BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
AB 151 - Laird Hearing Date:
September 7, 2005 A
As Amended: September 2, 2005 FISCAL B
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DESCRIPTION
Current law makes the California Energy Commission (CEC) responsible
for monitoring transportation fuel supplies and prices in the state.
Current law requires the CEC to biennially develop an integrated
energy policy report that looks at issues of supply, demand, and
supply reliability for transportation fuel.
This bill establishes that it is the policy of the state that state
agencies shall take every technologically feasible action needed to
reduce the growth of petroleum consumption and to increase
transportation energy efficiency and the use of alternative fuels in
California. State agencies take this policy into account when
adopting their rules and regulations.
This bill does not authorize the imposition of any tax or fee on
consumers of petroleum for on-road use or on petroleum refiners.
This bill requires that by January 1, 2007, and every third year
thereafter, the California Environmental Protection Agency (Cal-EPA)
shall adopt recommendations, policies, and programs to reduce the
rate of growth in petroleum consumption as well as increase
transportation energy efficiency and the use of alternative fuels.
This bill requires that by December 31, 2007, Cal-EPA shall publish
a report assessing pollution violations by California refineries and
the technological feasibility and health benefits of modernizing
those refineries.
This bill requires that by March 31, 2007, the Secretary of the
Business, Transportation and Housing Agency, shall submit
recommendations regarding alternative revenue sources to supplement
lost tax revenue on gasoline and diesel fuel.
This bill requires the Secretary for Environmental Protection to
take action to influence the federal government to double the
combined fuel economy of cars and light trucks by 2020.
BACKGROUND
Concern over high gasoline and diesel prices has recurred for many
years. California experienced gasoline and diesel price spikes in
1996 ($1.50/gal), 1999 ($1.60/gal), 2000 ($1.80/gal) and, once
again, in 2004. Since the beginning of 2004 gasoline prices have
skyrocketed, nearly doubling from $1.62/gal to $2.77/gal. This year
alone gasoline prices have increased 80 cents/gal. Diesel fuel
prices have fared worse. Since 2004 diesel prices have increased by
about $1/gal., from about $2.10 to a little more than $3/gal. Jet
fuel prices have similarly increased.
High fuel prices are having a chilling effect on other parts of the
economy. In addition to fuel-intensive industries like airlines and
package delivery services, retailers such as Wal-Mart are blaming
high gas prices for forcing lower-income shoppers, and increasingly
middle-income shoppers, to spend less.
This country's primary response to high transportation fuel prices
was the establishment of fuel efficiency standards for cars and
light trucks. Known as the Corporate Average Fuel Economy (CAF?)
standard, it was established in 1985 at 27.5 mpg and has not
increased since then. A 2001 study by the National Academy of
Sciences concluded that a 40% increase in fuel economy could be
achieved over 10-15 years at costs which would pay for themselves
over the life of the vehicle. Pursuant to law<1>, the CEC and CARB
also published a report on reducing California's petroleum fuel
dependence.<2> Based on an analysis of options that are currently
feasible and economical, the report recommended that California
adopt a policy to reduce gasoline and diesel fuel demand to 15%
below 2003 demand levels by 2020, and to maintain that level
thereafter. A number of options are suggested for meeting the goal,
including using more fuel efficient replacement tires, improving
private vehicle maintenance, doubling the fuel efficiency of light
duty vehicles, using natural gas-derived fuels as blending agents in
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<1> AB 2076 (Shelley) -- Chapter 936 of the Statutes of 2000.
<2> California Energy Commission and California Air Resources Board,
Reducing California's Petroleum Dependence , August 2003,
P600-03-005F.
diesel fuel, and implementing fuel cell-powered vehicles. The
report also recommended that the Governor and Legislature work with
the California Congressional delegation and other states to double
the national fuel economy standards. Lastly, the report recommended
establishing a goal of increasing the use of non-petroleum fuels to
20% of on-road fuel consumption by 2020 and 30% by 2030. The CEC
recently reported discouraging progress in implementing those
recommendations.<3>
The Bush Administration has recently proposed changes to the CAF?
standard for light trucks which they argue will save billions of
gallons of gas. Critics, such as the Union of Concerned Scientists,
say that the changes are virtually meaningless.
COMMENTS
1. Transportation Fuel an Essential Commodity - A consequence
of Katrina and its disruption of the flow of transportation
fuels is the renewed recognition of the importance of
gasoline/diesel to the functioning of society. Long gasoline
lines and the willingness of people to pay whatever it takes to
fill up the tank are indicators of people's reliance on
gasoline. Yet for such an essential commodity there is little
in the way of price regulation. Arguably gasoline/diesel is
every bit as important to society as electricity. Yet while
California has a fairly comprehensive system for ensuring
adequate supplies of electricity at reasonable prices, no
comparable system exists for gasoline. Perhaps this is because
historically unregulated gasoline markets led to ample supplies
and reasonable, even cheap, prices. But that historical
relationship now seems broken.
2. Prior Attempts to Reduce Price Have Failed - California
policymakers have made many attempts to reduce gasoline/diesel
costs. But each effort, from requiring gasoline distributors to
divest themselves of their retail outlets to the establishment
of a strategic fuel reserve to creation of an additional
pipeline to Texas refiners, has failed because it was viewed as
either unworkable or ineffective. Even an investigation into
potential anti-competitive behavior by the Attorney General led
nowhere. At least we're in good company. No other state has
created a mechanism for lowering prices, save for Hawaii.
(Hawaii has finally implemented wholesale price caps for
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<3> California Energy Commission, 2004 Integrated Energy Policy
Report Update , November 2004.
gasoline, where prices are pegged to an index of mainland
prices. This may prove useful an keeping Hawaii's prices
comparable with those on the mainland, though the effect on
retail prices is uncertain.) Unless Americans are willing to
fundamentally change the relationship between government and
the oil industry, gasoline prices will largely reflect the
desires of OPEC and the investment choices of the oil industry.
California has been virtually powerless to increase supplies of
gasoline to reduce price. There is little California can do
about crude oil price and refining costs and margins. But there
may be something that can be done to reduce gasoline demand.
That might reduce overall prices but, more importantly, by
helping people use less it will reduce the burden of gasoline
prices on their budgets. California's successful response to
the 2001 electricity crisis was led by a massive demand
reduction effort accompanied by a policy of encouraging the use
of renewable energy. While this bill does not reflect the scale
of that effort, it shares the strategy.
3. Katrina in California - A Katrina-style supply disruption
could happen in California because refineries are concentrated
in two areas of the state. Half of California's refining
capacity exists within an 10 mile radius in the Los Angeles
basin along the coast; 40% sits along a 20 mile stretch of the
East Bay between Richmond and Benicia. Both areas sit within
known earthquake zones.
4. Prior Legislation - SB 757 (Kehoe), heard earlier this year
and approved by the committee, was a more ambitious and far
reaching bill. That bill established a more stringent policy
of a zero increase in petroleum consumption by 2010 and a
significant reduction by 2020, authorized regulation of public
agency fleet operators, and required Cal-EPA to adopt model
rules and regulations to require refineries to install best
available pollution control technology by 2016.
5. No Amendments - Pursuant to Senate rule 29.10, this bill may
not be amended.
ASSEMBLY VOTES
Assembly Floor (45-0)*
Assembly Budget Committee (14-0)*
*Votes on a prior unrelated version of the bill
POSITIONS
Support:
None on file
Oppose:
None on file
Randy Chinn
AB 151 Analysis
Hearing Date: September 7, 2005