Existing law establishes the State Energy Resources Conservation and Development Commission and requires the commission to administer various programs to award grants and other financial assistance for energy-related projects. The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation.

This bill would require the commission to develop and implement a grant program to award grants for projects that produce biomethane, that build or develop collection and purification technology or infrastructure, or that upgrade or expand existing biomethane facilities. The bill would, upon appropriation, authorize moneys in the fund to be used to fund grants awarded pursuant to the program.

Existing law establishes the State Energy Resources Conservation and Development Commission and requires the commission to administer various programs to award grants and other financial assistance for energy-related projects. The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation.

This bill would require the commission to develop and implement a grant program to award grants for projects that produce biomethane, that build or develop collection and purification technology, technology or infrastructure, and projects or that upgrade or expand existing biomethane facilities to meet certain requirements. facilities. The bill would, upon appropriation, authorize moneys in the fund to be used to fund grants awarded pursuant to the program.

Existing law establishes the State Energy Resources Conservation and Development Commission and requires the commission to administer various programs to award grants and other financial assistance for energy-related projects. The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation.

This bill would, upon appropriation, allocate $13,000,000 from the fund to the State Energy Resources Conservation and Development Commission for the implementation of a biomethane collection and purification grant program. The bill would require the commission to develop and implement the a grant program to award moneys grants for projects that build or develop collection and purification technology, infrastructure, and projects that upgrade existing biomethane facilities to meet certain requirements. The bill would, upon appropriation, authorize moneys in the fund to be used to fund grants awarded pursuant to the program.

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to adopt a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund and to be available upon appropriation.

This bill would, upon appropriation, require the State Air Resources Board to allocate an unspecified percentage of the moneys in $13,000,000 from the fund to the State Energy Resources Conservation and Development Commission for the implementation of a biomethane collection and purification grant program. The bill would require the commission to develop and implement the grant program to award moneys for projects that build or develop collection and purification technology, infrastructure, and projects that upgrade existing biomethane facilities to meet certain requirements.

Under the Public Utiliites Act, electrical corporations are required to file with the Public Utilities Commission a standard tariff for electricity purchased from certain electric generation facilities. The act requires the commission to direct the electrical corporations to collectively purchase 250 megawatts of cumulative rated generating capacity from developers of bioenergy projects. The act requires the commission to encourage electrical and gas corporations to develop and offer programs and services to facilitate development of in-state biogas for a broad range of purposes.

This bill would limit that range of purposes to 3 specified purposes.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 577 (Bonilla) - Biomethane: grant program

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 577 would require the California Energy Commission (CEC) to develop and implement a grant program for projects related to biomethane production.

Fiscal Impact:

• Annual costs of $518,000 for each $10 million of grant dollars to the Greenhouse Gas Reduction Fund (GGRF, special) to the CEC to administer the grant program.

• Potential costs, no higher than $320,000 to the GGRF (special) to the Air Resources Board to coordinate with the CEC, develop quantification methodologies, and to process funding disbursements. If these costs are needed, the costs will likely be offset by a reduction in administrative costs to the CEC.

• Cost pressures, at least in the mid-tens of millions of dollars, to the GGRF (special) to fund eligible projects under the grant program.

Background:

The California Global Warming Solutions Act of 2006 (referred to as AB 32, HSC §38500 et seq.) requires the ARB to determine the 1990 statewide greenhouse gas (GHG) emissions level, to approve a statewide GHG emissions limit equivalent to that level that will be achieved by 2020, and to adopt GHG emissions reductions measures by regulation. ARB is authorized to include the use of market-based mechanisms to comply with the regulations. All monies, except for fines and penalties, collected pursuant to a market-based mechanism are deposited in the Greenhouse Gas Reduction Fund (GGRF) (Government Code §16428.8).

Existing law requires that the GGRF only be used to facilitate the achievement of reductions of GHG emissions consistent with AB 32 (HSC §39710 et seq.). To this end, the Department of Finance, in consultation with the ARB and any other relevant state agencies, is required to develop, as specified, a three-year investment plan for the moneys deposited in the GGRF. The investment plan must allocate a minimum of 25% of the funds to projects that benefit disadvantaged communities and to allocate 10% of the funds to projects located within disadvantaged communities. Additionally, the ARB, in consultation with CalEPA, is required to develop funding guidelines for administering agencies receiving allocations of GGRF funds that include a component for how agencies should maximize benefits to disadvantaged communities.

Methane is a “short-lived climate pollutant” as it has a much shorter lifetime in the atmosphere than CO2, but is 20-30 times more effective than CO2 in trapping heat in the atmosphere over a 100-year period. Methane is the principal component of natural gas and can be produced biologically under uncontrolled anaerobic conditions, such as wetlands and landfills, and controlled anaerobic conditions in digesters. The gases produced in such conditions, known as “biogas” can be processed to produced high purity, or “pipeline quality,” methane. This methane is referred to as “biomethane” to differentiate it from natural gas.

Existing law requires the California Public Utilities Commission (CPUC) to adopt standards that limit the concentrations of constituents that may be found in biomethane to protect human health and pipeline safety (HSC §25421).

Proposed Law:

This bill would require the CEC to develop and implement a grant program to award monies to projects that do the following:

• Produce biomethane.

• Upgrade or expand existing biomethane production facilities.

• Develop collection and purification technology or infrastructure for biomethane.

In awarding the grants, the CEC must consider the highest and best use of local biomethane projects and, the proximity of the biomethane sources with natural gas pipeline injection sites. The CEC must maximize the greenhouse gas emission reductions for each project per each dollar awarded.

The biomethane produced must meet CPUC standards for biomethane.

The grant program may be funded by the GGRF.

Staff Comments:

The CEC estimates that it would need approximately three PYs at an annual cost of $518,000 for each $10 million dollars of grants. These staff would be responsible for public outreach, solicitation design, grant award management, development of regulations, and reporting.

This bill would create cost pressures on the GGRF, or other potential funding sources, to fund biomethane production, collection, and purification. To give a point of reference to the potential cost pressures, the CEC notes that there are approximately 63 projects generating biomethane for electricity or transportation fuel that would be eligible to receive funding in this bill. It takes anywhere from $1 million to $5 million to upgrade biomethane facilities to produce gas that meets the CPUC’s pipeline quality standards. Also, biofuels, which includes biomethane has received $20 million in grants in the last funding cycle of the CEC’s Alternative and Renewable Fuel and Vehicle Technology. This program is often oversubscribed for biofuels. Given this information, staff believes that the cost pressures in this bill are at least in the mid-tens of millions of dollars.

The bill would allow for grants to be awarded for both operational and infrastructure costs associated with biomethane production. While there may be need to offset the operational costs of biomethane production, staff notes that the state will receive more lasting benefits on infrastructure projects. At the very least, the author may wish to consider prioritizing capital costs, though the requirement that the grants be for the highest and best use of local biomethane projects may address the issue of capital vs operational costs.

As a matter of clarification, staff recommends the author specify that the grant program is for the collection of biomethane, not just the production of biomethane, as the production of biomethane only has a GHG benefit if the biomethane is collected and used.

If this grant program is funded by the GGRF, the ARB believes that it would have costs associated with this bill to coordinate with the CEC to minimize overlap of this program with existing programs at the Department of Food and Agriculture and the CalRecycle, to coordinate with expenditure records and program guidelines, and to develop GHG and co-benefit quantification methodologies. The ARB also estimates costs for funding disbursements and accounting. Assuming that the grant program established under this bill will have between $10 and $20 million to distribute, ARB estimates its costs would be $320,000 annually for two positions. Staff notes that it is unclear whether some of these costs are duplicative of costs for workload that would be done by the CEC, especially the one position for processing funding disbursements and accounting. To the extent that ARB has costs associated with this program, these costs are likely to be offset by a reduction in the CEC’s costs.

Staff notes that there are multiple bills being considered by both houses of the Legislature that propose projects that would be eligible to receive GGRF funds. It is unclear how these bills will interact with each other. Staff notes that a discussion on the spending of GGRF is anticipated in August as part of a budget discussion.

Staff notes that the author intends for the grant program to be able to receive funding from the GGRF. A previous version of this bill appropriated $13 million from the GGRF for the grant program created in this bill. That appropriation has been deleted from the bill, but there is still reference that appropriation. Staff recommends that the language be deleted. [On page 3, lines 30-31, delete “appropriated pursuant to Section 39718.5.”]

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2015 - 2016 Regular

Bill No: AB 577

SUBJECT: Biomethane: grant program.

ANALYSIS:

Existing law:

1. Under the California Global Warming Solutions Act (AB 32), requires the Air Resources Board (ARB) to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020 and to adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions.

2. Establishes the Greenhouse Gas Reduction Fund (GGRF) in the State Treasury, requires all moneys, except for fines and penalties, collected pursuant to a market-based mechanism be deposited in the fund and requires the Department of Finance, in consultation with the state board and any other relevant state agency, to develop, as specified, a three-year investment plan for the moneys deposited in the GGRF. (Government Code §16428.8)

3. Prohibits the state from approving allocations for a measure or program using GGRF moneys except after determining that the use of those moneys furthers the regulatory purposes of AB 32, and requires moneys from the GGRF be used to facilitate the achievement of reductions of GHG emissions in California. (Health and Safety Code (HSC) §39712).

4. Authorizes expenditures from the GGRF for investments that reduce GHG emissions through, among other things, clean energy and renewable energy generation and advanced biofuels. (HSC §39712).

5. Requires the Department of Finance, in the investment plan, to allocate at least 25% of available moneys in the GGRF to projects that provide benefits to disadvantaged communities, and at least 10% to projects located within disadvantaged communities. (HSC §39713 )

6. Under the California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007, requires the State Energy Resources Conservation and Development Commission (CEC) to implement the Alternative and Renewable Fuels and Vehicle Technology program to provide funding measures to develop and deploy technologies and alternative and renewable fuels in the marketplace to help attain the state’s climate change policies. (HSC §43865 et seq.)

7. Under the Alternative Fuels Law, requires the CEC, in partnership with the ARB, and in consultation with specified state agencies, to develop and adopt a state plan to increase the use of alternative fuels on or before June 30, 2007. (HSC §38500 et seq.)

8. Requires the Office of Environmental Health Hazard Assessment (OEHHA), in consultation with the ARB, and other specified agencies, to compile a list of constituents of concern that could pose risks to human health and that are found in biogas at concentrations that significantly exceed the concentrations of those constituents in natural gas and requires OEHHA to determine the health protective levels for that list, as specified, and requires the ARB to identify realistic exposure scenarios and the health risks associated with those scenarios, as specified and the acceptable threshold concentrations of those constituents. (HSC §25421)

9. Requires the California Public Utilities Commission (PUC) to adopt standards for biomethane to be injected into a common carrier pipeline that specify constituent concentrations that are reasonably necessary to ensure the protection of human health, giving due deference to the findings by OEHHA, ARB, and other specified agencies. (HSC §25421)

10. Requires the CEC to hold public hearings to identify impediments that limit procurement of biomethane in California, including, but not limited to, impediments to interconnection, and requires CEC to offer solutions to those impediments as part of the integrated energy policy. (PRC §25326)

11. Requires the PUC to adopt policies and programs that promote the in-state production and distribution of biomethane. (PUC §399.24 )

12. Requires the PUC to adopt pipeline access rules that ensure that each gas corporation provides nondiscriminatory open access to its gas pipeline system to any party for the purposes of physically interconnecting with the gas pipeline system and effectuating the delivery of gas. (PUC §784)

13. Requires businesses that generate specified amounts of organic waste to arrange for recycling services for that material. (PRC §42649.81)

This bill:

1. Establishes the Biomethane Production, Collection, and Purification Grant Program, and requires CEC to develop and implement grants for projects that produce biomethane, upgrade or expand existing biomethane production facilities, or develop collection and purification technology or infrastructure for biomethane.

2. Requires biomethane produced from projects funded through the program meet the standards established by PUC for injection into a common carrier pipeline.

3. When awarding grants, requires CEC to consider:

1. The highest and best use of the local biomethane project; and,

2. Location of biomethane sources and their proximity to natural gas pipeline injection sites.

4. Requires CEC to prioritize projects that provide the maximum GHG reductions for each dollar awarded.

5. Specifies that grants may be funded from the GGRF upon appropriation by the Legislature.

Background

1. Cap and trade auction revenue. The ARB has conducted 11 cap-and-trade auctions. The first 10 have generated almost $1.6 billion in proceeds to the state.

Several bills in 2012, and one in 2014, provided legislative direction for the expenditure of auction proceeds including:

• SB 535 (de León, Chapter 830, Statutes of 2012) requires that 25% of auction revenue be used to benefit disadvantaged communities and requires that 10% of auction revenue be invested in disadvantaged communities.

• AB 1532 (J. Pérez, Chapter 807, Statutes of 2012) directs the Department of Finance to develop and periodically update a three-year investment plan that identifies feasible and cost-effective GHG emission reduction investments to be funded with cap-and-trade auction revenues. AB 1532 specifies that GGRF moneys may be allocated to reduce GHG emissions through investments including, but not limited to, development of state-of-the-art systems to move goods and freight, advanced technology vehicles and vehicle infrastructure, advanced biofuels, and low-carbon and efficient public transportation.

• SB 1018 (Budget and Fiscal Review Committee, Chapter 39, Statutes of 2012) created the GGRF, into which all auction revenue is to be deposited. The legislation requires that before departments can spend moneys from the GGRF, they must prepare a record specifying, among other things, how the expenditures will be used, and how the expenditures will further the purposes of AB 32.

• SB 862 (Budget and Fiscal Review Committee, Chapter 36, Statutes of 2014) requires the ARB to develop guidelines on maximizing benefits for agencies administering GGRF funds and guidance for administering agencies on GHG emission reduction reporting and quantification methods.

Legal consideration of cap-and-trade auction revenues. The 2012-13 budget analysis of cap-and-trade auction revenue by the Legislative Analyst’s Office noted that, based on an opinion from the Office of Legislative Counsel, the auction revenues should be considered mitigation fee revenues, and their use requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for their use to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions.

In 2012, the California Chamber of Commerce filed a lawsuit against the ARB claiming that cap-and-trade auction revenues constitute illegal tax revenue. In November 2013, the superior court ruling declined to hold the auction a tax, concluding that it’s more akin to a regulatory fee. The plaintiffs filed an appeal with the 3^rd District Court of Appeal in Sacramento in February of last year.

AB 32 auction revenue investment plan. The first three-year investment plan for cap-and-trade auction proceeds, submitted by Department of Finance, in consultation with the ARB and other state agencies in May of 2013, identified sustainable communities and clean transportation, energy efficiency and clean energy, and natural resources and waste diversion as the three sectors that provide the best opportunities, in that order, for achieving the legislative goals and supporting the purposes of AB 32.

Budget allocations. The 2014-15 Budget allocates $832 million in GGRF revenues to a variety of transportation, energy, and resources programs aimed at reducing GHG emissions. Various agencies are in the process of implementing this funding. SB 862 (Budget and Fiscal Review Committee), the 2014 budget trailer bill, established a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. The legislation appropriates 25% for the state’s high-speed rail project, 20% for affordable housing and sustainable communities grants, 10% to the Transit and Intercity Rail Capital Program, and 5% for low-carbon transit operations. The remaining 40% is available for annual appropriation by the Legislature.

Of that 40% $15 million was appropriated to California Department of Food and Agriculture (CDFA) to fund agricultural energy and operational efficiency programs, with $12 million directed for financial assistance for the installation of dairy digesters, and $3 million to support deployment and use of renewable natural gas, its analogues, and other low-carbon renewable biofuels derived from agricultural waste, for use in the transportation sector.

Department of Resources Recycling and Recovery (CalRecycle) was also awarded $25 million of cap-and-trade auction funds in 2014-15. They have established multiple programs for some of these funds to reduce GHG emissions through providing financial assistance to expand existing capacity or establish new facilities to process California-generated organic waste through composting or anaerobic digestion to produce low-carbon fuel.

The Governor’s 2015-16 Budget proposes increased appropriations of $25 and $60 million, respectively, for the aforementioned CDFA and CalRecycle GGRF programs.

2. Methane and short-lived climate pollutants. Methane (or CH₄) is the principal component of natural gas and is also produced biologically under anaerobic conditions in ruminant animals, landfills and waste handling. Methane is termed a short-lived climate pollutant (SLCP), as it has a much shorter lifetime in the atmosphere than CO₂, but has a much higher global warming potential. According to the US Environmental Protection Agency (US EPA), methane is 20-30 times more effective than CO₂ in trapping heat in the atmosphere over a 100-year period. SCLPs, including methane, are responsible for 30-40% of global warming to date.

3. Methane and Biomethane. Through a series of steps involving the bacterial breakdown of organics, carbon-based material can be converted to methane in oxygen-deprived conditions. This process occurs naturally, and is often uncontrolled in landfills and dairy farms, contributing to significant GHG emissions. However, capturing and utilizing the gas is facilitated through the use of anaerobic digesters, which operate with various temperatures, pH and bacteria types, can break down organic wastes, dramatically speeding up the natural decomposition process, and produce primarily methane, significant quantities of carbon dioxide and trace amounts of other gasses including hydrogen, carbon monoxide, nitrogen, oxygen, and hydrogen sulfide, which, all together, is termed “biogas.” The biogas can be processed further to produce high purity, or “pipeline” quality methane, and is termed biomethane to differentiate it from natural gas. In addition to landfills and dairies, biomethane is generated from digestion processes at wastewater treatment plants.

Methane sources. Atmospheric methane concentrations have been increasing as a result of human activities related to agriculture, fossil fuel extraction and distribution, and waste generation and processing. According to the ARB’s updated scoping plan, the state’s largest anthropogenic methane-producing sources are enteric fermentation (eructation, or belching by animals), manure management, landfills, natural gas transmission, and wastewater treatment.

Methane emissions also come from non-anthropogenic sources such as wetlands, oceans, and forests. Methane gas from oil and gas production and distribution is a growing source of emissions in many countries, including the United States, due to increased exploration and use of natural gas for energy.

Fugitive methane. A growing body of evidence suggests that the US EPA has underestimated methane emissions nationwide, possibly by as much as 50%. Additionally, several recent analyses of atmospheric measurements suggest that actual methane emissions in the state may be 30 to 70% higher than estimated in the ARB’s emission inventory.

SB 605 (Lara, Chapter 523, Statutes of 2014) directs the ARB to develop a comprehensive short-lived climate pollutant strategy by January 1, 2016. In developing the strategy, the ARB is required to complete an inventory of sources and emissions of SLCPs in the state based on available data, identify research needs to address data gaps, and existing and potential new control measures to reduce emissions. In May of this year, the ARB released a short-lived climate pollutant concept paper.

According to the concept paper, methane is the second largest component of GHG emissions in California, and methane emissions are on the rise. The paper notes that California “has taken important steps to reduce methane emissions from all of its major sources, but more needs to be done to more fully control methane emissions, especially from organic waste streams going to landfills and at dairies.” The concept paper identifies the following steps as necessary to significantly reduce methane emissions in the state:

• Minimize fugitive methane emissions from all infrastructure and equipment;

• Effectively eliminate disposal of organic materials at landfills;

• Significantly reduce methane emissions from dairies;

• Maximize resource recovery from wastewater treatment facilities.

The concept paper also notes that, “coordinated research efforts between ARB and the California Energy Commission to refine emission estimates have led to the development of the only subnational methane monitoring network in the world. In addition, researchers at ARB and at NASA’s Jet Propulsion Laboratory are currently collaborating to identify large ‘hot spot’ methane sources in the San Joaquin Valley.”

4. AB 32 and methane. The ARB has broad authority to regulate methane as a GHG under AB 32 and create programs and implement measures to reduce GHGs in the state to achieve the statewide 2020 GHG emissions goal.

The ARB has implemented several programs that target methane emissions, or provide incentives for the use of renewably generated methane.

Mandatory GHG reporting: AB 32 requires the ARB to monitor and verify GHG emissions from electricity production and manufacturing throughout the state, as well as suppliers of fuel (including natural gas) and operators of natural gas pipelines, if the amount of fuel combusted in the state is over 10,000 metric tons of CO₂ equivalents. Fugitive GHG emissions from landfills and emissions from agriculture are exempt from the reporting requirement.

Methane from landfills: Effective June 17, 2010, the ARB approved a regulatory measure as an AB 32 discrete early action measure that requires owners and operators of certain uncontrolled municipal solid waste landfills to install gas collection and control systems, and requires existing and newly installed gas and control systems to operate in an optimal manner.

Cap-and-Trade Program. Pursuant to AB 32, the ARB adopted a cap-and-trade program that places a “cap” on aggregate GHG emissions from large GHG emitters, which are responsible for approximately 85% of the state’s GHG emissions. The cap declines over time, eventually reaching the target emission level in 2020. Large emitters must obtain compliance instruments equal to their emissions in that period. Compliance instruments include allowances and offsets, where allowances are generated by the state in an amount equal to the cap, and offsets result from emissions reductions achieved in an uncapped sector and are quantified and verified using an ARB approved compliance offset protocol. Although GHG emissions, including methane, from landfills and agricultural sources are not covered under the cap, the ARB has adopted offset protocols for five project types including dairy digesters to capture fugitive methane emissions, and an offset protocol for capturing would-be fugitive emissions of methane from coal mines.

Low Carbon Fuel Standard: Pursuant to their authority under AB 32, the ARB adopted the low carbon fuel standard (LCFS) in 2009, which requires transportation fuel suppliers in the state to meet certain average annual carbon limitations. The program ultimately requires a 10% reduction in the carbon intensity of a particular fuel by 2020. The carbon intensity measures the net carbon emissions of the entire life-cycle of the fuel, including carbon emitted during production, refining, and transportation, and conversion of the fuel to useable energy. Fuel suppliers can meet the standard by reducing the carbon intensity of their fuels, or by purchasing credits from other suppliers of other fuels that have carbon intensities below state requirements. Methane created from organic feedstock, or biomethane, already meets the 10% reduction requirement in 2020, the fuel qualifies for credits under the program.

5. Statewide Waste Diversion Goals. CalRecycle is tasked with diverting at least 75% of solid waste statewide by 2020. Currently, organic materials, including green waste, make up one-third of the waste stream (approximately 11 million tons) and food waste continues to be the highest single category of disposal at over 15%. Green materials, such as lumber, cardboard, and leaves and grass comprise over 20%.

CalRecycle is also charged with implementing its Strategic Directive 6.1, which calls for reducing organic waste disposal by 50% by 2020. According to CalRecycle, significant gains in organic waste diversion (through recycling technologies for organic waste including composting and anaerobic digestion) are necessary to meet the 75% goal and to implement Strategic Directive 6.1. Anaerobic digestion, which produces biogas that can be processed to biomethane fuel, is particularly suited to handle food waste.

As previously noted, organic waste that ends up in landfills generates landfill gas, 50% of which is methane, from the anaerobic decomposition of organic materials such as food, paper, wood, and green material.

In order to address the large percentage of organic waste disposed of in landfills, AB 1826 (Chesbro, Chapter 727, Statutes of 2014) requires businesses that generate specified amounts of organic and greenwaste to arrange for recycling services of that waste. In addition to diverting organics to better and higher uses, the bill has the added benefit of reducing GHG emissions from landfills, since even landfills with methane-control technologies can produce significant fugitive methane emissions.

6. Landfill Gas and AB 1900. More than 20 years ago, concern arose regarding the emission of vinyl chloride at a particular Class I hazardous waste landfill, where dangerously high levels of the carcinogen were measured. Because Class II landfills do not accept hazardous waste, the emissions from these landfills were assumed to be free of hazardous chemicals, however, subsequent analysis of Class II landfills biogas detected vinyl chloride and other toxics in non-hazardous waste gas emissions as well, and a 1987 report from the South Coast Air Quality Management District identified vinyl chloride and benzene in 90% of the Class II landfills tested. The study concluded that the presence of the toxins resulted from either illegal dumping, or as an intermediate of microbial digestion of chlorinated chemicals. In response, California adopted strict requirements regarding the allowable levels of vinyl chloride and the required testing protocols for vinyl chloride for the legal sale, supply or transport of landfill gas to a gas corporation in the state. Prior to 2013, the Southern California Gas Company prohibited the use of landfill gas in its natural gas pipelines.

In 2012, the Gas Technology Institute (GTI) released results of analytical tests on 27 landfill gas samples processed using one of three gas clean-up technologies. Based on their results, GTI concluded that landfill gas can be processed to meet typical gas quality standards, or tariffs, to be introduced with natural gas supplies. GTI data indicates that vinyl chloride was undetectable in all samples of post-processed landfill gas.

In an effort to encourage the production and use of biomethane in California, including methane produced from landfill biogas, the Legislature passed AB 1900 (Gatto, Chapter 602, Statutes of 2012), which required PUC to adopt health and safety standards for biomethane for pipeline injection based on recommendations from OEHHA and the ARB.

In response to AB 1900, CPUC opened a rulemaking in February 2013 to create rules for how gas utilities and producers should process biomethane, and how it can be safely injected into utility pipelines. On January 16, 2014, CPUC issued a Decision adopting health and safety standards that limit the amounts of certain constituents determined to be harmful to either human health or pipeline integrity in pipeline injected biomethane. In April of last year, CPUC opened a second phase of their proceeding on biomethane to consider who should bear the costs of complying with the testing, monitoring, reporting, and recordkeeping requirements associated with those health and safety standards. A decision was expected late last year, but has not yet been issued, although CPUC issued a proposed decision that would require ratepayers to subsidize half of the interconnection costs, up to $1.5 million, of any biomethane project built over the next five years, with a program cap of $40 million.

AB 1900 also requires utilities adopt rules allowing non-discriminatory pipeline injection of biomethane and calls for PUC to “adopt policies and programs that promote the in-state production and distribution of biomethane.”

CEC is required by AB 1900 to hold public hearings to identify impediments that limit procurement of biomethane in California and offer solutions as part of the integrated energy policy. CEC is considering this issue as part of their Renewable Portfolio Standard proceeding.

Comments

1. Purpose of Bill. According to the author, “In order to bring these emerging energy sources to the mainstream market, we need to invest in biogas infrastructure and purification technology. Creating this grant program will allow for technology upgrades to biogas facilities and for the construction of new infrastructure which will help companies meet existing biogas safety and purity standards. The grant program will decrease the use of fossil natural gas and increase the use of biomethane. Supporting the development and use of biogas will significantly reduce GHG emissions and achieve the goals outlined by AB 32.”

2. Similar program. As noted in the background, the 2014-15 Budget bill directed $12 million directed to CDFA for the installation of dairy digesters, and $3 million to CDFA’s Division of Measurement Standards to develop solutions to fuel quality and metrological barriers preventing commercial use of biomethane from dairy digesters, which entails establishing fuel sampling and testing procedures, acquiring necessary equipment, and validating test methods. CalRecycle has awarded almost $9 million in grants to expand or enhance anaerobic digestion of organic materials. One of these projects will consist of a high-solids anaerobic codigestion facility that plans to divert more than 110,000 tons of waste annually from state landfills in order to produce biomethane, and plans to directly feed the biomethane into the natural gas grid via a Southern California Gas transmission line adjacent to the property. Excess biomethane will also be provided as a diesel alternative to San Joaquin Valley’s on-road truck market through a public access natural gas fueling station located on the property. The Governor’s 2015-16 Budget proposal increases the appropriations to both CDFA and CalRecycle to continue their programs established in last year’s budget. However, an expenditure plan for the GGRF was not included in the Budget signed in June of this year.

AB 577 creates a grant program to accomplish similar goals of overcoming barriers to the commercial use of biomethane. However, the program created through AB 577 differs somewhat in that it focuses on funding infrastructure for not only the production of biomethane, but the collection and purification of that biomethane in order to meet PUC’s health and safety standards required for injection of biomethane into common-carrier pipelines.

3. Piece by piece. GGRF investments must facilitate the achievement of GHG emissions reductions. However, after that requirement is fulfilled, there are a number of other policy goals that should be considered, including benefits to environmental quality, resource protection, public health and the economy, as well as benefits to disadvantaged communities. And although the fund is growing, it is still a limited source of revenue. In order to create an optimized investment strategy from GGRF moneys, proposals should not be considered in isolation, but be assessed in aggregate to determine what suite of measures best meets the requirements of the fund, uses resources most efficiently, and maximizes policy objectives.

As budget discussions on a cap-and-trade investment strategy have been pushed to later this session, an opportunity exists to have a comprehensive discussion on the universe of GGRF proposals currently in the Legislature, during budget negotiations this summer. If the Legislature feels that the program established through AB 577 is an appropriate expenditure of GGRF moneys, then this measure should also be considered through the budget process for cap-and-trade expenditures, along with all other measures proposing to expend, or authorize for expenditure, GGRF moneys.

Related/Prior Legislation

SB 687 (Allen) of 2015 requires the ARB to establish a renewable gas standard, where natural gas is required to contain a specified percentage of renewable gas, through 2030. SB 687 was held on the Senate Appropriations Committee suspense file.

AB 1496 (Thurmond) of 2015 requires the ARB, with air districts, to undertake monitoring and measuring of high emission hot-spots in the state. AB 1496 is currently in the Senate Appropriations Committee.

SB 605 (Lara, Chapter 523, Statutes of 2014) required the ARB to conduct a short-lived climate pollutant strategy by January 1, 2016.

AB 1900 (Gatto, Chapter 602, Statutes of 2012) directed the CPUC to adopt health and safety standards for biomethane for pipeline injection based on recommendations from OEHHA and the ARB.

DOUBLE REFERRAL:

This measure was heard in Senate Energy, Utilities and Communications Committee on June 30, 2015, and passed out of committee with a vote of 7-0.

SOURCE:

Bioenergy Association of California

SUPPORT:

Anaergia

California Refuse Recycling Council

California Special Districts Association

County Sanitation Districts of Los Angeles County

Clean Energy

CR&R

East Bay Municipal Utility District

Environmental Services Engineering

Harvest Power California, LLC

San Francisco Public Utilities Commission

Solid Waste Association of North American, California Chapters

OPPOSITION:

CalTax

ARGUMENTS IN SUPPORT:

Supporters state that increasing the use of

renewable biomethane will help California meet its GHG reduction, landfill

diversion, fuel diversity, and clean energy goals, as well as provide jobs and air

quality benefits across the state. Supporters argue that while AB 1900 (Gatto)

passed in 2012 with the intention of facilitating and promoting the instate

production and distribution of biomethane, the standards adopted by the CPUC

pursuant to that bill have made it cost-prohibitive to inject biomethane into the

state’s common carrier pipelines, and AB 577 is needed to address that challenge.

-- END --

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2015 - 2016 Regular

Bill No: AB 577 Hearing Date: 6/30/2015

SUBJECT: Biomethane: grant program

DIGEST: This bill establishes a grant program, funded by the Greenhouse Gas Reduction Fund (GGRF), for biomethane projects.

ANALYSIS:

Existing law:

1. Directs the California Air Resource Board (ARB) to monitor and regulate sources of emissions of greenhouse gases (GHG) that cause global warming in order to reduce GHG emissions to 1990 levels by 2020. (Health & Safety Code §38510 et seq.)

2. Establishes the Greenhouse Gas Reduction Fund (GGRF), and requires all moneys collected by the ARB from the auction or sales of allowances, pursuant to a market-based compliance mechanism, be deposited in the GGRF and made available for appropriation by the Legislature. (Government Code §16428.8)

3. Establishes the GGRF Investment Plan and Communities Revitalization Act to set procedures for the investment of regulatory fee revenues derived from the auction of GHG allowances. (Health and Safety Code §§39710 to 39720)

4. Requires the GGRF Investment Plan to allocate: (a) a minimum of 25% of the available moneys in the fund to projects that provide benefits to identified disadvantaged communities, and, (b) a minimum of 10% of those available moneys in the fund to projects located within identified disadvantaged communities. (Health and Safety Code §§39711 to 39723)

5. Requires the California Public Utilities Commission (CPUC) to adopt standards that specify the concentrations of constituents of concern that are found in biomethane, and to adopt monitoring, testing, reporting, and recordkeeping protocols, to ensure the protection of human health and the integrity and safety of pipelines and pipeline facilities. (Health & Safety Code §25421 et seq.)

6. Requires the CPUC to adopt pipeline access rules that ensure that each gas corporation provide nondiscriminatory open access to its gas pipeline system to any party for the purposes of physically interconnecting with the gas pipeline system and effectuating the delivery of gas. (Public Utilities Code §784.)

7. Requires each of California’s three large investor-owned utilities (IOUs) to procure a share of 250 megawatts (MW) of bioenergy from facilities less than 3 MW as follows: (a) 110 MW from biogas from wastewater treatment, municipal organic waste diversion, food processing, and codigestion; 90 MW from dairy and other agricultural bioenergy; and (c) 50 MW from bioenergy using byproducts of sustainable forest management.

8. Requires the California Energy Commission (CEC) to hold public hearings to identify in its Integrated Energy Policy Report impediments that limit procurement of biomethane in California, including, but not limited to, impediments to interconnection, and to offer solutions. (Public Resources Code §25326.)

This bill:

1. Directs CEC to implement a program to award monies, upon appropriation from the GGRF, to projects that (a) produce biomethane, (b) upgrade or expand existing biomethane facilities, or (c) develop collection and purification technology or infrastructure for biomethane.

2. Requires CEC, in making biomethane awards, to consider both (a) opportunities to colocate biomethane producers with vehicle fleets and (b) the location of biomethane sources and their proximity to natural gas pipeline injection sites.

3. Further requires CEC to prioritize biomethane projects to maximize reduction in GHG emissions achieved by a project for each dollar awarded.

Background

What is biomethane? Biomethane is purified biogas, which is the gaseous product of anaerobic digestion and is comprised primarily of methane (50% –70%) and carbon dioxide (30% – 50%).¹ Biomethane is considered a “low-carbon” fuel because its combustion destroys methane, a potent climate-warming gas. In addition, biomethane can be used to displace the use of fossil fuels, such as natural gas, thereby further decreasing its carbon intensity.

Many programs support biomethane production and use. There are many state programs that, directly or indirectly, encourage the use of biomethane. Utilities can meet the RPS through the use of biomethane if produced from qualifying renewable resources. Recently enacted statute (SB 1122, Rubio, Chapter 612, Statutes of 2012) requires IOUs to collectively procure at least 250 MW of generation eligible for the RPS from bioenergy generation projects, including projects that can produce biomethane. The CEC has invested more than $49 million in 13 biomethane feasibility, demonstration and production projects throughout the state. And biomethane can be used to help satisfy the requirements of the ARB’s Low-Carbon Fuel Standard, which requires a reduction of at least 10% in the carbon intensity of California's transportation fuels by 2020.

In addition, efforts are underway that should ease the further development and commercialization of biomethane. The IOUs have been wary of injecting biogas into their natural gas pipelines for fear of introduction of contaminants that could damage the pipelines or harm human health. In response, the Legislature, in 2012, enacted AB 1900 (Gatto, Chapter 602, Statutes of 2012). That bill directs the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system.

The CPUC, pursuant to AB 1900, adopted concentration standard limits for constituents of concern that may be found in biomethane, and monitoring, testing, reporting, and recordkeeping requirements. The CPUC’s standards should enhance the IOUs’ willingness to inject biomethane into their pipelines.

The CPUC is still in the process of completing additional work resulting from enactment of AB 1900. Nonetheless, in keeping with AB 1900’s call to further development of the California biomethane market, the CPUC issued a proposed decision that would require IOU ratepayers to subsidize 50% of the interconnection costs, up to $1.5 million, of any biomethane project built over the next five years, with a program cap of $40 million. The CPUC is also formally contemplating allocating some of the IOUs’ cap-and-trade revenue towards subsidizing biomethane projects, which, presumably, would be in addition to the 50% interconnection subsidy the CPUC has already proposed.

The budget may be better. As described above, there are many programs encouraging the production and use of biomethane, and there is the prospect of the CPUC-proposed interconnection cost subsidy in the offing. Nonetheless, proponents contend that the cost to comply with the CPUC regulations for cleaning and conditioning biomethane prohibits development of the biomethane industry in California. As evidence, proponents report that no new biomethane pipeline injection project has been built since the CPUC adopted the AB 1900 biomethane standards.

As a remedy, the bill directs CEC to implement a program to subsidize the cost of biomethane projects. Yet, this bill appropriates no funds for the new program and, as of yet, the 2015-16 Budget appropriates no funds from the GGRF to for biomethane projects. Such an appropriation, should one occur, will likely result from the budget process. In addition, the Legislature may attach control language to any such appropriation, which would govern uses of the money and its administration. The Legislature has deferred action on appropriations from the GGRF for this budget cycle and will likely take action on such appropriations later this summer. The committee may wish to defer action on this bill in deference to the budget process.

Projects funded from the GGRF must reduce GHGs. This bill seeks to subsidize biomethane projects with monies in the GGRF. The Legislature established the GGRF to govern the investment of regulatory fee revenues derived from the auction of GHG allowances pursuant to the cap-and-trade program adopted by ARB under the California Global Warming Solutions Act of 2006 (AB 32 Nuñez/ Pavley, Chapter 488, Statutes of 2006). In doing so, the Legislature established parameters for uses of money in the fund, paramount among them that it be used to facilitate the reduction of GHGs in California. The program established by the bill must reduce GHGs to be in compliance with the law. Appropriately, this bill requires CEC to maximize the reduction of GHG emissions achieved by a project for each dollar awarded. Presumably, CEC will implement the program to ensure its estimation of the GHG emissions achieved by each project is determined on a net basis, considering the life cycle of each project’s biomethane production.

The bill additionally directs CEC, in granting biomethane awards, to consider opportunities to colocate biomethane producers with vehicle fleets to generate biomethane and convert it to transportation fuel in the same location. The specificity of this consideration seems inconsistent with the bill’s other, general direction to CEC – that it maximize the reduction of GHG emissions achieved by a project for each dollar awarded. The author and committee may wish to amend the bill to make this consideration more general, as follows:

Public Resources Code Section 5680.

1. (1) The commission shall develop and implement a grant program to award moneys appropriated pursuant to Section 39718.5 of the Health and Safety Code for projects that do any of the following:

(A) Produce biomethane.

(B) Upgrade or expand existing biomethane production facilities.

(C) Develop collection and purification technology or infrastructure for biomethane.

(2) Biomethane produced from those projects shall meet the requirements established pursuant to Section 25421 of the Health and Safety Code.

(b) In granting an award, the commission shall consider both of the following:

(1) Opportunities to colocate biomethane producers with vehicle fleets to generate biomethane and convert it to transportation fuel in the same location. The highest and best use of the local biomethane project.

(2) Location of biomethane sources and their proximity to natural gas pipeline injection sites.

(c) In prioritizing projects eligible for grants pursuant to this section, the commission shall maximize the reduction of greenhouse gas emissions achieved by a project for each dollar awarded.

(d) Grants awarded pursuant to this section may be funded, upon appropriation by the Legislature, from the Greenhouse Gas Reduction Fund established pursuant to Section 16428.8 of the Government Code.

Double Referral. Should this bill be approved by this committee, it will be re-referred to the Senate Committee on Environmental Quality for its consideration.

Prior/Related Legislation

AB 590 (Dahle, 2015) authorizes a program to subsidize the generation of electricity at existing in-state biomass facilities three megawatts and larger. The program would be funded from the GGRF, upon appropriation. The bill is currently under consideration by this committee.

SB 360 (Cannella, 2015) authorizes the CPUC to consider providing the option to all gas corporations to engage in competitive bidding and direct investment in ratepayer financed biomethane collection equipment in California. The bill is waiting to be considered in this committee.

AB 1900 (Gatto, Chapter 602, Statutes of 2012) directed the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system.

AB 2196 (Chesbro, Chapter 605, Statutes of 2012) ensured that biogas qualifies for RPS credit, provided its production, delivery and use meet certain conditions.

SB 1122 (Rubio, Chapter 612, Statutes of 2012) required IOUs to collectively procure at least 250 MW of generation eligible for the RPS from small bioenergy generation project, including biogas projects.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

ASSEMBLY VOTES:

Assembly Floor (77-1)

Assembly Appropriations Committee (17-0)

Assembly Natural Resources Committee (9-0)

SUPPORT:

Bioenergy Association of California (source)

CR&R Waste Services

California Association of Sanitation Agencies

California Chapters of the Solid Waste Association of North America

California Refuse Recycling Council

California Special Districts Association

Clean Energy

Coalition for Renewable Natural Gas

ES Engineering, Inc.

East Bay Municipal Utility District

Harvest Power California, LLC

Sanitation Districts of Los Angeles County

Southern California Gas Company

The Coalition for Renewable Natural Gas

Western Placer Waste Management Authority

OPPOSITION:

California Taxpayers Association

ARGUMENTS IN SUPPORT: Supporters contend the state should subsidize the biomethane projects to ensure development of the industry in state so that Californians can realize the resultant environmental and economic benefits.

ARGUMENTS IN OPPOSITION: Opponents question the legality of collection of cap-and-trade regulatory fees and, therefore, oppose the creation of programs to disperse revenues derived from those fees.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 577

Author:(Bonilla)

As Amended Ver:May 28, 2015

Majority vote

SUMMARY: Establishes the Biomethane Collection and Purification Grant Program (Program). Specifically, this bill:

1. Establishes the Program and requires the California Energy Commission (CEC) to develop and implement grants for projects that build or develop collection and purification technology, infrastructure, and projects that upgrade existing biomethane facilities to meet the state's biomethane standards.

2. When awarding grants, requires CEC to consider:

   1. Opportunities to collocate biomethane producers with vehicle fleets to generate biomethane and convert it to transportation fuel at the same location; and,

   2. Location of biomethane sources and their proximity to natural gas pipeline injection sites.

3. Requires CEC to prioritize projects that provide the maximum greenhouse gas (GHG) reductions for each dollar awarded.

4. Specifies that grants may be funded from the Greenhouse Gas Reduction Fund (GGRF) upon appropriation by the Legislature.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill has

1. Unknown cost pressures to the GGRF to fund the Program.

2. Unknown increased administrative costs for CEC to develop and implement the Program.

COMMENTS: The anaerobic digestion of biodegradable organic matter produces biogas, which consists of methane, carbon dioxide, and other trace amounts of gases. Depending on where it is produced, biogas can be categorized as landfill gas or digester gas. Landfill gas is produced by decomposition of organic waste in a municipal solid waste landfill. Digester gas is typically produced from livestock manure, sewage treatment or food waste. According to a CEC estimate, 358 megawatts (MW) is potentially available from new landfill gas development. Of these landfills, some are small and are therefore unlikely to be developed for gas by 2020.

Biogas can also be used in place of gasoline or diesel for transportation. According to a November 2014 report by the Bioenergy Association of California, California could generate as much as 10% of its total gas consumption (2,415 gasoline gallon equivalents) from organic waste, or the equivalent of 7,000 MW of renewable power. Biogas has significant GHG emissions reduction potential; a recent report by the International Panel on Climate Change states that methane has 34 times the heat-trapping effects of carbon dioxide over a 100-year period. Biogas produced from the anaerobic digestion of organic waste (i.e., food and green waste) has a negative carbon intensity (-15), wastewater treatment biogas has a carbon intensity of 7.89, dairy digester biogas has a carbon intensity of 13.45, and landfill biogas has a carbon intensity between 11.26 and 15.56. For comparison, the carbon intensity of gasoline is 99.18, and diesel is 98.3. Other environmental benefits of biogas include locally sourced renewable energy, improved air and water quality and other ecosystem benefits, waste reduction, as well as reducing California’s dependence on fossil fuels and vulnerability to wildfire (for forestry biomass).

Current bioenergy production in California includes 33 biomass plants that generate a combined 600 MW of electricity (nearly 2% of California’s total electricity supply); 11 dairy digesters that produce electricity, combined heat and power, and biogas; 500 MW of electricity is generated at biogas facilities at wastewater treatment plants and landfills; and, 50 million to 100 million gasoline gallon equivalent produced at in-state ethanol and biodiesel facilities.

The CEC's Bioenergy Action Plan states:

Despite its many benefits, bioenergy production uses only 15% of California’s available biomass waste, and production is decreasing. Regulatory and financial incentives for renewable power do not adequately monetize the many benefits of bioenergy, and regulatory barriers compound these challenges. Some incentives for bioenergy have been inconsistent or discontinued while others have failed to account for the additional costs and benefits of biomass. Environmental, waste disposal, public health, and pipeline safety regulations often complicate bioenergy permitting and development and sometimes contradict each other. Access to transmission lines, pipelines and other distribution networks also pose significant challenges to bioenergy development.

Some of these challenges require additional research and demonstration to ensure that bioenergy production is environmentally and economically sustainable. Other barriers require regulatory changes, including permit streamlining and consolidation, utility procurement requirements, financial incentives that reflect the many benefits of bioenergy, and other changes.

The Plan identifies several recommended actions, including "facilitate access to transmission, pipelines, and other distribution networks." This bill would provide funding that could be used to achieve this recommended action.

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0000824

Date of Hearing: May 13, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 577

Author:(Bonilla) – As Amended Ver:May 5, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes the Biomethane Collection and Purification Grant Program (Program) at the California Energy Commission (CEC) and allocates $13 million, upon appropriation by the Legislature, from cap and trade revenues to fund the program. Specifically, this bill:

1. Allocates $13 million from the Greenhouse Gas Reduction Fund (GGRF) upon appropriation by the Legislature, to CEC to award grants pursuant to the Program.

2. Establishes the Program and requires CEC to develop and implement grants for projects that build or develop collection and purification technology, infrastructure, and projects that upgrade existing biomethane facilities to meet the state's biomethane standards.

3. When awarding grants, requires CEC to consider:

   1. Opportunities to co-locate biomethane producers with vehicle fleets to generate biomethane for conversion to transportation fuel.

   2. The location of biomethane sources and their proximity to natural gas pipeline injection sites.

4. Requires CEC to prioritize projects that provide the maximum greenhouse gas (GHG) reductions

FISCAL EFFECT:

1. Cost pressures of up to $13 million (GGRF) to fund the Program.

2. Unknown increased administrative costs for CEC to develop and implement the Program.

COMMENTS:

1. Purpose. According to the author, the biogas market in California has not been developed because the collection and purification can be incredibly costly. For example, meeting the pipeline purification standards for biogas in California can add 40% or more to total project costs. This bill seeks to promote the development and commercialization of biogas in California by providing incentives for purification technology, infrastructure, and projects to upgrade existing facilities to meet the state's standards.

2. Background. The anaerobic digestion of biodegradable organic matter produces biogas, consisting of methane, carbon dioxide, and other trace amounts of gases. Depending on where it is produced, biogas can be categorized as landfill gas or digester gas.

Landfill gas is produced by decomposition of organic waste in a municipal solid waste landfill. Digester gas is typically produced from livestock manure, sewage treatment or food waste. According to a CEC estimate, 358 megawatts (MW) is potentially available from new landfill gas development. Of these landfills, some are small and are therefore unlikely to be developed for gas by 2020.

Biogas can also be used in place of gasoline or diesel for transportation. According to a November 2014 report by the Bioenergy Association of California, California could generate as much as 10% of its total gas consumption (2,415 gasoline gallon equivalents) from organic waste, or the equivalent of 7,000 megawatts of renewable power.

Current bioenergy production in California includes 33 biomass plants that generate a combined 600 megawatts of electricity (nearly 2 percent of California’s total electricity supply); 11 dairy digesters that produce electricity, combined heat and power, and biogas; 500 megawatts of electricity is generated at biogas facilities at wastewater treatment plants and landfills; and, 50 to 100 million gasoline gallon equivalent are produced at in-state ethanol and biodiesel facilities.

According to the CEC, despite its many benefits, bioenergy production uses only 15% of California's available biomass waste, and production is decreasing. The CEC's Bioenergy Action Plan identifies the following recommended actions:

1. Increase research and development of diverse bioenergy technologies and applications, as well as their costs, benefits, and impacts.

2. Continue to develop and make accessible information about the availability of organic wastes and opportunities for bioenergy development.

3. Streamline and consolidate permitting of bioenergy facilities and reconcile conflicting regulatory requirements to the extent possible.

4. Assess and monetize the economic, energy, safety, environmental, and other benefits of biomass.

5. Facilitate access to transmission, pipelines, and other distribution networks.

This bill provides funding to achieve the recommended actions of facilitating access to transmission, pipelines, and other distribution networks.

3. AB 32 Cap and Trade Revenues. The California Global Warming Solutions Act of 2006 (AB 32) requires ARB to adopt a statewide GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations, including market-based compliance mechanisms, to achieve maximum technologically feasible and cost-effective GHG emission reductions.
   
   

As part of the implementation of AB 32 market-based compliance measures, ARB adopted a cap and trade program that caps the allowable statewide emissions and provides for the auctioning of emission credits, the proceeds of which are quarterly deposited into the GGRF available for appropriation by the Legislature.

The 2014-15 Budget Act allocates cap and trade revenues for the 2014-15 fiscal year and establishes a long-term plan for the allocation of cap-and-trade revenues beginning in fiscal year 2015-16.

The Budget continuously appropriates 35% of cap-and-trade funds for investments in transit, affordable housing, and sustainable communities. Twenty-five percent of the revenues are continuously appropriated to continue the construction of high-speed rail. The remaining 40% will be appropriated annually by the Legislature for investments in programs that include low-carbon transportation, energy efficiency and renewable energy, and natural resources and waste diversion.

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: April 27, 2015

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Das Williams, Chair

ABPCA Bill Id:AB 577

Author:(Bonilla) – As Amended Ver:April 6, 2015

SUBJECT: Biomethane: grant program

SUMMARY: Establishes the Biomethane Collection and Purification Grant Program (Program) and allocates an unspecified portion of the Greenhouse Gas Reduction Fund (GGRF) for the Program.

EXISTING LAW:

1. Requires the Air Resources Board (ARB), pursuant to California Global Warming Solutions Act of 2006 [AB 32 (Nunez), Chapter 488, Statutes of 2006], to adopt a statewide greenhouse gas GHG emissions limit equivalent to 1990 levels by 2020 and adopt regulations to achieve maximum technologically feasible and cost-effective greenhouse gas (GHG) emission reductions. AB 32 authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations, once specified conditions are met.
   
   

2. Establishes the GGRF and requires all moneys, except for fines and penalties, collected by ARB from the auction or sale of allowances pursuant to a market-based compliance mechanism (i.e., the cap-and-trade program adopted by ARB under AB 32) to be deposited in the GGRF and available for appropriation by the Legislature.

3. Establishes the GGRF Investment Plan and Communities Revitalization Act to set procedures for the investment of GHG allowance auction revenues. Authorizes a range of GHG reduction investments and establishes several additional policy objectives.

4. Requires the investment plan to allocate a minimum of 25% of the available moneys in the GGRF to projects that provide benefits to disadvantaged communities and a minimum of 10% of the available moneys in the GGRF to projects located within identified disadvantaged communities.
   
   

5. The Renewables Portfolio Standard (RPS) requires investor-owned utilities (IOUs), publicly owned utilities (POUs) and certain other retail sellers of electricity, in order to fulfill unmet long-term resource needs, to procure eligible renewable energy resources to meet the following portfolio targets:
   
   

   1. 20% on average from January 1, 2011 to December 31, 2013.
      
      

   2. 25% by December 31, 2016.

3. 33% on and after December 31, 2020.
   
   

1. Provides that eligible renewable generation facilities must "use" biomass, solar thermal, photovoltaic, wind, geothermal, renewable fuel cells, small hydroelectric, digester gas, limited non-combustion municipal solid waste conversion, landfill gas, ocean wave, ocean thermal or tidal current.
   
   

2. Defines "biogas" as gas that is produced from the anaerobic decomposition of organic material.
   
   

3. Defines "biomethane" as biogas that meets standards adopted by the California Energy Commission (CEC) for constituents found in biomethane to reasonably ensure the protection of human health and pipeline integrity and safety. Requires CEC to update the standards at least every five years.
   
   

4. Prohibits the injection of biogas into a common carrier pipeline unless the biogas meets the state standards and prohibits the sale, supply, or transport of biogas collected from a hazardous waste landfill.
   
   

5. Requires all generators of significant quantities of organic waste to arrange for recycling of that material and requires local governments to develop and implement organic waste recycling plans.
   
   

6. Establishes a statewide recycling goal of 75% by 2020.

THIS BILL:

1. Requires ARB to allocate an unspecified percentage of monies from the GGRF, upon appropriation by the Legislature, to CEC to award grants pursuant to the Program.

2. Establishes the Program and requires CEC to develop and implement grants for projects that build or develop collection and purification technology, infrastructure, and projects that upgrade existing biomethane facilities to meet the state's biomethane standards.

3. When awarding grants, requires CEC to consider:

   1. Opportunities to collocate biomethane producers with vehicle fleets to generate biomethane and convert it to transportation fuel at the same location; and,

   2. Location of biomethane sources and their proximity to natural gas pipeline injection sites.

4. Requires CEC to prioritize projects that provide the maximum GHG reductions for each dollar awarded.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author's statement:

AB 577 seeks to promote the development of biogas in California. Biogas, gas that is generated from organic waste, provides a more sustainable and cleaner alternative to natural gas. If 10% of California's natural gas use is replaced with biogas, GHG emissions would be reduced by tens of millions of metric tons. The biogas market in California has not been developed because the collection and purification can be incredibly costly. For example, meeting the pipeline purification standards for biogas in California can add 40% or more to total project costs. The natural gas sector is under the cap as of January 2015 and proceeds from their purchase of carbon credits are expected to exceed at least $1 billion (emphasis in original). Investing a portion of that money into the development of biogas will collect emissions that would have been released otherwise and simultaneously reduce demand for natural gas and petroleum.

AB 577 does not pick a technology, but allows for different uses of biogas to be selected at each site to account for varying factors, including proximity to existing natural gas pipelines. AB 577 creates a smart and fair approach. This bill will significantly reduce GHG emissions, promote biogas development in a sustainable manner, and reduce the barriers identified in the California Energy Commission's Bioenergy Action Plan.

2. Biogas. The anaerobic digestion of biodegradable organic matter produces biogas, which consists of methane, carbon dioxide, and other trace amounts of gases. Depending on where it is produced, biogas can be categorized as landfill gas or digester gas. Landfill gas is produced by decomposition of organic waste in a municipal solid waste landfill. Digester gas is typically produced from livestock manure, sewage treatment or food waste. According to a CEC estimate, 358 megawatts (MW) is potentially available from new landfill gas development. Of these landfills, some are small and are therefore unlikely to be developed for gas by 2020.

Biogas can also be used in place of gasoline or diesel for transportation. According to a November 2014 report by the Bioenergy Association of California, California could generate as much as 10% of its total gas consumption (2,415 gasoline gallon equivalents) from organic waste, or the equivalent of 7,000 megawatts of renewable power.

Biogas has significant GHG emissions reduction potential; a recent report by the International Panel on Climate Change states that methane has 34 times the heat-trapping effects of carbon dioxide over a 100 year period. Biogas produced from the anaerobic digestion of organic waste (i.e., food and green waste) has a negative carbon intensity (-15), wastewater treatment biogas has a carbon intensity of 7.89, dairy digester biogas has a carbon intensity of 13.45, and landfill biogas has a carbon intensity between 11.26 and 15.56. For comparison, the carbon intensity of gasoline is 99.18, and diesel is 98.3. Other environmental benefits of biogas include locally sourced renewable energy, improved air and water quality and other ecosystem benefits, waste reduction, as well as reducing California’s dependence on fossil fuels and vulnerability to wildfire (for forestry biomass).

Current bioenergy production in California includes 33 biomass plants that generate a combined 600 megawatts of electricity (nearly 2 percent of California’s total electricity supply); 11 dairy digesters that produce electricity, combined heat and power, and biogas; 500 megawatts of electricity is generated at biogas facilities at wastewater treatment plants and landfills; and, 50 to 100 million gasoline gallon equivalent produced at in-state ethanol and biodiesel facilities.

The CEC's Bioenergy Action Plan states:

Despite its many benefits, bioenergy production uses only 15% of California’s available biomass waste, and production is decreasing. Regulatory and financial incentives for renewable power do not adequately monetize the many benefits of bioenergy, and regulatory barriers compound these challenges. Some incentives for bioenergy have been inconsistent or discontinued while others have failed to account for the additional costs and benefits of biomass. Environmental, waste disposal, public health, and pipeline safety regulations often complicate bioenergy permitting and development and sometimes contradict each other. Access to transmission lines, pipelines and other distribution networks also pose significant challenges to bioenergy development.

Some of these challenges require additional research and demonstration to ensure that bioenergy production is environmentally and economically sustainable. Other barriers require regulatory changes, including permit streamlining and consolidation, utility procurement requirements, financial incentives that reflect the many benefits of bioenergy, and other changes.

The Plan identifies the following "recommended actions:"

1. Increase research and development of diverse bioenergy technologies and applications, as well as their costs, benefits, and impacts.

2. Continue to develop and make accessible information about the availability of organic wastes and opportunities for bioenergy development.

3. Streamline and consolidate permitting of bioenergy facilities and reconcile conflicting regulatory requirements to the extent possible.

4. Assess and monetize the economic, energy, safety, environmental, and other benefits of biomass.

5. Facilitate access to transmission, pipelines, and other distribution networks.

This bill would provide funding that could be used to achieve the recommended action of facilitating access to transmission, pipelines, and other distribution networks.

2. Previous legislation.
   
   

   1. AB 1900 (Gatto), Chapter 602, Statutes of 2012 clarified the requirements with respect to injecting biomethane into common carrier pipelines.
      
      

   2. AB 2196 (Chesbro), Chapter 605, Statutes of 2012 clarified the standards for RPS eligibility for biomethane injected into a common carrier pipeline.

1. Suggested amendments.
   
   

   1. This bill currently directs an unspecified percentage of the GGRF to fund the grants established by the bill. The author has proposed amending the bill to allocate $100 million for this purpose. The committee may wish to accept the author's amendment and replace the unspecified percentage with $13 million.
      
      

   2. This bill requires that the funds be appropriated to ARB to allocate to CEC for purposes of the bill. The committee may wish to amend the bill to appropriate the funds to CEC directly.

REGISTERED SUPPORT / OPPOSITION:

Support

Bioenergy Association of California

CR&R Incorporated

California Association of Sanitation Agencies

Clean Energy and Clean Energy Renewable Fuels

East Bay Municipal Utility District

Los Angeles County Integrated Waste Management Task Force

Sanitation Districts of Los Angeles County

Opposition

CalChamber

Cal Tax

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. / (916) 319-2092