California’s Legislature Drops Petroleum Reduction; Approves State Procurement of Very Low Carbon Fuels

Source: By Graham Noyes, executive director, Low Carbon Fuels Coalition • Posted: Wednesday, September 23, 2015

The first year of California’s legislative session ended dramatically with a mix of successes and setbacks for the low carbon fuel industry. California leads the nation on policies to combat climate change resulting in dramatic proposals like Governor Jerry Brown’s and Senate President pro Tempore Kevin de Leon’s proposed legislative mandate to cut petroleum usage in half in fifteen years. While this aspect of SB 350 could not overcome massive oil lobby expenditures, the Governor, Senate President and Air Resources Board (ARB) remain dedicated to the task.

One of the most tangible victory of the session was the Legislature’s approval of AB 692. If signed by the Governor, the bill will mandate that commencing in 2017, California’s government fleet procure at least 3% very low carbon fuel. Very low carbon fuels are defined as fuels having 40% or less of the carbon intensity of conventional petroleum fuels. Biodiesel from used cooking oil, renewable natural gas from dairy digesters, and advanced cellulosic ethanol are examples of fuels that can meet the very low carbon fuel standard.

After 2017, the fuel procurement requirement escalates annually by 1% until 2024. The Low Carbon Fuels Coalition testified repeatedly in support of the bill at the request of the bill’s sponsor, Assembly Member Bill Quirk.

The biggest pending opportunity remains California’s groundbreaking Cap-and-Trade program that deposits its revenues into the Greenhouse Gas Reduction Fund (GGRF). Petroleum transportation fuels became subject to Cap-and-Trade in 2015, resulting in a surge in annual GGRF revenues from $832M to approximately $2.5B. Low carbon biofuels and biogas delivered approximately 90% of the greenhouse gas (GHG) reductions in the transportation sector so would reasonably be expected to receive GGRF funding from the ARB’s low carbon transportation budget. The industry’s failure to secure funding in last year’s budget was one of the primary drivers for the formation of the Low Carbon Fuels Coalition.

Since that time, the Low Carbon Fuels Coalition and other stakeholders have been steadily advocating for dedicated GGRF funding for the low carbon fuel industry. This advocacy has proved initially successful at the agency level. ARB has included funding for in-state production of low carbon renewable fuels in a concept paper describing its long-term GGRF spending plan for fiscal years 2016-17, 2017-18, and 2018-19. This proposed change in ARB’s long-term spending plans as well as recent ARB analysis regarding petroleum reduction strategies demonstrates that ARB has heard industry input and is increasingly recognizing the importance of low carbon fuels to the state’s policy goals.

Yet GGRF funding remains elusive. The original GGRF budget bill, SB 862 continuously allocated 60% of the GGRF to high speed rail, sustainable and affordable communities, and transit, but left the other 40% of the GGRF subject to annual appropriations. While the proposed budgets of the Governor, Assembly and Senate increased ARB’s funding for low carbon transportation to $350M this year, the Legislature could not agree on a GGRF budget. This may ultimately prove advantageous to the low carbon fuels industry as ARB had already approved a tentative GGRF budget that did not include funding for low carbon fuels production. With this fiscal year’s GGRF money sitting unspent in California’s treasury, the low carbon fuels industry will have another window when the Legislature reconvenes in January 2016 to gain long-term funding.

The Low Carbon Fuels Coalition is a technology neutral business association dedicated to supporting and expanding low carbon fuel policies. Please let me know if you would like additional information about our activities.