Amended in Assembly May 23, 2014

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 begin delete Governor end delete begin insert Treasurer end insert , by June 30, 2015, to begin delete designate a state agency to end delete establish begin delete and administer end delete 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 fuels produced in California from in-state feedstocks by providing stability and predictability for the value of credits generated by the production of those fuels pursuant to the begin delete low carbon end delete begin insert low-carbon end insert 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 and low-carbon transportation fuels that qualify for state and federal begin delete low carbon end delete begin insert low-carbon end insert 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 and the credits are certified.

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

(c) The federal Renewable Fuel Standard (RFS), created under
the Energy Policy Act of 2005, established a national renewable
fuel volume mandate. 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 credits can have significant value, over and
above the market value of the fuel itself. When the value of LCFS
and RFS credits is combined with the underlying value of the fuel,
the fuel can command a premium price, far above the value of
conventional petroleum fuels. Yet companies that wish to invest
in plants and equipment to produce begin delete low carbon end delete begin insert low-carbon end insert
transportation fuels that qualify for the state’s LCFS and the federal
RFS may find it difficult to secure adequate financing if banks and
other financing sources provide financing based only on the
projected value of the fuel produced and not based upon the
anticipated but uncertain future value of LCFS and RFS renewable
fuel credits.

(e) Developers of projects to produce renewable and begin delete low carbon end delete
begin insert low-carbon end insert transportation fuels and institutions that finance those
projects may benefit from 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
renewable and begin delete low carbon end delete begin insert low-carbon end insert 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 and low-carbon transportation fuels in this state 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
and the LCFS or RFS credits are certified. 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) The 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:

begin insert

(1) “CARBOB” means California reformulated gasoline
blendstock for oxygenate blending.

end insert begin delete

(1)

end delete

begin insert (2) end insert  “Green Credit Reserve” or “Reserve” means the Low Carbon
and Renewable Fuels Credit Reserve.

begin delete

(2)

end delete

begin insert (3) end insert  “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.

begin delete

(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.

end delete

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

begin insert

(5) “Renewable and low-carbon transportation fuel” means a
transportation fuel that is derived from a renewable resource, as
determined by the State Air Resources Board, and has a carbon
intensity that does not exceed 50 percent of the carbon intensity
of CARBOB or diesel fuel, as applicable, as of the date of contract
execution pursuant to subdivision (e).

end insert begin insert

(6) “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.

end insert begin delete

(5)

end delete

begin insert (7) end insert  “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 begin delete Governor shall designate
a state agency to establish and administer end delete begin insert Treasurer shall establish end insert
a Green Credit Reserve. The purpose of the Reserve shall be to
facilitate and encourage the development of renewable and begin delete low
carbon end delete begin insert low-carbon end insert transportation fuels produced in California
from in-state feedstocks by providing stability and predictability
for the value of credits generated by the production of those fuels
pursuant to the LCFS and RFS. begin insert The Treasurer shall coordinate
with the State Air Resources Board to adopt criteria and guidelines
for the Reserve that ensure that it meets these purposes. end insert

(c) In order to carry out its purpose, the 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 and low-carbon
transportation fuels in California from in-state feedstocks 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 and the credits are certified.

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

(3) Hold credits purchased pursuant to paragraph (1) until begin delete such end delete
begin insert the end insert time begin delete as end delete 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
Reserve 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 and low-carbon transportation fuels in
California from in-state feedstocks that qualify for the state LCFS
and the federal RFS include the following:

(1) Facilities that produce transportation fuels from agricultural begin insert ,
livestock, food, or food processing end insert waste that is remaining after
all begin delete reasonably usable end delete begin insert economically recoverable end insert food content is
extracted begin insert , and from nonfood crops end insert .

(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 insert

(4) Wastewater treatment facilities that produce transportation
fuels from biogas or biosolids.

end insert begin delete

(4) Digester gas facilities, including wastewater treatment,

end delete

begin insert (5) end insert begin insert   end insert begin insert Other facilities end insert that produce transportation fuels begin insert from organic
waste end insert .

(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 the 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 the
fuel.

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