BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 757 - Kehoe Hearing Date:
April 5, 2005 S
As Introduced: February 22, 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 makes numerous findings and declarations:
California's growing demand for gasoline is threatened
by unstable foreign oil supplies and inadequate in-state
refinery capacity;
Cost effective options currently exist to slow, and
ultimately reverse, the growth in consumption of petroleum;
Refineries pollute, are therefore a hazard to refinery
workers and neighboring communities, and the refinery
industry should take every feasible measure to protect
those workers and communities;
The Governor, Legislature, and state and local agencies
should make every effort to reduce oil demand and
consumption of petroleum fuels through public education, a
sustained commitment to energy efficiency, public agency
procurement of alternative transportation fuels, and
promotion of the modernization and installation of best
available technologies on California refineries;
This bill establishes a policy that state agencies take every
cost-effective and technologically feasible action to achieve a
net zero increase in on-road petroleum consumption by 2010, and
a significant reduction by 2020. State agencies should take
these petroleum reduction goals into account in adopting rules
and regulations.
This bill authorizes the California Air Resources Board (CARB)
to adopt regulations requiring public agency fleet operators to
purchase alternative fuel vehicles and advanced transportation
technologies where technologically feasible and cost-effective
on a life cycle operating basis.
This bill requires the California Environmental Protection
Agency (CalEPA) to develop and adopt model rules and regulations
to ensure that all petroleum refining, storage, and waste
treatment facilities install, by not later than January 1, 2016,
the best available control technology and pollution prevention
measures so as to provide the maximum feasible and cost
effective reductions in air, water, and toxic waste pollution.
This bill requires the California Energy Commission (CEC) to
monitor and analyze trends in oil demand growth, and to oversee
and investigate market power abuses and unfair competition
during periods of supply and price volatility. The CEC is
authorized to impose fees to recover its costs.
This bill requires the Secretary of the Business, Housing and
Transportation Agency (sic) to submit recommendations by July 1,
2006 regarding alternative revenue sources to supplement or
replace gasoline and diesel fuel taxes. The Secretary shall
evaluate the economic feasibility of alternative financing
measures, the potential to support needed levels of investment
in transportation infrastructure, and the impact on social
equity and mobility on low income and disadvantaged citizens.
This bill requires the Secretary for Environmental Protection to
submit recommendations, by January 1, 2007, regarding
cost-effective and technologically feasible measures needed to
achieve a net zero increase in petroleum consumption by 2010,
and a significant reduction in petroleum consumption by 2020.
This bill requires the Secretary for Environmental Protection to
adopt, by January 1, 2007, an action plan to increase the
diversity of the state's transportation energy supplies.
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 ($2.20/gal). If current prognosticators
are to be believed, there will be a recurrence this year as
price spikes to something approaching $3/gal this summer,
reflecting record high crude oil prices. (Current crude prices
are double 2003 prices and could double again according to one
recent forecast.) Each price spike results in investigations and
new ideas, though no California investigation has found criminal
activity. The gas price spikes in 2000 led to several new ideas
and analyses. Ultimately the new ideas, which included building
a pipeline to Texas and creating a state-run gasoline reserve,
were found to be unworkable.
Pursuant to law<1>, the CEC and CARB published a report on
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<1> AB 2076 (Shelley) -- Chapter 936 of the Statutes of 2000.
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
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>
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<2> California Energy Commission and California Air Resources
Board, Reducing California's Petroleum Dependence , August 2003,
P600-03-005F.
<3> California Energy Commission, 2004 Integrated Energy Policy
Report Update , November 2004.
The author introduced similar legislation last year. SB 1468
established a policy of reducing California gasoline and diesel
consumption by 15% below 2003 levels by 2020 and required the
CEC and CARB by 2010 to adopt measures to achieve that goal.
That bill was approved by this committee 5-2, though the bill
did not pass the Senate Floor.
COMMENTS
1) No Relief in Sight -- The recurring problem of high
gasoline and diesel prices has so far been impervious to
state solutions. Efforts to increase the supply of
gasoline have proven to be unworkable (e.g. creation of a
state-run gasoline reserve and encouraging more California
refinery capacity). Efforts to decrease the demand for
gasoline have only had marginal success (e.g. incentives
for hybrid and alternative-fueled vehicles). Despite these
efforts, overall gasoline consumption in the state has
continued to increase and prices have continued to rise.
The author is addressing a real, but intractable, problem.
2) Big Picture - This bill deals with the problem of high
gasoline prices by encouraging the use of alternative fuels
and encouraging fuel efficiency. Opponents are concerned
that this bill will raise gasoline taxes because they
believe that is the only way to meet the net zero increase
goal of the bill. That concern seems a bit overstated as
this bill does not authorize a gas tax increase. Opponents
also argue that the market is already encouraging energy
efficiency, noting that vehicle fuel efficiency has nearly
doubled in the last 25 to 30 years. Of course that
doubling of fuel efficiency is due to the mandated federal
fuel economy requirements, not a market response.
Moreover, since 2000 vehicle fuel efficiency in California
has declined. This, coupled with increasing miles
traveled, has resulted in a steady increase in California
gasoline consumption, by 7% from 2001 to 2004.
Opponents argue that investment in refineries will dry up
if California establishes a goal of reducing gasoline
demand by 2020. In the event that this goal is met, one
would expect less investment in new refineries, though
ongoing investment to maintain existing refineries would
continue. But, because one of the strategies of this bill
is to encourage the use of alternative fuels, one would
expect additional investment in alternative fuel production
facilities.
3) Setting a Goal - The bill establishes state policy that
state agencies should take every cost-effective action
needed to achieve a "net zero increase in on-road petroleum
consumption by 2010, and a significant reduction in
petroleum demand and oil consumption by 2020." This means
that by 2010 the amount of gasoline and diesel fuel
consumed should not be greater than that consumed in 2006,
and that beyond 2010 the absolute quantity of gasoline and
diesel fuel should decline. The author and committee may
wish to clarify this in the bill. This goal is less
ambitious than that contained in the CEC's 2003 "Reducing
California's Petroleum Independence" report, which calls
for reducing demand for on-road gasoline and diesel to 15%
below 2003 levels by 2020. While opponents are concerned
that adoption of this goal will inevitably lead to
increased gas taxes or fees, it is possible that other
strategies for reducing fuel consumption will emerge. For
example, this could include traffic management options to
increase efficiency as well as smart growth efforts and
mass transit programs which will reduce miles traveled.
4) Fleets - This bill authorizes CARB to adopt regulations
requiring state and local governments to purchase
alternative fueled vehicles if cost-effective. The author
and committee may wish to consider adopting a technical
amendment to clarify the grammar on page 4, line 36.
5) Keeping an Eye Out - This bill requires the CEC to
monitor and analyze trends in world oil demand growth, and
to carry out oversight and investigation of market power
abuses and unfair competition during periods of supply and
price volatility. This is an expansion of the CEC's
current monitoring and analysis role which focusses on
California supplies. The oversight and investigatory
responsibilities are new powers for the CEC for which it is
now ill-equipped with regard to staffing and processes.
Currently those functions are a subset of the general
authority of the Attorney General. The author and
committee may wish to consider whether to delete these new
powers and instead authorize the CEC to refer instances
where it suspects market abuse or unfair competition to the
Attorney General as a more economical way of accomplishing
the goal of better oversight.
6) Transportation Fuel Diversity - This bill requires the
CalEPA, in consultation with CARB, the CEC, and the South
Coast Air Quality Management District, to submit an action
plan by January 1, 2007 to increase the diversity of the
state's transportation fuel supplies. By "action plan" the
author intends that the designated agencies engage in a
collaborative process to produce recommendations, policies,
and programs for increasing the diversity of transportation
fuel supplies. The author and committee may wish to
consider more clearly defining the term "action plan". The
CEC's 2003 petroleum demand reduction report recommends
that the state establish a goal to increase the use of
non-petroleum fuels to 20% of on-road fuel consumption by
2020. The author and committee may wish to consider
including this goal in the bill.
7) Refinery Pollution - This bill requires CalEPA to
develop rules to ensure that all petroleum refining,
storage, and waste treatment and disposal facilities
install best available control technology by January 1,
2016 to provide the maximum feasible and cost effective
reduction in air and water pollution and toxic waste
production. This is a significant tightening of the
anti-pollution rules. While pollution and waste reduction
may well be desirable, it will come at a cost of higher
gasoline prices and temporarily reduced supply as
refineries make the required changes, and may discourage
increased refinery capacity in California. This issue will
also be considered by the Senate Environmental Quality
Committee, which will hear the bill if it is approved by
this committee.
8) The Elephant in the Room - The surest was to reduce
gasoline consumption is to increase the
federally-established Corporate Average Fuel Economy (CAF?)
standard. This was the central recommendation of the CEC's
2003 petroleum demand reduction report. The author and
committee may wish to consider dealing with the CAF?
standard in this bill by requiring this Administration, and
the agencies under its control, to take a leadership role
to increase the standard through a coordinated effort with
other states and the Congress.
Technical Amendment - Clarify that the bill deals with "on-road"
petroleum consumption on page 3, line 37, page 3, line 38, page
4, line 28, page 6, line 7, and page 6, line 8.
This bill has been double-referred to the Environmental Quality
Committee.
POSITIONS
Sponsor:
Author
Support:
American Lung Association of California
California Thoracic Society
Clean Power Campaign
Heal the Bay
Natural Resources Defense Council
Planning and Conservation League
Sierra Club
Union of Concerned Scientists
Oppose:
Alliance of Automobile Manufacturers
CA Mining Assn.
CA Business Alliance CA Motor Car Dealers Assn.
CA Business Roundtable CA Retailers Assn.
CA Chamber of Commerce CA Taxpayer Protection
Committee
CA Citrus Mutual California Taxpayers' Assn.
CA Farm Bureau Federation California Women in
Agriculture
CA Grocers Assn. Howard Jarvis Taxpayers Assn.
CA Independent Oil Marketers Assn. Olive Growers Council of CA
CA Independent Petroleum Assn. Western Growers Assn.
CA League of Food Processors Western Plant Health Assn.
CA Manufacturers & Technology Assn.
Western States Petroleum Assn.
Randy Chinn
SB 757 Analysis
Hearing Date: April 5, 2005