BILL ANALYSIS �
AB 2656
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 2656 (Jones) - As Amended: March 28, 2014
SUBJECT : Petroleum: labeling.
SUMMARY : Requires the Division of Measurement Standards
(Division) within the Department of Food and Agriculture
(Department) to annually estimate and post online the cost per
gallon of motor fuel resulting from compliance with California's
Greenhouse Gas Emissions Reduction regulations, and requires
wholesale motor fuel invoices, product transfer documents, and
retail gasoline pumps to publicize that estimated cost.
Specifically, this bill :
1)Requires the Division to estimate the cost per gallon of motor
fuel resulting from compliance with any market-based
compliance mechanism that the State Air Resources Board (CARB)
may adopt as follows:
a) On or before February 15, 2015, the Division shall
estimate the cost pursuant to the following formula:
i) One hundred fifty-six and nine tenths million metric
tons of carbon dioxide multiplied by the clearing price
of one compliance instrument sold at the most recent
auction conducted by CARB; and,
ii) The product of the calculation in subparagraph 1) a)
i) above shall be divided by the total number of on-road
and off-road motor fuel gallons sold in 2014 to derive
the estimated cost per gallon.
b) On or before February 15 each year thereafter, the
Division shall estimate the cost pursuant to the following
formula:
i) Multiply the total number of on-road and off-road
diesel fuel gallons sold in the state during the previous
calendar year by 9.96 kilograms and divide the product of
that calculation by 1,000 to derive the number of metric
tons of carbon dioxide from diesel combustion;
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ii) Multiply the total number of on-road and off-road
gasoline fuel gallons sold in the state during the
previous calendar year by 8.55 kilograms and divide that
product by 1,000 to derive the number of metric tons of
carbon dioxide from gasoline combustion;
iii) Add the quotients of subparagraphs 1) b) i) and ii)
together to derive the total metric tons of carbon
dioxide from motor fuel combustion;
iv) Multiply the total metric tons of carbon dioxide
from motor fuel combustion by the clearing price of one
compliance instrument sold at the most recent auction
conducted by the CARB; and,
v) Divide the product of the equation in subparagraph
1) b) iv) by the total number of gallons of diesel and
gasoline fuel from subparagraphs 1) b) i) and ii) to
derive the estimated cost per gallon of motor fuel.
2)Requires the Division to post the estimated cost per gallon
calculated pursuant to 1)a) above in a prominent location on
its Internet Web site on or before February 15, 2015.
3)Requires, on or after February 15, 2015, that each motor fuel
transaction in this state contain specified information
regarding the estimated cost of compliance with any
market-based compliance mechanism that the CARB may adopt, as
specified.
4)Requires, after February 15, 2015, a person who prepares a
wholesale motor fuel invoice or product transfer document to
include a statement in the invoice or document that states the
following: "It has been estimated that the cost of fuel in
this invoice is increased by $____ per gallon due to
Greenhouse Gas Emissions Reduction regulations adopted by the
State Air Resources Board." In the blank space provided for
the increased cost per gallon, the person shall use the
estimated cost per gallon calculated by the Division for the
relevant year pursuant to 1) above.
5)Requires, after March 15, 2015, a person selling motor fuel at
retail to affix a sticker to the fuel dispenser that states
the following: "It has been estimated that the cost of fuel at
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this dispenser is increased by $____ per gallon due to
Greenhouse Gas Emissions Reduction regulations adopted by the
State Air Resources Board." In the blank space provided for
the increased cost per gallon, the person shall use the
estimated cost per gallon calculated by the Division for the
relevant year pursuant to 1) above.
6)Requires, on or before February 15, 2016 and each year
thereafter, the Division to update the estimated cost per
gallon on its Internet Web site by using the estimated cost
per gallon derived from the formula in 1) b) above.
7)Requires the retail motor fuel sticker to comply with existing
law pertaining to the sale and labeling of petroleum and
hydrogen fuels, as specified.
8)Provides definitions for the specialized terms "Division" and
"motor fuel".
9)Declares that no reimbursement is required by this bill
because the only costs that may be incurred by a local agency
or school district will be incurred because this act creates a
new crime or infraction, eliminates a crime or infraction,
changes the penalty for a crime or infraction, or changes the
definition of a crime.
EXISTING LAW:
1)Makes it unlawful to sell specified petroleum products unless
a sign or label is posted, as prescribed, that contains
specified information relating to the product and its
contents. (Business and Professions Code (BPC) Section 13480)
2)Requires the Department, acting through the Division, to
enforce these provisions. Existing law makes a violation of
these provisions a crime. (BPC 13590, 13610)
3)The California Global Warming Solutions Act of 2006 designates
CARB as the state agency charged with monitoring and
regulating sources of emissions of greenhouse gases. The
state board is required to adopt a statewide greenhouse gas
emissions limit equivalent to the statewide greenhouse gas
emissions level in 1990 to be achieved by 2020, and to adopt
rules and regulations in an open public process to achieve the
maximum, technologically feasible, and cost-effective
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greenhouse gas emissions reductions. The act authorizes the
state board to include the use of market-based compliance
mechanisms. (Health and Safety Code Section 38500, et seq.)
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill would require the Division to
calculate annually the cost per gallon of the effect of
California's Greenhouse Gas Emissions Reduction program, and
disclose that cost in every wholesale motor fuel invoice or
product transfer document, and on every retail gasoline pump,
in order to increase consumer awareness of the estimated cost
of the program. This bill is sponsored by the California
Independent Oil Marketers Association.
2)Author's statement . According to the author, AB 2656 "is
intended to provide transparency to the motoring public and
other fuel consumers regarding fuel cost increases expected in
January, 2015 due to the implementation of the CARB "Fuels
Under the Cap" regulations. It is necessary as there is no
required notification to motorists and fuel consumers
regarding the additional fuel costs this regulatory program
will create."
3)About California's "Fuels Under the Cap" carbon reduction
program . In 2006, the Legislature passed and Governor
Schwarzenegger signed AB 32 (Nunez), the Global Warming
Solutions Act of 2006, which set the 2020 greenhouse gas
emissions reduction goal into law.
AB 32 requires California to return to 1990 levels of greenhouse
gas emissions by 2020. All programs developed under AB 32
contribute to the reductions needed to achieve this goal, and
will deliver an overall 15% reduction in greenhouse gas
emissions compared to if nothing was done at all.
According to CARB, the cap and trade program is a key element in
California's climate plan. It sets a statewide limit on
sources responsible for 85% of California's greenhouse gas
emissions, and establishes a price signal needed to drive
long-term investment in cleaner fuels and more efficient use
of energy. In practice, carbon producers would compete with
each other to purchase a finite number of permits to release
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carbon into the atmosphere - including carbon released as a
result of refining and burning motor fuel. The program is
designed to provide covered entities the flexibility to seek
out and implement the lowest-cost options to reduce emissions.
CARB reports that the program covers about 350 businesses
responsible for 600 facilities. The program went into effect
for electric utilities and large industrial facilities in
2013, and expands to cover distributors of transportation,
natural gas and other fuels in 2015.
According to the author, 40% of the state's carbon emissions are
related to transportation. In 2015 consumers will begin
seeing direct increases in fuel prices at the pump because of
the "Fuels Under the Cap" program, and costs are estimated to
reach up to 15 cents per gallon.
4)Existing law pertaining to disclosures at the fuel pumps .
Under existing law, there are already multiple types of
information required by BPC to be disclosed to the fuel
consumer.
For example, current law requires the following types of
information at the dispensing apparatus, including: the actual
total price per gallon or liter, including taxes, and
distinctions based on cash or credit payment (BPC 13470);
maximum lawful selling price of each type and grade of
gasoline (BPC 13470.1); if fuel is sold in liter form, a
gallon-to-liter conversion table (BPC 13470.5); the name,
brand, trademark, or trade name of the product, or grade or
brand name designation, if applicable (BPC 13480); minimum
octane or 'antiknock' number (BPC 13480); and similar
provisions related to the advertising of motor fuel (BPC
13532).
Existing law also contains a requirement that petroleum price
signs include "the total price per gallon or liter including
all taxes" (BPC 13532(a)). According to the sponsor, this
section has been interpreted at times to require a separate
notice of specific taxes (i.e., state, federal), or a
disclosure that all applicable taxes are included in the
price.
5) Questions for the Committee. One important question
raised by this bill pertains to the accuracy of the
calculations; specifically, whether they would give
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consumers a true accounting of the true per gallon cost of
the "Fuels Under The Cap" program. Of course, while it is
not the role of this Committee to audit the calculations
provided or refine them with precision, it is important to
the purposes of this Committee to make sure that new
disclosures provide accurate information to consumers.
Because there was no information provided to the Committee
containing the details or assumptions underlying the
calculations, and the applicable regulatory agencies have
not yet had sufficient time to respond, there is no way for
the Committee to confirm or deny their accuracy.
This also raises a secondary question of the appropriateness
of specifying the calculations permanently in statute,
where they are difficult to modify, rather than the more
common approach of developing and maintaining them in
regulations under an agency with expertise in the area,
such as CARB. Given that promulgation of regulations takes
time, it might make more sense to have a statutory formula
for the first year and require regulations thereafter.
The Committee members may wish to inquire of the author, the
sponsor, and stakeholders, such as the Division and CARB, as
to the evidence that the calculations underlying the bill
would provide accurate information to consumers at the pump.
Furthermore, Committee members may also wish to consider
whether these calculations would best be imposed in statute or
developed in regulations by CARB or another entity.
6) Arguments in support . According to the sponsor, "Due to
the high complexity of these? regulations and the
speculative nature of carbon credit prices, it will be very
difficult to understand the precise costs each 'obligated
party' (primarily fuel refiners and importers) will
encounter in compliance with this regulation. AB 2656
attempts to de-mystify this complexity by requiring an
annual per-gallon cost estimate, and using that figure for
disclosure in fuel invoices and at-the-pump notices.
"Both CARB and others estimate that costs related to Fuels
Under the Cap regulations will range 12-15[/gallon as the
program rolls out. The initial-year estimate relies on fuels
sold in 2014 and the most recent 'clearing cost' of a carbon
credit from a CARB auction. After that, fuels subject to Cap &
Trade regulation for the previous year, and the most recent
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carbon credit clearing cost will be used to calculate the
annual estimate.
"It is important that an annual estimate be performed yearly
as both the gallons subject to the offset and the cost of
carbon credits are expected to vary over time. Our expectation
is that the cost per gallon will increase significantly going
forward, as carbon credits become scarcer and less petroleum
product is consumed.
"There is no other legislative or regulatory requirement
currently in place to disclose costs of the program to the
motoring and fuel-consuming public. The public needs to know
the emanation point of theses significant fuel cost
increases?.
"Californians consume significant quantities of transportation
energy - about 14 billion gallons of gasoline, 1.5 billion
gallons of ethanol and about 3 billion gallons of diesel fuel
every year. This is far-and-away the largest single-state fuel
consumer in our nation."
A coalition of California trade associations write, "We
support AB 2656 to require disclosure of estimated fuel costs
arising from Air Resources Board (CARB) greenhouse gas
regulations. Disclosures of estimated costs of "Fuels Under
the Cap" will be provided in both wholesale fuel invoices and
at state fuel pumps. Fuel consumers will be educated about the
new costs through these disclosures.
"?.CARB itself promotes "putting a price on carbon" as one of
the key purposes of the cap and trade program. This bill will
make that price known to the public in a way that will promote
our climate goals by discouraging unnecessary driving,
promoting the use of mass transit, etc. Consumers will become
aware that the extra cost is not a fixed charge outside of
their control, but rather is within their power to influence
through wise use of their vehicles to reduce market demand for
allowances."
7) Arguments in opposition . According to Breathe
California, "This bill would serve consumers poorly for
several reasons. First, it would fail to provide the public
important information about how climate change is affecting
public health, and how the California Global Warming
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Solutions Act is helping to reduce air pollution and
greenhouse gas emissions. The public should receive
information about the dangers of climate change and
importance of transitioning to cleaner fuels and vehicles.
"Second, it would require an analysis to attribute the
compliance cost of market-based regulations affecting a
product that is subject to significant volatility where there
is great difficulty to attribute cost increments to particular
regulations. Finally, this kind of comparison of changing
fuel prices would fail to assess increases attributed to
profit from a fuel source where there is controlled supply by
a limited number of market suppliers."
8) Previous legislation . AB 32 (Nunez), Chapter 488,
Statutes of 2006, enacts the Global Warming Act of 2006
(Act), which creates a statewide greenhouse gas emission
limit that would reduce emissions by 25% by 2020.
REGISTERED SUPPORT / OPPOSITION :
Support
California Independent Oil Marketers Association (sponsor)
California Business Properties Association
California Construction Trucking Association
California Farm Bureau Federation
California Federation of Independent Business
California League of Food Processors
California Manufacturers and Technology Association
California Trucking Association
National Federation of Independent Business
Western States Petroleum Association
Opposition
Breathe California
Analysis Prepared by : Hank Dempsey / B.,P. & C.P. / (916)
319-3301