retire those credits
pursuant to the LCFS and RFS.