Amended in Assembly April 22, 2014

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 amended, 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 begin delete fuel projects end delete begin insert fuels produced end insert in California begin insert from in-state feedstocks end insert 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 begin insert and low-carbon end insert 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 begin insert and the credits are certified end insert .

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 begin insert reduce the carbon intensity of
their fuels, or end insert purchase begin delete LCSF end delete begin insert LCFS end insert credits, as necessary, to
comply with the LCFS.

(c) The federal Renewable Fuel Standard (RFS), created under
the Energy Policy Act of 2005, established begin delete the first end delete begin insert a national end insert
renewable fuel volume mandate begin delete in the United States end delete . 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 begin delete renewable fuel end delete credits can have significant
value, over and above the market value of the fuel itself. When
the value of LCFS and RFS begin delete renewable fuel end delete credits is combined
with the underlying value of the fuel, the begin delete renewable end delete fuel can
command a premium price, far above the value of begin delete a nonrenewable
fuel end delete begin insert conventional petroleum fuels end insert . 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 begin delete often end delete
begin insert may end insert find it difficult to secure adequate begin delete financing. This is because end delete
begin insert financing if end insert banks and other financing sources begin delete will typically end delete
provide financing based only on the projected value of the fuel
produced and begin delete are reluctant to provide financing end delete begin insert not end insert based upon
the anticipated but uncertain future value of LCFS and RFS
renewable fuel credits.

(e) Developers of projects to produce begin insert renewable and end insert low carbon
transportation begin delete fuels, end delete begin insert fuels end insert and institutions that finance those
begin delete projects, need end delete begin insert projects may benefit from end insert 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 begin insert renewable and end insert 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 begin insert and low-carbon end insert transportation fuels begin insert in this state end insert 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
begin insert and the LCFS or RFS credits are certified end insert . 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)  begin delete A end delete begin insert The end insert 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 begin delete fuel
projects end delete begin insert fuels produced end insert in California begin insert from in-state feedstocks end insert 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 begin delete Green Credit end delete 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 begin insert and low-carbon end insert
transportation fuels in California begin insert from in-state feedstocks end insert 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 begin insert and the credits are certified end insert .

(2) Guarantee, at the time of contract execution, a price or price
schedule for the purchase of LCFS and RFS credits begin insert that the Reserve
determines is sufficient to support financing of the project without
subjecting the state to unnecessary risk end insert .

(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 begin delete bank end delete
begin insert Reserve end insert 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 begin insert and low-carbon end insert transportation fuels in
California begin insert from in-state feedstocks end insert that qualify for the state LCFS
and the federal RFS begin delete include, but are not limited to end delete begin insert include the
following end insert :

(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.

begin delete

(4) Sewage treatment facilities that produce transportation fuels.

end delete begin delete

(5)

end delete

begin insert (4) end insert  Digester gas facilities begin insert , including wastewater treatment, end insert that
produce transportation fuels.

begin delete

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

end delete

(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 begin delete a low carbon and renewable end delete begin insert the end insert
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 begin insert , end insert for the production of begin delete a low
carbon or renewable end delete begin insert the end insert fuel.

(f) The Reserve is obligated to purchase only those LCFS and
RFS credits that are actually produced by the fuel begin delete producer that is
a party to a contract with the Reserve and that end delete begin insert producer, that end insert meet
the requirements of the contract and the requirements of the LCFS
or RFS in effect at the time the contract is executed begin insert , and that are
certified at the time they are generated end insert . 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.