BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       SB 1387|
          |Office of Senate Floor Analyses   |                              |
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                                   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:










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          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.










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          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  








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             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  








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             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. 









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             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  








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             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  








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             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  








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             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)









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          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








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          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.









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          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


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