BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1387| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1387 Author: De León (D), Lara (D) and Allen (D) Amended: 4/7/16 Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 4/20/16 AYES: Wieckowski, Hill, Jackson, Leno, Pavley NOES: Gaines, Bates SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16 AYES: Lara, Beall, Hill, McGuire, Mendoza NOES: Bates, Nielsen SUBJECT: Nonvehicular air pollution: market-based incentive programs: South Coast Air Quality Management District board SOURCE: Author DIGEST: This bill adds three members to the South Coast Air Quality Management District (SCAQMD) Governing Board, as specified, and creates a process by which the California Air Resources Board (ARB) is required to either 1) approve, or 2) disapprove, revise, and then approve, any plan for, changes to, or rules implementing, a local air district's market-based incentive program. ANALYSIS: SB 1387 Page 2 Existing law: 1) Provides ARB with primary responsibility for control of mobile source air pollution and provides that air pollution control districts (APCDs) and air quality management districts (AQMDs) have primary responsibility for controlling air pollution from all sources, other than emissions from mobile sources, and establishes certain powers, duties, and requirements for those districts. 2) Creates certain AQMDs, with related authority, including the SCAQMD under the Lewis-Presley Air Quality Management Act. SCAQMD covers portions of Los Angeles, Orange, Riverside, and San Bernardino counties within the South Coast Air Basin. 3) Establishes the SCAQMD Governing Board, and specifies the Board consist of 13 members, where one member each is appointed by the Governor, Senate Rules Committee, and the Speaker of the Assembly, and the other 10 members are appointed by regional government entities in the South Coast Air Basin, as specified. 4) Requires SCAQMD adopt a plan to achieve and maintain the state and federal ambient air quality standards for the South Coast Air Basin, and requires that plan and subsequent revisions contain deadlines for compliance with federal air quality standards and schedules and deadlines to achieve the state ambient air quality standards by the earliest date achievable, including by use of best available retrofit control technology (BARCT). 5) Makes findings and declarations that other options for air quality improvement, including market-based incentive programs, should be explored, provided those programs provide equivalent emission reductions. SB 1387 Page 3 6) Authorizes a district to adopt a market-based incentive program as an element of the district's plan for attainment of state or federal ambient air quality standards, if that plan meets specified requirements. 7) Requires a district's plan for attainment or plan revision submitted to the state prior to January 1, 1993, be designed to achieve equivalent emission reductions and reduced cost and job impacts compared to current command and control regulations and future air quality measures that would otherwise have been adopted as part of the district's plan for attainment. 8) Prohibits a district from implementing a market-based incentive program unless the state board determines the above requirements are met. 9) Requires a district's plan or plan revision submitted on or after January 1, 1993, be designed to allow the trading of reductions among a variety of sources and requires ARB to approve the above plan or plan revision prior to program implementation and make their determination no later than 90 days from the date of plan or plan revision submission. 10)Requires the district, upon adoption of rules and regulations to implement the market-based program, to submit the rules and regulations to ARB, and requires ARB, within 90 days, to determine whether the rules and regulations meet specified requirements. This bill: 1) Makes findings and declarations that other options for air quality improvement, including market-based incentive programs, may be explored, provided those programs provide greater emission reductions and ensure disadvantaged SB 1387 Page 4 populations are not disproportionately impacted. 2) Strikes the January 1, 1993 date for plan or plan revision submission, and requires any district plan or plan revision achieve equivalent emission reductions and reduced cost and job impacts compared to current command and control regulations and future air quality measures that would otherwise have been adopted as part of the district's plan for attainment. 3) Prohibits a district from implementing any revisions to an adopted market-based incentive program, unless ARB determines the plan or plan revision complies with the above requirements. 4) Requires, if ARB determines a plan or plan revision does not meet the specified requirements for a market-based incentive program, that ARB notify the district, revise the plan or plan revision so that it complies with specified requirements, and approve the plan or plan revision. 5) Specifies that the above plan or plan revision approved by ARB shall take effect immediately and is binding on the district. 6) Requires, if ARB determines a district rule does not meet the specified requirements for a market-based incentive program, ARB notify the district, revise the rule so that it complies with specified requirements, and adopt the rule. 7) Specifies that the above rule approved by ARB shall take effect immediately and have the same legal force and effect as a district rule. 8) Expands the SCAQMD Governing board by three to increase the SB 1387 Page 5 membership to 16, with the additional members appointed by the Governor, the Senate Committee on Rules, and the Speaker of the Assembly. 9) Requires the above appointees be representatives of a bona fide nonprofit environmental justice organization that advocates for clean air and pollution reductions in one or more communities within the South Coast Air Basin. Background 1) SCAQMD Governing Board. Local air districts and their governing boards have primary jurisdiction over air pollution from all sources in their air basin, other than emissions from mobile sources. As prescribed by state law, the SCAQMD board is made up of 13 members, where three are appointed by the state (one each by the Senate Rules Committee, the Speaker of the Assembly, and the Governor) and 10 are appointed by local governments. The members of the board serve four-year terms. Currently, Dr. William Burke, appointed by the Speaker of the Assembly, serves as the Chairman of the SCAQMD Board. 2) Air quality in the South Coast Air Basin and public health effects. Under the federal Clean Air Act, the United States Environmental Protection Agency (US EPA) establishes National Ambient Air Quality Standards that apply for outdoor air throughout the country. These federal standards exist for several air pollutants due to their negative impact on public health above specified concentrations, including ozone and particulate matter, among others. Nonattainment areas are regions that do not meet the national ambient air quality standard for one of those pollutants. SB 1387 Page 6 South Coast has some of the worst air quality in the nation, and is in serious nonattainment for particulate matter (<2.5 microns, or PM 2.5) and extreme nonattainment for ozone. Air Quality Management Plan. As SCAQMD is a nonattainment region for particulate matter and ozone, state law requires the district to adopt a plan, termed the Air Quality Management Plan (AQMP), to achieve and maintain the state and federal ambient air quality standards for the South Coast Air Basin and submit this plan, subject to approval, to the ARB for inclusion into the state implementation plan (SIP--comprehensive state plans required by the federal law, detailing how regions of the state will achieve and maintain attainment). The AQMP was originally adopted in 1982, and is formally reviewed every two years. The SCAQMD is currently working on the 2016 AQMP. 3) RECLAIM. AB 1054 (Sher, Chapter 1160, Statutes of 1992) authorizes local air districts to adopt a market-based incentive program as an element of a local air district's air quality management plan for attainment of the state or federal ambient air quality standards and is authorized as a substitute for command and control regulations and future air quality measures that would otherwise have been adopted as part of the district's plan for attainment. Pursuant to AB 1054, the SCAQMD adopted the Regional Clean Air Incentives Market, or RECLAIM in 1993, which went into effect January 1994. RECLAIM was designed and adopted amidst an economic recession in the region with widespread industry and electrical utility support. The program replaced a series of existing command and control rules and was intended to allow for the most efficient emission reduction projects within the sector to achieve the desired emissions reductions with the lowest economic cost to industry. Instead of permitting individual equipment and devices, the SB 1387 Page 7 program sets individual emissions limits on nitrogen oxide (NOx) and sulfur oxide (SOx) for facilities as a whole. Credits, (called RECLAIM Trading Credits, or RTCs) are provided to the facility in an amount equivalent to their emissions limit assigned under the program. RTCs may be traded or sold. RECLAIM sources may choose to install emission control equipment that enables them to operate within their allocation, or they may exceed emissions allocations as long as they acquire sufficient RTCs from other sources. In 2013, there were 275 facilities in the program, including refineries, power plants, and other industrial sources. Overallocation of credits. RECLAIM has been criticized over the years for an oversupply of credits, starting from the original allocation of credits where the initial distribution of RTCs in 1994 exceeded actual NOx emissions by 60%. This significant overallocation was due in part to incorrect economic growth assumptions for the region. Other than a few notable exceptions, the oversupply of credits have kept credit prices relatively low compared to costs associated with installing pollution control equipment. As a result, the largest polluters in the region have primarily chosen to comply by purchasing RTCs to exceed their NOx emissions cap under the program, instead of by reducing NOx through installation of readily available pollution control equipment. In March of this year, the US EPA disapproved portions of the 2012 AQMP related to the achievement of the 2006 PM 2.5 standard, citing deficiencies in the 2010 version of the RECLAIM program that allowed for excess of pollution trading credits and delay of pollution controls for some facilities. According to the SCAQMD Web site, district staff expect that recent RECLAIM amendments last December will address the disapproval and ensure compliance with federal Clean Air Act requirements. RECLAIM amendments. Despite the initial excess allocation of SB 1387 Page 8 credits, RECLAIM has only been amended twice to reduce excess RTCs for NOx (called a credit "shave") - once in 2004, and recently in December of 2015. According the December 4, 2012 staff report, amendments to the program were needed to address BARCT requirements in state law. BARCT evaluation is required by California law to assess the advancement in control technology to ensure that RECLAIM facilities achieve the same emission reductions that would have occurred under a command-and-control approach and that emissions reduction from the program fully contribute to the efforts in the Basin to achieve federal ambient air quality standards. Specifically, SCAQMD staff proposal recommended amendments to shave NOx RTC credits from 26.5 tons/day (tpd) to 14 tpd with a front loaded implementation schedule. The proposal notes that the 14 tpd day value represents the emissions reductions necessary to comply with state law BARCT requirements, with a 10% compliance margin, adjustments for projected growth, and uncertainties in the BARCT analysis. The staff proposal also recommended amendments to retire RTCs from larger NOx emitting facilities that have shut down to help address oversupply of credits. During the public comment portion of the hearing, support was expressed among industry representatives for a reduced shave of 12 tpd, a back loaded implementation schedule, and a removal of the proposal to retire credits from facility shut downs from consideration at the hearing. A motion to approve these amendments, in lieu of the staff-proposed amendments, passed by a vote of 7-5 at the December 4, 2015 SCAQMD Governing Board meeting. ARB letter. In January, Richard Corey, Executive Officer of ARB, wrote a letter to Dr. Barry Wallerstein, the former executive officer of the SCAQMD, expressing significant concerns over the December SCAQMD Board vote, including SB 1387 Page 9 whether the RECLAIM amendments meet requirements in state law. On February 6, 2016, Dr. Wallerstein replied to Mr. Corey's letter, stating, "We believe that several of CARB staff's conclusions are incorrect and do not accurately reflect the public process for the referenced rulemaking." The letter also noted that SCAQMD would be submitting the December 4th RECLAIM amendments to ARB for inclusion into the SIP in late February of this year. Comments Purpose of this bill. According to the author, "The SCAQMD is one of the leading voices for clean air and climate pollution reductions in the southern California region. In the past six months, with its recent changes in governance, it has voted to dismiss its longstanding executive officer and weaken clean air regulations over its expert staff's recommendations. Outside parties have worked to reduce diversity on the board and to install a majority that is more concerned with polluters than with public health. SB 1387 seeks to modernize the membership of the governing board and to ensure the ARB can conduct speedy oversight of any amendments to smoke stack regulations made by the new board." FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee, unknown, likely significant, costs to ARB (Air Pollution Control Fund). SUPPORT: (Verified5/27/16) SB 1387 Page 10 American Lung Association in California Clean Power Campaign Coalition for Clean Air Physicians for Social Responsibility- Los Angeles OPPOSITION: (Verified5/27/16) California Building Industry Association California Council for Environmental and Economic Balance American Coatings Association American Forest & Paper Association Associated Builders and Contractors of California Automotive Specialty Products Alliance Building Industry Association of Southern California Building Owners & Managers Association of California California Asphalt Pavement Association California Association of Realtors California Auto Body Association California Business Properties Association California Chamber of Commerce California Construction and Industrial Materials Association California Cotton Ginners and Growers Association California Independent Oil Marketers Association California Independent Petroleum Association California League of Food Processors California Manufacturers & Technology Association California Metals Coalition California Paint Council California Railroad Industry California Small Business Alliance California Small Business Association California Taxpayers' Association California Trucking Association Chemical Industry Council of California Coalition of Energy Users Commercial Real Estate Development Association Construction Industry Air Quality Coalition Consumer Specialty Products Association El Monte/South El Monte Chamber of Commerce SB 1387 Page 11 Engineering Contractor's Association Fullerton Association of Concerned Taxpayers Future Port Grocery Manufacturers Association Harbor Trucking Association Heraeus Howard Jarvis Taxpayers Association Hyatt Die Cast & Engineering Corporation Independent Oil Producers Agency Industrial Association of Contra Costa County Industrial Environmental Association Inland Empire Economic Partnership International Council of Shopping Centers International Warehouse Logistics Association Kern Country Taxpayers Association Long Beach Chamber of Commerce Los Angeles Area Chamber of Commerce Metal Finishing Association of Northern California Metal Finishing Association of Southern California National Federation of Independent Business, California Printing Industries Association of Southern California Redondo Beach Chamber of Commerce Regional Hispanic Chamber of Commerce Santa Barbara Taxpayers Association Santa Barbara Technology and Industry Association Small Business Action Committee South Bay Association of Chambers of Commerce Torrance Area Chamber of Commerce Valley Industry & Commerce Association Western Agricultural Processors Association Western States Petroleum Association Western States Trucking Association ARGUMENTS IN SUPPORT: Supporters state that SB 1387, by adding three additional environmental justice representatives to the SCAQMD Board, will ensure a Board that better represents its constituency. Coalition for Clean Air also notes that creating an expedited review process for market-based programs would bring more certainty and urgency for determining whether RECLAIM and similar programs meet state and federal air quality requirements. SB 1387 Page 12 ARGUMENTS IN OPPOSITION:Opponents state that this bill substantially and adversely modifies the use of market-based incentive programs, including limiting their ability to achieve cost-effective emissions reductions in Southern California, and adds state-level appointed positions to the SCAQMD, effectively shifting local control over critical regional air quality planning to state lawmakers. Prepared by:Rebecca Newhouse / E.Q. / (916) 651-4108 5/31/16 9:39:29 **** END ****