BILL ANALYSIS �
AB 2390
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2390 (Muratsuchi) - As Amended: April 22, 2014
Policy Committee: Natural
ResourcesVote:6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the governor to designate a state agency to
establish a Green Credit Reserve (Reserve) by June 30, 2015.
Once established, the Reserve would purchase credits generated
pursuant to the Low Carbon Fuel Standard (LCFS) and the federal
Renewable Fuel Standard (RFS) from California facility
developers for the purpose of supporting the financing and
construction of renewable fuels facilities.
FISCAL EFFECT
1)Cost pressures in the $25 to $50 million range to:
a) Cover initial administrative costs of the program before
fuel credits obtained by the program can be sold to
obligated parties.
b) Provide working capital to cover the purchase price of
the fuel credits until credits can be sold to obligated
parties.
c) Cover any losses if the credit purchase price exceeds
the price at which the credits are sold to obligated
parties.
The bill does not currently identify or provide a funding
source for these identified expenditures.
1)Increased costs, in the $800,000 range, to the Air Resources
Board (ARB) for consultation and technical assistance to
support the development and ongoing operations of the Reserve
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(Cost of Implementation Account).
2)Additional costs to ARB, if designated by the governor, in the
hundreds of thousands of dollars range for administering the
Reserve. Costs may increase or decrease if another agency is
chose to establish and administer the Reserve.
COMMENTS
1)Purpose. According to the Bioenergy Association of
California, the purpose of the Reserve is to spur the in-state
development and production of low-carbon fuels. Currently,
the future value of fuel credits is highly uncertain. The
Reserve will provide certainty for the future value of fuel
credits produced by a low-carbon fuel project.
1)Background. In 2007, Governor Schwarzenegger issued Executive
Order S-1-07, calling for a reduction of at least 10% in the
carbon intensity (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 identified the LCFS as an Early Action
Measure under AB 32, the Global Warming Solutions Act, and
adopted a regulation in 2009, to be implemented beginning in
2010. 2010 was a reporting year; the first CI reduction
requirement of 0.25% began in 2011. The target increased to
0.5% in 2012 and 1.0% 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 RFS and does not require
significant changes in fueling and vehicle infrastructure.
Natural gas, biodiesel and electricity have also been used in
significant amounts to comply with the LCFS.
In response to legal challenges and rulings, the ARB is
considering several modifications, including adopting
alternative regulations for diesel and re-adopting the LCFS
regulation. Another proposed modification is for ARB to
operate an LCFS credit reserve to sell compliance-only credits
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at a pre-determined price if regulated entities are unable to
obtain sufficient credits on the open market.
2)Market Volatility. The LCFS regulation requires ARB to
provide a public report on credit and deficit generation
quarterly. The report includes how many credits and deficits
were generated in the most recent quarter, total deficits and
credits, as well as credits and deficits in possession of
regulated parties. The report also includes number of credits
transferred, number of parties making transfers, and the
monthly average credit price for transfers. The reported
average price for credits steadily increased from $17 in 2012
to $79 in December 2013, then declined to $48 in February
2014. Volatility has also been a hallmark of the market for
Renewable Identification Number (RIN) credits under the
federal RFS, including allegations of fraud and manipulation.
3)Yet to be Determined. As currently drafted, this bill does
not identify funding levels or sources. It is difficult to
determine whether the risk of this investment to the state
will produce the desired consequences of increasing the
availability and lowering the cost to the consumer for
low-carbon fuels.
Analysis Prepared by : Jennifer Galehouse / APPR. / (916)
319-2081