BILL ANALYSIS Ó SB 1387 Page 1 SENATE THIRD READING SB 1387 (De León, et al.) As Amended April 7, 2016 Majority vote SENATE VOTE: 22-13 ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Natural |6-2 |Williams, Cristina |Hadley, Harper | |Resources | |Garcia, Gomez, | | | | |McCarty, Mark Stone, | | | | |Wood | | | | | | | |----------------+-----+----------------------+--------------------| |Appropriations |11-4 |Gonzalez, Bloom, |Bigelow, Chang, | | | |Bonilla, Bonta, |Jones, Obernolte | | | |Eggman, | | | | | | | | | | | | | | |Eduardo Garcia, | | | | |Quirk, Santiago, | | | | |Weber, Wood, McCarty | | | | | | | | | | | | ------------------------------------------------------------------ SB 1387 Page 2 SUMMARY: Adds three members to the South Coast Air Quality Management District (SCAQMD) Governing Board, as specified, and creates a process by which the Air Resources Board (ARB) is required to review and approve, disapprove, or amend and approve, any plan for, changes to, or rules implementing, a local air district's market-based incentive program (e.g., the SCAQMD's Regional Clean Air Incentives Market, or RECLAIM). Specifically, 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 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. SB 1387 Page 3 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 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. 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 SB 1387 Page 4 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, as well as 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. 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 SB 1387 Page 5 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 submission of the plan or plan revision. 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. FISCAL EFFECT: According to the Assembly Appropriations Committee: 1)Increased ongoing annual costs of between $400,000 (2.5 Personnel Year (PY)) and $900,000 (5.5 PY) for ARB to review, revise, and approve plans, plan revisions, and rules for compliance with applicable requirements (Air Pollution Control Fund). This estimate is specific to the SCAQMD, the only local air district with a market-based incentive program. For the ongoing, plans and plan revisions (every three years) ARB SB 1387 Page 6 estimates requiring one new position. The other one to four estimated positions depend on the estimated the deficiency rule, as well as frequency of the revisions. 2)Unknown, potentially significant ongoing increased costs if other local air districts adopt market-based incentive programs (Air Pollution Control Fund.) COMMENTS: 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. 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. The South Coast Air Basin 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. As a result of its nonattainment status, state law requires the district to adopt an Air Quality Management Plan (AQMP) to achieve and maintain the state and federal ambient air quality standards and submit this plan to the ARB for inclusion SB 1387 Page 7 into the state implementation plan (SIP). The AQMP was originally adopted in 1982, and is formally reviewed every two years. AB 1054 (Sher), Chapter 1160, Statutes of 1992, authorizes local air districts to adopt a market-based incentive program 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. 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 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. 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. 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 SB 1387 Page 8 emissions by 60%. This significant over-allocation was due in part to incorrect economic growth assumptions for the region. Other than a few notable exceptions, the oversupply of credits has 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 2016, 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 credits and delay of pollution controls for some facilities. According to the SCAQMD Web site, district staff expects that recent RECLAIM amendments last December will address the disapproval and ensure compliance with federal Clean Air Act requirements. Despite the initial excess allocation of credits, RECLAIM has only been amended twice to reduce excess RTCs for NOx (called a credit "shave"), once in 2004, and again in December 2015. According the SCAQMD 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, the SCAQMD staff proposal recommended amendments to shave NOx RTC credits from 26.5 tons/day (tpd) to 14 tpd with SB 1387 Page 9 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. 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 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. ARB is currently reviewing the amendments, which is expected to be complete later this summer. According to the author, SCAQMD is one of the leading voices for clean air and climate pollution reductions in the southern SB 1387 Page 10 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. This bill 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. Analysis Prepared by: Lawrence Lingbloom / NAT. RES. / (916) 319-2092 FN: 0004080