CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1583

Author:(Eggman)

As Amended Ver:September 6, 2019

Majority vote

SUMMARY:

This bill establishes the California Recycling Market Development Act. This bill extends the sunset for the Recycling Market Development Zone Program and the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) advanced manufacturing program by five years, to 2026.

The Senate Amendments:

Change the sunset for CAEATFA's Sales and Use Tax Exclusion Program from 2031 to 2026, and incorporate chaptering out amendments.

COMMENTS:

AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016, required the California Air Resources Board (ARB) to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 both from the 2014 level.

The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.

In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013 to increase inspections of imported bales of recyclables and return bales that did not meet requirements, at the exporters' expense. In 2017, China established Operation National Sword, to include additional inspections and a filing with the World Trade Organization (WTO) indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate (PET), polyethylene (PE), polyvinyl chloride (PVC) and polystyrene (PS), beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination.

The National Sword policy creates serious challenges for recyclers. However, this challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which provides economic and environmental benefits.

Following China's actions, other Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Last month, India announced it will ban scrap plastic imports. Thailand announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers.

This challenge provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure and to provide jobs and economic and environmental benefits.

According to the Author:

In 2016, the Legislature enacted SB 1383 (Lara), which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. The need for such a significant investment has been exacerbated by China's new recycling policy, 'National Sword.'

Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills posing serious fire risks and increasing emissions. While some have argued that this means that we should give up on recycling or start burning our trash, AB 1583 seizes the opportunity to reinvest in California recycling.

AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the [CAEATFA] program. The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the "chasing arrows" on all plastic products, whether or not they are recyclable.

Arguments in Support:

Supporters of this bill state that AB 1583 takes a comprehensive approach by reauthorizing two of the state's most successful recycling market development programs. Additionally, the legislation eliminates a confusing legislative mandate to include the "chasing arrows"/"recycling symbol" on all plastic products, whether or not they are recyclable. Finally, AB 1583 establishes a Statewide Commission on Recycling Markets and Curbside Recycling comprised of local governments and private sector recyclers to identify uniform product redesign suggestions in order to provide clear guidance for manufacturers to produce products that can actually be recycled.

Arguments in Opposition:

None

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. CalRecycle estimates a need for 2.75 positions at an estimated cost of $390,000 for the first year and $384,000 ongoing (Integrated Waste Management Account), to implement the taskforce and other provisions of AB 1583.
2. Unknown cost pressure to provide financing incentives through the recycling market development programs.
3. The Legislative Analyst's Office (LAO) estimates that the annual General Fund revenue loss resulting from this bill would likely be under $10 million per year. CAEAFTA administrative costs would continue to be paid by user fees.
4. Additionally, per the California Constitution, this bill would result in a General Fund backfill to the 2011 Local Realignment Fund. Based on the LAO's revenue estimate, the amount of the backfill could reach $2 million annually.

VOTES:

ASM NATURAL RESOURCES: 11-0-0

YES: Friedman, Flora, Chau, Eggman, Cristina Garcia, Limón, Mathis, McCarty, Melendez, Muratsuchi, Mark Stone

ASM APPROPRIATIONS: 13-0-5

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Brough, Diep, Fong, Obernolte

ASSEMBLY FLOOR: 78-0-2

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie‑Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia

SENATE FLOOR: 40-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

UPDATED:

VERSION: September 6, 2019

CONSULTANT: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0002378

 THIRD READING  

Bill No: AB 1583

Author: Eggman (D), et al.

Amended: 9/6/19 in Senate

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 7/3/19

AYES: Allen, Bates, Dahle, Hill, Skinner, Stern, Wieckowski

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/10/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 78-0, 5/29/19 - See last page for vote

SUBJECT: The California Recycling Market Development Act

SOURCE: Californians Against Waste

Republic Services

DIGEST:

This bill establishes the California Recycling Market Development Act. This bill extends the sunset for the Recycling Market Development Zone Program and the California Alternative Energy and Advanced Transportation Financing Authority advanced manufacturing program by five years, to 2026.

Senate Floor Amendments of 9/6/19 change the sunset for the California Alternative Energy and Advanced Transportation Financing Authority’s Sales and Use Tax Exclusion Program from 2031 to 2026, and incorporate changes from another bill that would only be operative if that bill is also enacted.

ANALYSIS:

Existing law:

1. Establishes a state recycling goal of 75% of solid waste generated be diverted from landfill disposal by 2020 through source reduction, recycling, and composting (Public Resources Code (PRC) § 41780.01).
2. Requires that all rigid plastic bottles and rigid plastic containers sold in California be labeled with the resin code inside a triangle formed by three “chasing arrows” (PRC §18015). The resin codes are:
   1. 1 for polyethylene terephthalate (PET);
   2. 2 for high density polyethylene (HDPE);
   3. 3 for vinyl (V);
   4. 4 for low density polyethylene (LDPE);
   5. 5 for polypropylene (PP);
   6. 6 for polystyrene (PS); and,
   7. 7 for all other types of resins, including multilayer.
3. Establishes the Recycling Market Development Revolving Loan Program, administered by the Department of Resources Recycling and Recovery (CalRecycle), to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing. Facilities must be located within a CalRecycle designated Recycled Market Development Zone (RMDZ) and use postconsumer or secondary recovered waste feedstock generated in California. Sunsets these provisions July 1, 2021 (PRC §§42010, et. seq.).
4. Establishes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) in the Office of State Treasurer, which provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves, and a state and local sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing (PRC §§26000, et. seq.).
5. Directs CAEATFA to administer a state and local sales and use tax exemption for renewable technology projects, including tangible personal property where at least 50% of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, subject to an application and evaluation process, and board approval, and to administer a similar state and local sales and use tax for advanced manufacturing. Sunsets these provisions on January 1, 2021 (PRC §26011.8).
6. Allows CAEATFA to allocate exemptions to successful applicants for programs up to $100 million annually; however, CAEATFA must evaluate all applicants to determine whether the net environmental and economic benefits received by the state will outweigh forgone sales and use tax revenue, and can only allocate exemptions to projects that demonstrate such a benefit (PRC §26011.8(h), (i)).

This bill:

1. States that it shall be known as the California Recycling Market Development Act.
2. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
3. Extends the sunset on CAEATFA financial assistance given to projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock, in the form of a sales and use tax exclusion to January 1, 2026.
4. Extends the sunset on the CalRecycle’s RMDZ Loan Program, which encourages California-based recycling businesses located within California by financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing, to January 1, 2031.
5. Requires CalRecycle, by July 1, 2020, to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling. By January 1, 2021, requires the Commission to:
   1. Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
   2. Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
6. Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling and to minimize contamination in curbside recycling programs.

Background

1. Solid waste in California. For three decades, CalRecycle has been tasked with reducing disposal of municipal solid waste and promoting recycling in California through the Integrated Waste Management Authority (IWMA). Under IWMA, the state has established a statewide 75 percent source reduction, recycling, and composting goal by 2020 and over the years the Legislature has enacted various laws relating to increasing the amount of waste that is diverted from landfills. According to CalRecycle’s State of Disposal and Recycling in California 2017 Update, 42.7 million tons of material were disposed of into landfills in 2016.

An estimated 35 million tons of waste are disposed of in California’s landfills annually, of which 32% is compostable organic materials, 29% is construction and demolition debris, and 17% is paper. Local governments have been required to divert 50% of the waste generated within the jurisdiction from landfill disposal since 2000. AB 341 (Chesbro, Chapter 476, Statutes of 2011) required commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. A follow up bill, AB 1826 (Chesbro, Chapter 727, Statutes of 2014) required generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara, Chapter 395, Statutes of 2016) required the Air Resources Board to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level.

1. Recycling Market Development Zone Program. The RMDZ program was established by SB 1322 (Bergeson, Chapter 1096, Statutes of 1989) to further the establishment of local and regional markets for the increased materials being collected by local jurisdictions. RMDZ program combines recycling with economic development to fuel new businesses, expand existing ones, create jobs, and divert waste from landfills. The program provides a combination of technical and financial incentives and resources to attract and retain recycling manufacturers that are located within a designated zone. Cumulatively, the zones cover roughly 88,000 square miles of California, from the Oregon border to San Diego.
2. CAEATFA. Housed in the Office of the State Treasurer, the CAEATFA provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves and a sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing. CAEATFA’s sales and use tax exemption also applies to tangible personal property where at least 50% of its use is to process recycled feedstock that is intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment.

Comments

1. Purpose of bill. According to the author, “In 2016, the Legislature enacted SB 1383 (Lara), which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. The need for such a significant investment has been exacerbated by China’s new recycling policy, ‘National Sword.’

“Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills posing serious fire risks and increasing emissions. While some have argued that this means that we should give up on recycling or start burning our trash, AB 1583 seizes the opportunity to reinvest in California recycling.

“AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing]. The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.”

1. Market challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.

In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013, under which it increased inspections of imported bales of recyclables and returned bales that did not meet specified requirements at the exporters' expense. In 2017, China established Operation National Sword, which included additional inspections of imported recycled materials and a filing with the World Trade Organization indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate, polyethylene, polyvinyl chloride, and polystyrene beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination. Some market experts are hopeful that cleaner plastic materials, including those included in the ban, may be allowed in the future.

Following China’s actions, other Southeast Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Earlier this year, India announced that it will ban scrap plastic imports. Thailand has announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers. Recycling requires markets to create new products and close the loop. This challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which has been shown to provide jobs, economic, and environmental benefits.

In addition to the RMDZ program, CalRecycle had indicated that it intends to continue to build and support recycling markets and infrastructure within California to reduce the state's need to export recycled material. CalRecycle’s Greenhouse Gas Reduction Grant and Loan Program, funded by the Greenhouse Gas Reduction Fund, provides financial incentives for capital investments in infrastructure for composting, anaerobic digestion, and recycling and manufacturing facilities that reduce greenhouse gas emissions. Additionally, CalRecycle continues to pursue options to reduce waste and increase the recyclability of packaging through its packaging reform process and to reduce the contamination levels in all recycling streams.

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

According to the Senate Appropriations Committee:

• CalRecycle estimates a need for 2.75 positions at an estimated cost of $390,000 for the first year and $384,000 ongoing (Integrated Waste Management Account), to implement the taskforce and other provisions of AB 1583.
• Unknown cost pressure to provide financing incentives through the recycling market development programs.
• The Legislative Analyst’s Office (LAO) estimates that the annual General Fund revenue loss resulting from this bill would likely be under $10 million per year. CAEAFTA administrative costs would continue to be paid by user fees.
• Additionally, per the California Constitution, this bill would result in a General Fund backfill to the 2011 Local Realignment Fund. Based on the LAO’s revenue estimate, the amount of the backfill could reach $2 million annually.

SUPPORT: (Verified 9/6/19)

Californians Against Waste (co-source)

Republic Services (co-source)

California State Treasurer, Fiona Ma

Amro Fabricating Corporation

Bioenergy Association of California

California Incentives Group

California League of Conservation Voters

California Manufacturers & Technology Association

California Refuse Recycling Council, Northern District

California State Associations of Counties

CalPlant I, LLC

City of Huntington Beach

Coalition of Renewable Natural Gas

Heal the Bay

Los Angeles Alliance for a New Economy

Lutheran Office of Public Policy – California

Mojave Desert and Mountain Recycling Authority

Northern California Recycling Association

Peninsula Plastics Recycling, Inc.

Plastic Pollution Coalition

Plastics Industry Association

QuantumScape Corporation

Roots of Change

Rural County Representatives of California

Sanitation Districts of Los Angeles County

Save Our Shores

Seventh Generation Advisors

Sierra Club California

Space Exploration Technologies Corp.

StopWaste

Surfrider Foundation

The 5 Gyres Institute

The Center for Oceanic Awareness, Research, and Education

The Story of Stuff Project

Trust for Public Land

Vivotein, LLC

Wishtoyo Chumash Foundation

Zero Waste USA

OPPOSITION: (Verified 9/6/19)

League of California Cities

ASSEMBLY FLOOR: 78-0, 5/29/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia

Prepared by: Genevieve M. Wong / E.Q. / (916) 651-4108

9/9/19 18:42:44

**** END ****

 THIRD READING  

Bill No: AB 1583

Author: Eggman (D), et al.

Amended: 5/20/19 in Assembly

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 7/3/19

AYES: Allen, Bates, Dahle, Hill, Skinner, Stern, Wieckowski

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/10/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 78-0, 5/29/19 - See last page for vote

SUBJECT: The California Recycling Market Development Act

SOURCE: Californians Against Waste

Republic Services

DIGEST:

This bill establishes the California Recycling Market Development Act. This bill extends the sunset for the Recycling Market Development Zone Program and the California Alternative Energy and Advanced Transportation Financing Authority advanced manufacturing program by 10 years, to 2031.

ANALYSIS:

Existing law:

1. Establishes a state recycling goal of 75% of solid waste generated be diverted from landfill disposal by 2020 through source reduction, recycling, and composting (Public Resources Code (PRC) § 41780.01).
2. Requires that all rigid plastic bottles and rigid plastic containers sold in California be labeled with the resin code inside a triangle formed by three “chasing arrows” (PRC §18015). The resin codes are:
   1. 1 for polyethylene terephthalate (PET);
   2. 2 for high density polyethylene (HDPE);
   3. 3 for vinyl (V);
   4. 4 for low density polyethylene (LDPE);
   5. 5 for polypropylene (PP);
   6. 6 for polystyrene (PS); and,
   7. 7 for all other types of resins, including multilayer.
3. Establishes the Recycling Market Development Revolving Loan Program, administered by the Department of Resources Recycling and Recovery (CalRecycle), to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing. Facilities must be located within a CalRecycle designated Recycled Market Development Zone (RMDZ) and use postconsumer or secondary recovered waste feedstock generated in California. Sunsets these provisions July 1, 2021 (PRC §§42010, et. seq.).
4. Establishes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) in the Office of State Treasurer, which provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves, and a state and local sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing (PRC §§26000, et. seq.).
5. Directs CAEATFA to administer a state and local sales and use tax exemption for renewable technology projects, including tangible personal property where at least 50% of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, subject to an application and evaluation process, and board approval, and to administer a similar state and local sales and use tax for advanced manufacturing. Sunsets these provisions on January 1, 2021 (PRC §26011.8).
6. Allows CAEATFA to allocate exemptions to successful applicants for programs up to $100 million annually; however, CAEATFA must evaluate all applicants to determine whether the net environmental and economic benefits received by the state will outweigh forgone sales and use tax revenue, and can only allocate exemptions to projects that demonstrate such a benefit (PRC §26011.8(h), (i)).

This bill:

1. States that it shall be known as the California Recycling Market Development Act.
2. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
3. Extends the sunset on the following recycling incentive programs to January 1, 2031:
   1. CAEATFA financial assistance to projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock, in the form of a sales and use tax exclusion.
   2. CalRecycle’s RMDZ Loan Program to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing.
4. Requires CalRecycle, by July 1, 2020, to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling. By January 1, 2021, requires the Commission to:
   1. Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
   2. Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
5. Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling and to minimize contamination in curbside recycling programs.

Background

1. Solid waste in California. For three decades, CalRecycle has been tasked with reducing disposal of municipal solid waste and promoting recycling in California through the Integrated Waste Management Authority (IWMA). Under IWMA, the state has established a statewide 75 percent source reduction, recycling, and composting goal by 2020 and over the years the Legislature has enacted various laws relating to increasing the amount of waste that is diverted from landfills. According to CalRecycle’s State of Disposal and Recycling in California 2017 Update, 42.7 million tons of material were disposed of into landfills in 2016.

An estimated 35 million tons of waste are disposed of in California’s landfills annually, of which 32% is compostable organic materials, 29% is construction and demolition debris, and 17% is paper. Local governments have been required to divert 50% of the waste generated within the jurisdiction from landfill disposal since 2000. AB 341 (Chesbro, Chapter 476, Statutes of 2011) required commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. A follow up bill, AB 1826 (Chesbro, Chapter 727, Statutes of 2014) required generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara, Chapter 395, Statutes of 2016) required the Air Resources Board to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level.

1. Recycling Market Development Zone Program. The RMDZ program was established by SB 1322 (Bergeson, Chapter 1096, Statutes of 1989) to further the establishment of local and regional markets for the increased materials being collected by local jurisdictions. RMDZ program combines recycling with economic development to fuel new businesses, expand existing ones, create jobs, and divert waste from landfills. The program provides a combination of technical and financial incentives and resources to attract and retain recycling manufacturers that are located within a designated zone. Cumulatively, the zones cover roughly 88,000 square miles of California, from the Oregon border to San Diego.
2. CAEATFA. Housed in the Office of the State Treasurer, the CAEATFA provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves and a sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing. CAEATFA’s sales and use tax exemption also applies to tangible personal property where at least 50% of its use is to process recycled feedstock that is intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment.

Comments

1. Purpose of bill. According to the author, “In 2016, the Legislature enacted SB 1383 (Lara), which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. The need for such a significant investment has been exacerbated by China’s new recycling policy, ‘National Sword.’

“Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills posing serious fire risks and increasing emissions. While some have argued that this means that we should give up on recycling or start burning our trash, AB 1583 seizes the opportunity to reinvest in California recycling.

“AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing]. The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.”

1. Market challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.

In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013, under which it increased inspections of imported bales of recyclables and returned bales that did not meet specified requirements at the exporters' expense. In 2017, China established Operation National Sword, which included additional inspections of imported recycled materials and a filing with the World Trade Organization indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate, polyethylene, polyvinyl chloride, and polystyrene beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination. Some market experts are hopeful that cleaner plastic materials, including those included in the ban, may be allowed in the future.

Following China’s actions, other Southeast Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Earlier this year, India announced that it will ban scrap plastic imports. Thailand has announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers. Recycling requires markets to create new products and close the loop. This challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which has been shown to provide jobs, economic, and environmental benefits.

In addition to the RMDZ program, CalRecycle had indicated that it intends to continue to build and support recycling markets and infrastructure within California to reduce the state's need to export recycled material. CalRecycle’s Greenhouse Gas Reduction Grant and Loan Program, funded by the Greenhouse Gas Reduction Fund, provides financial incentives for capital investments in infrastructure for composting, anaerobic digestion, and recycling and manufacturing facilities that reduce greenhouse gas emissions. Additionally, CalRecycle continues to pursue options to reduce waste and increase the recyclability of packaging through its packaging reform process and to reduce the contamination levels in all recycling streams.

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

According to the Senate Appropriations Committee:

• CalRecycle estimates a need for 2.75 positions at an estimated cost of $390,000 for the first year and $384,000 ongoing (Integrated Waste Management Account), to implement the taskforce and other provisions of AB 1583.
• Unknown cost pressure to provide financing incentives through the recycling market development programs.
• The Legislative Analyst’s Office (LAO) estimates that the annual General Fund revenue loss resulting from this bill from 2021 through 2031 would likely be under $10 million per year. CAEAFTA administrative costs would continue to be paid by user fees.
• Additionally, per the California Constitution, this bill would result in a General Fund backfill to the 2011 Local Realignment Fund. Based on the LAO’s revenue estimate, the amount of the backfill could reach $2 million annually.

SUPPORT: (Verified 8/30/19)

Californians Against Waste (co-source)

Republic Services (co-source)

California State Treasurer, Fiona Ma

Amro Fabricating Corporation

Bioenergy Association of California

California Incentives Group

California League of Conservation Voters

California State Associations of Counties

CalPlant I, LLC

City of Huntington Beach

Coalition of Renewable Natural Gas

Heal the Bay

Los Angeles Alliance for a New Economy

Lutheran Office of Public Policy – California

Mojave Desert and Mountain Recycling Authority

Northern California Recycling Association

Peninsula Plastics Recycling, Inc.

Plastic Pollution Coalition

Plastics Industry Association

QuantumScape Corporation

Roots of Change

Rural County Representatives of California

Sanitation Districts of Los Angeles County

Save Our Shores

Seventh Generation Advisors

Sierra Club California

Space Exploration Technologies Corp.

StopWaste

Surfrider Foundation

The 5 Gyres Institute

The Center for Oceanic Awareness, Research, and Education

The Story of Stuff Project

Trust for Public Land

Vivotein, LLC

Wishtoyo Chumash Foundation

Zero Waste USA

OPPOSITION: (Verified 8/30/19)

League of California Cities

ASSEMBLY FLOOR: 78-0, 5/29/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia

Prepared by: Genevieve M. Wong / E.Q. / (916) 651-4108

9/1/19 14:05:23

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1583 (Eggman) - The California Recycling Market Development Act

Bill Summary:

AB 1583 would establish the California Recycling Market Development Act as well as extend the sunset for the Recycling Market Development Zone Program and the California Alternative Energy and Advanced Transportation Financing Authority’s (CAEAFTA’s) Sales and Use Tax Exclusion Program until January 1, 2031.

Fiscal Impact:

• CalRecycle estimates a need for 2.75 positions at an estimated cost of $390,000 for the first year and $384,000 ongoing (Integrated Waste Management Account), to implement the taskforce and other provisions of AB 1583.
• Unknown cost pressure to provide financing incentives through the recycling market development programs.
• The Legislative Analyst’s Office (LAO) estimates that the annual General Fund revenue loss resulting from the bill from 2021 through 2031 would likely be under $10 million per year. CAEAFTA administrative costs would continue to be paid by user fees.
• Additionally, per the California Constitution, this bill would result in a General Fund backfill to the 2011 Local Realignment Fund. Based on the LAO’s revenue estimate, the amount of the backfill could reach $2 million annually (see Staff Comments).

Background:

Solid waste in California. For three decades, CalRecycle has been tasked with reducing disposal of municipal solid waste and promoting recycling in California through the IWMA. Under IWMA, the state has established a statewide 75 percent source reduction, recycling, and composting goal by 2020 and over the years the Legislature has enacted various laws relating to increasing the amount of waste that is diverted from landfills. According to CalRecycle’s State of Disposal and Recycling in California 2017 Update, 42.7 million tons of material were disposed of into landfills in 2016.

An estimated 35 million tons of waste are disposed of in California’s landfills annually, of which 32% is compostable organic materials, 29% is construction and demolition debris, and 17% is paper. Local governments have been required to divert 50% of the waste generated within the jurisdiction from landfill disposal since 2000. AB 341 (Chesbro), Chapter 476, Statutes of 2011, requires commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. A follow up bill, AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016 required ARB to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level.

Recycling Market Development Zone (RMDZ) Program. The RMDZ program was established by Senate Bill 1322 (Bergeson, Chapter 1096, Statutes of 1989) to further the establishment of local and regional markets for the increased materials being collected by local jurisdictions. RMDZ program combines recycling with economic development to fuel new businesses, expand existing ones, create jobs, and divert waste from landfills. The program provides a combination of technical and financial incentives and resources to attract and retain recycling manufacturers that are located within a designated zone. Cumulatively, the zones cover roughly 88,000 square miles of California, from the Oregon border to San Diego.

CAEATFA. Except where a specific exemption or exclusion is provided, current law imposes the SUT on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer.

After CDTFA collects SUT revenue ($57 billion in 2017-18), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—an approximately 1.1 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of January 1, 2018, the average statewide SUT rate was 8.50 percent.

CAEATFA provides financing through a variety of methods, including conduit or revenue bonds, loan guarantees, and a sales and use tax (SUT) exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing. CAEATFA is housed within the State Treasurer’s Office, and its board decides which projects to assist.

When the Legislature created CAEATFA in 1980, it provided that its purchases of tangible personal property were excluded from both the state and local shares of the SUT. However, the Authority was essentially inactive until 2008, when it was announced that CAEATFA would use its SUT exclusion authority to purchase $26 million in equipment on behalf of Tesla Motors, and convey it to them SUT-free. Subsequently, the Legislature directed CAEATFA to administer a SUT exclusion program for manufacturers of alternative source technology used for renewable electricity generation or advanced transportation under a statutory framework until January 1, 2021 (SB 71, Padilla, 2010). The Legislature subsequently extended the program to (1) advanced manufacturing, until July 1, 2016, which the Legislature subsequently extended until January 1, 2021, and (2) property where at least 50 percent of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, until January 1, 2021.

CAEATFA can allocate exemptions up to $100 million annually to successful applicants; however, CAEATFA can only allocate exemptions to projects that produce where the benefit to the state exceeds the benefit to the applicant. After the Authority’s board approves an application, the applicant then purchases equipment using a certificate issued by the California Department of Tax and Fee Administration (CDTFA), and subsequently reports quarterly regarding their use of the exemption, and annually regarding its business activities. Applicants must purchase at least 15 percent of the equipment proposed in its application within 18 months, or risk CAEATFA terminating its application.

In 2013, the Legislature enacted measures that reformed California’s economic development policies by eliminating enterprise zones and other geographically-targeted economic development areas, instead allowing three new tax benefits:

• Tax credits for wages paid by taxpayers to qualified employees within former enterprise zones, and other areas that suffer from high levels of poverty and unemployment. The credit currently lasts until 2026.
• The California Competes Tax Credit, where the California Competes Tax Credit Committee can award various tax credits up to an annually capped amount to taxpayers who apply. This Credit currently expires in 2030.
• A state-only (3.9375 percent) SUT exemption on purchases of manufacturing equipment made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014, and ending July 1, 2022. In 2017, the Legislature expanded and extended this exemption, as part of an agreement to extend the Global Warming Solutions. As a result, the exemption largely overlapped the state tax effects of the CAEATFA programs, as they applied to almost all the same taxpayers. Instead of applying to CAEATFA, taxpayers simply print a resale certificate from CDTFA’s website, and present it to the retailer to purchase the property sales-tax free.

CAEATFA’s SUT exclusion program set to expire on July 1, 2020.

Proposed Law:

This bill:

1. States that it shall be known as the California Recycling Market Development Act.
   
2. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
   
3. Extends the sunset on the following recycling incentive programs to January 1, 2031:
   
   1. CAEATFA financial assistance to projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock, in the form of a sales and use tax (SUT) exclusion.
   2. CalRecycle’s Recycling Market Development Zone (RMDZ) Loan Program to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing.
      
4. By July 1, 2020, requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling. By January 1, 2021, requires the Commission to:
   
   1. Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
   2. Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
      

Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling and to minimize contamination in curbside recycling programs.

Related Legislation:

• SB 162 (Galgiani) would have extended the CAEATFA SUT exclusion program until July 1, 2030. The bill was passed by the Senate, but since has been amended to delete those provisions.
• SB 71 (Chapter 10, Statutes of 2010) authorized CAEATFA to approve SUT exclusions for tangible personal property utilized for the design, manufacture, production, or assembly of advanced transportation technologies or alternative energy source products, components or systems.
• SB 1128 (Padilla, Chapter 677, Statutes of 2012) expanded the definition of advanced manufacturing for purposes of the sales and use tax exclusion authorized by CAEATFA until January 1, 2016.
• AB 1269 (Dababneh, Chapter 788, Statutes of 2015) extended the sunset date imposed by SB 1128 to January 1, 2021.
• AB 1547 (Quirk-Silva, Chapter 645, Statutes of 2018) expanded the sales and use tax exemption to include the lease or transfer of tangible personal property, constituting any project, to any contractor for use in the performance of a construction contract that will use the property as an integral part of the approved project.

Staff Comments:

As noted above, most purchases that qualify for the CAEATFA exemption would be eligible for the partial SUT for manufacturing, research and development, and electricity-related equipment. The partial exemption is broader than the CAEATFA exemption and easier for businesses to use.

Assuming no change in tax rates, the LAO estimates that the annual additional forgone General Fund revenue from SB 1583 likely would be in the range of $3 million to $8 million. The LAO notes that the vast majority of the fiscal costs of the program are borne by local governments, while the resulting increases in economic activity generate revenue both for state and local governments.

Under current law as noted above, 1.0625 percent of the SUT is deposited into the 2011 Local Realignment Fund. The California Constitution (Section 36, subdivision (d)), requires that any bill that reduces the tax base of the 2011 Local Realignment Fund provide for a General Fund backfill. Using the LAO’s revenue estimate of forgone General Fund revenues under the bill, the annual amount of the backfill would be in the range of $800,000 to $2.1 million.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

The California Recycling Market Development Act

Enacts the California Recycling Market Development Act, which among other changes, extends the California Alternative Energy and Advanced Transportation Financing Authority’s Sales and Use Tax Exclusion Program until January 1, 2031.

Background

Sales and Use Tax. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect appropriate tax at purchase and remit the amount to CDTFA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below. Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district or transactions and use taxes.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

CAEATFA. Housed in the office of the State Treasurer, the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves, and a sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing. CAEATFA’s board, composed of the Treasurer, Controller, Director of Finance, Chair of the Energy Commission, and President of the Public Utilities Commission, decides which projects to assist.

When the Legislature created CAEATFA in 1980, it provided that its purchases of tangible personal property were excluded from both the state and local shares of the sales and use tax. However, CAEATFA was basically inactive until 2008, when Governor Arnold Schwarzenegger and State Treasurer Bill Lockyer announced that CAEATFA would use its sales tax exclusion authority to purchase $26 million in equipment on behalf of Tesla Motors, and convey it to them sales and use tax-free. Subsequently, the Legislature directed CAEATFA to administer a sales and use tax exclusion program for manufacturers of alternative source technology used for renewable electricity generation or advanced transportation under a statutory framework until January 1, 2021 (SB 71, Padilla, 2010). The Legislature subsequently extended the program to:

• Advanced manufacturing, until July 1, 2016 (SB 1128, Padilla, 2012), which the Legislature subsequently extended until January 1, 2021 (AB 1269, Dabaneh, 2015); and
• Property where at least 50% of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, until January 1, 2021 (AB 199, Eggman, 2015).

CAEATFA can allocate exemptions up to $100 million annually to successful applicants under all three programs; however, CAEATFA can only allocate exemptions to projects that produce a benefit to the state that exceeds the benefit to the applicant. The CAEATFA Board approves all applications in public meetings held monthly. After the Board approves an application, the applicant then purchases equipment using a certificate issued by CDTFA, and subsequently reports quarterly regarding their use of the exemption, and annually regarding its business activities. Applicants must purchase at least 15% of the equipment proposed in its application within 18 months, or risk CAEATFA terminating its application.

State Sales and Use Tax Exemption for Manufacturing Equipment. In 2013, the Legislature enacted AB 93 (Committee on Budget) and SB 90 (Committee on Budget and Fiscal Review), measures which reformed California’s economic development policies by eliminating enterprise zones and other geographically-targeted economic development areas, instead allowing three new tax benefits:

• The New Employment Credit, where the Franchise Tax Board allocates credits for wages paid by taxpayers to qualified employees within former enterprise zones, and other areas that suffer from high levels of poverty and unemployment. The credit lasts from the 2014 taxable year until the 2019 taxable year. The Legislature extended the credit last year until 2026 (SB 855, Committee on Budget and Fiscal Review).
• The California Competes Tax Credit, where the California Competes Tax Credit Committee, also created by the bill, can award various tax credits up to an annually capped amount to taxpayers who apply. The Committee is comprised of the Treasurer,
• The Director of Finance, the Director of the Governor’s Office of Business and Economic Development (GO-BIZ), one appointee of the Speaker of the Assembly, and one appointee from the Senate Committee on Rules. SB 855 also extended this credit last year until 2030.
• A state-only (3.9375%) sales and use tax exemption on purchases of manufacturing equipment made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014, and ending July 1, 2022. In 2017, the Legislature expanded and extended this exemption, as part of an agreement to extend the Global Warming Solutions Act (AB 398, E. Garcia, 2018).

Plastic Bottles. State law requires that all rigid plastic bottles and rigid plastic containers sold in California be labeled with the resin code inside a triangle formed by three “chasing arrows.” The resin codes are:

• 1 for polyethylene terephthalate, also known as PET;
• 2 for high density polyethylene;
• 3 for vinyl;
• 4 for low density polyethylene;
• 5 for polypropylene;
• 6 for polystyrene; and,
• 7 for all other types of resins, including multilayer.

Recycling. The Department of Resources Recycling and Recovery (CalRecycle), part of the California Environmental Protection Agency (Cal EPA) administers and oversees all of the state’s non-hazardous waste handling and recycling programs, including beverage container and electronic waste recycling, among others. As part of this charge, the Legislature has directed CalRecycle to divert at least 75% of solid waste from landfills statewide by 2020, and local agencies to divert 50% of the waste generated within the jurisdiction from landfill disposal.

AB 341 (Chesbro, 2011) requires commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. AB 1826 (Chesbro, 2014) requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill. Implementing these requirements can be difficult and costly, so CalRecycle's Recycling Market Development Zone (RMDZ) Loan Program offers loans technical assistance, and product marketing for businesses.

However, the state’s recycling efforts have been frustrated in recent years as recyclers struggle to find markets for recycled products such as plastic and mixed paper. Asian nations are beginning to reject recycled products originating in this country, and the United States has not developed significant markets. Historically, California exports approximately one-third of recycled material; 85% of the state's recycled mixed paper has been exported to China in recent years, who has historically accepted 56% by weight of global recycled plastic exports.

CAEATFA’s sales tax exclusion program is set to expire on January 1, 2021, and CalRecycle’s RMDZ program will also sunset on July 1, 2022. Seeking to extend those programs, and to implement additional efforts to increase recycling, recycling advocates want to extend both programs, and enact new programs to meet environmental goals.

Proposed Law

Assembly Bill 1583 enacts the California Recycling Market Development Act, which:

• Extends the CAEATFA Sales and Use Tax Exclusion Program until January 1, 2031.
• Extends the RMDZ Program until January 1, 2031.
• Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
• Requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling by July 1, 2020. By January 1, 2021, requires the Commission to:
  • Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
  • Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
  • Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling.

State Revenue Impact

The Legislative Analyst’s Office (LAO) indicates that the annual General Fund revenue loss resulting from extending the CAEATFA Sales and Use Tax exclusion program would likely be under $10 million per year.

Comments

1. Purpose of the bill. According to the author, “In 2016, the Legislature enacted SB 1383 (Lara), which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. The need for such a significant investment has been exacerbated by China’s new recycling policy, ‘National Sword.’ Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills posing serious fire risks and increasing emissions. While some have argued that this means that we should give up on recycling or start burning our trash, AB 1583 seizes the opportunity to reinvest in California recycling. AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing]. The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.”

2. Assessing performance. Evaluating the success or failure of tax expenditure programs can be difficult, so in recent years, the Legislature has directed the Legislative Analyst’s Office (LAO) to report regarding any newly enacted or extended programs to help inform whether it should be renewed, modified, or allowed to expire. To fulfil this direction for the CAEATFA sales and use tax exclusion program, LAO published “Evaluation of Sales Tax Exemption for Certain Manufacturers,” in December 2018, which recommends the Legislature allow the program to expire. LAO grounds its recommendation on the program’s overlap with the state’s general exemption, and adds that the program’s application process is not worthwhile because it is narrow and hard to use. However, LAO notes that if streamlined, the program could be transferred to CDTFA. CAEATFA responds by asserting that its rigorous evaluation demonstrates environmental and economic benefits that exceed foregone revenue resulting from the program, and its application process must be thorough to ensure it only approves applications that provide net benefits to the state.

3. Something different. Several of the state’s tax expenditures for business activity allow any individual or businesses to qualify for the tax benefit by virtue of incurring specific costs, such as research and development or hiring specific individuals. Others direct a state agency, such as the California Film Commission or the California Competes Tax Credit Committee, to accept applications from taxpayers seeking the benefit, and to allocate it according to criteria set in statute. CAEATFA follows the latter model, but with one important difference: to receive the tax benefit, the applicant must pass the “net benefits test,” based on statutory direction for CAEATFA to evaluate “the extent to which the anticipated benefit to the state from the project equals or exceeds the projected benefit to the participating party from the sales and use tax exclusion.” To implement this direction, CAEATFA contracted with Blue Sky Consulting, who constructed a model that assesses an application’s environmental and economic benefits against the foregone revenue from the sales and use tax exclusion. The net benefits test assumes that the applicant purchases more equipment because of the exclusion than they otherwise would have, and assesses whether the incremental economic activity, tax revenue, and environmental effects resulting from the exclusion exceeds its foregone revenue. Only applications that pass the test advance to the CAEATFA board for consideration, and CAEATFA publishes each application in detail before its meetings. Because application fees can exceed $30,000, CAEATFA staff generally counsels applicants who are unlikely to pass the test not to apply. According to Blue Sky, the program has approved 186 projects for a total of $691 million in exclusions through September, 2018. Using a sample of 48 of those projects worth $174 million in exclusions, Blue Sky projects fiscal benefits of $171 million, and environmental benefits of $17 million, for a net benefit of $14 million. Blue Sky adds that if this sample is representative of all approved applicants, net benefits total $50 million. However, LAO states that these estimates are highly uncertain, and argues that the net benefits test relies on assumptions that tend to overstate fiscal benefits, especially that equipment increases output and employment in direct proportion to the amount of excluded taxes. LAO adds that the net benefits test does not consider the tax benefit’s opportunity cost, meaning the benefits that would accrue if the state used the revenue foregone by the tax benefit for something else.

4. Who benefits? Since 2016, CAEATFA has awarded 45% of sales and use tax exclusions to advanced manufacturing, 27% to alternative sources, 21% to recycled resource extraction, and 7% to advanced transportation. While CAEATFA has granted applications for many large businesses (Ateiva - $47 million, CEP Imperial - $37 million, Solyndra - $34 million, SpaceX - $30 million, and Faraday Future - $20 million), when counting by number of applications granted, one-third of all projects receive an exclusion of less than $500,000, and 90% are less than $10 million. In response to concerns raised by its board members, CAEATFA has required Tesla, an automobile manufacturer with a facility in Fremont, CA, and the applicant who has been granted more exclusions than any other firm ($215 million, $26 million of which was authorized before SB 71 was enacted) to provide public reports at its board meetings regarding workplace safety issues. In April, CAEATFA approved another application for Tesla, this time for $81 million in qualified property.

5. State and local. Because SB 93 and AB 90’s state-only sales and use tax exemption apply to most of CAEATFA’s applicants, almost all of the foregone revenue resulting from extending the program would flow to local agencies but for the extension. Additionally, it’s unclear whether the revenue foregone is sales tax, which would be allocated to the jurisdiction where the equipment is purchased, or use tax, which would flow to the countywide pool in the county where the equipment is used, so it’s hard to tell which local agencies are affected. CAEATFA indicates that they will begin collecting this information to quantify local revenue impacts should the program be extended.

6. Substitution? One risk of subsidizing equipment purchases is that firms will substitute machines for workers, especially as equipment becomes more efficient. While more equipment likely means more economic activity, it’s unclear whether the benefits of added productivity and economic activity resulting from the program accrue to workers in the form of higher wages or increased employment.

7. Incoming! The Senate Rules Committee ordered a double referral for AB 1583, first to the Committee on Environmental Quality to consider its recycling impacts, and second to the Governance and Finance Committee to assess its extension of the CAEATFA sales and use tax exclusion program. The Environmental Quality Committee approved the measure by a 7 to 0 vote on July 2^nd.

8. Related legislation. In April, the Committee approved AB 162 (Galgiani), which extended the CAEATFA sales and use tax exclusion program until January 1, 2031, on a vote of 7 to 0. The author subsequently amended the measure to delete those provisions. At its July 10^th hearing, the Committee will also consider AB 176 (Cervantes) which makes two modifications to the current CAEATFA sales and use tax exclusion program.

Assembly Actions

Assembly Natural Resources Committee: 11-0
Assembly Appropriations Committee: 13-0
Assembly Floor: 78-0

Support and Opposition

(7/5/19)

Support: State Treasurer Fiona Ma, California League of Conservation Voters; California State Association of Counties; Californians Against Waste; Center for Oceanic Awareness Research, & Education; City of Huntington Beach; Coalition for Renewable Natural Gas; Heal the Bay; Los Angeles Alliance for a New Economy; Lutheran Office of Public Policy – California; Mojave Desert and Mountain Recycling Authority; Plastic Pollution Coalition; Republic Services, Inc.; Roots of Change; Rural County Representatives of California; Save Our Shores; Seventh Generation Advisors; Sierra Club California; StopWaste; Surfrider Foundation; The 5 Gyres Institute; The Story of Stuff Project; The Trust for Public Land; Wishtoyo Chumash Foundation; Zero Waste USA.

Opposition: League of California Cities.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2019 - 2020 Regular

Bill No: AB 1583

SUBJECT: The California Recycling Market Development Act

DIGEST: Establishes the California Recycling Market Development Act. Extends the sunset for the Recycling Market Development Zone Program and the California Alternative Energy and Advanced Transportation Financing Authority advanced manufacturing program by 10 years, to 2031.

ANALYSIS:

Existing law:

1. Establishes a state recycling goal of 75% of solid waste generated be diverted from landfill disposal by 2020 through source reduction, recycling, and composting (Public Resources Code (PRC) § 41780.01).
   
2. Requires that all rigid plastic bottles and rigid plastic containers sold in California be labeled with the resin code inside a triangle formed by three “chasing arrows” (PRC §18015). The resin codes are:
   
   1. 1 for polyethylene terephthalate (PET);
   2. 2 for high density polyethylene (HDPE);
   3. 3 for vinyl (V);
   4. 4 for low density polyethylene (LDPE);
   5. 5 for polypropylene (PP);
   6. 6 for polystyrene (PS); and,
   7. 7 for all other types of resins, including multilayer.
      
3. Establishes the Recycling Market Development Revolving Loan Program, administered by CalRecycle, to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing. Facilities must be located within a CalRecycle designated Recycled Market Development Zone (RMDZ) and use postconsumer or secondary recovered waste feedstock generated in California. Sunsets these provisions July 1, 2021 (PRC §§42010, et. seq.).
   
4. Establishes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) in the Office of State Treasurer, which provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves, and a state and local sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing (PRC §§26000, et. seq.).
   
5. Directs CAEATFA to administer a state and local sales and use tax exemption for renewable technology projects, including tangible personal property where at least 50% of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, subject to an application and evaluation process, and board approval, and to administer a similar state and local sales and use tax for advanced manufacturing. Sunsets these provisions on January 1, 2021 (PRC §26011.8).
   
6. Allows CAEATFA to allocate exemptions to successful applicants for programs up to $100 million annually; however, CAEATFA must evaluate all applicants to determine whether the net environmental and economic benefits received by the state will outweigh forgone sales and use tax revenue, and can only allocate exemptions to projects that demonstrate such a benefit (PRC §26011.8(h), (i)).
   

This bill:

1. States that it shall be known as the California Recycling Market Development Act.
   
2. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
   
3. Extends the sunset on the following recycling incentive programs to January 1, 2031:
   
   1. CAEATFA financial assistance to projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock, in the form of a sales and use tax (SUT) exclusion.
   2. CalRecycle’s Recycling Market Development Zone (RMDZ) Loan Program to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing.
      
4. By July 1, 2020, requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling. By January 1, 2021, requires the Commission to:
   
   1. Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
   2. Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
      
5. Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling and to minimize contamination in curbside recycling programs.
   

Background

1. Solid waste in California. For three decades, CalRecycle has been tasked with reducing disposal of municipal solid waste and promoting recycling in California through the IWMA. Under IWMA, the state has established a statewide 75 percent source reduction, recycling, and composting goal by 2020 and over the years the Legislature has enacted various laws relating to increasing the amount of waste that is diverted from landfills. According to CalRecycle’s State of Disposal and Recycling in California 2017 Update, 42.7 million tons of material were disposed of into landfills in 2016.
   

An estimated 35 million tons of waste are disposed of in California’s landfills annually, of which 32% is compostable organic materials, 29% is construction and demolition debris, and 17% is paper. Local governments have been required to divert 50% of the waste generated within the jurisdiction from landfill disposal since 2000. AB 341 (Chesbro), Chapter 476, Statutes of 2011, requires commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. A follow up bill, AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016 required ARB to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level.

1. Recycling Market Development Zone Program. The RMDZ program was established by Senate Bill 1322 (Bergeson, Chapter 1096, Statutes of 1989) to further the establishment of local and regional markets for the increased materials being collected by local jurisdictions. RMDZ program combines recycling with economic development to fuel new businesses, expand existing ones, create jobs, and divert waste from landfills. The program provides a combination of technical and financial incentives and resources to attract and retain recycling manufacturers that are located within a designated zone. Cumulatively, the zones cover roughly 88,000 square miles of California, from the Oregon border to San Diego.
   
2. CAEATFA. Housed in the office of the State Treasurer, the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves and a sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing. CAEATFA’s sales and use tax exemption also applies to tangible personal property where at least 50% of its use is to process recycled feedstock that is intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment.

Comments

1. Purpose of Bill. According to the author, “In 2016, the Legislature enacted SB 1383 (Lara), which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. The need for such a significant investment has been exacerbated by China’s new recycling policy, “National Sword.”
   

“Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills posing serious fire risks and increasing emissions. While some have argued that this means that we should give up on recycling or start burning our trash, AB 1583 seizes the opportunity to reinvest in California recycling.

“AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing]. The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.”

1. Market challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.
   

In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013, under which it increased inspections of imported bales of recyclables and returned bales that did not meet specified requirements at the exporters' expense. In 2017, China established Operation National Sword, which included additional inspections of imported recycled materials and a filing with the World Trade Organization indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate (PET), polyethylene (PE), polyvinyl chloride (PVC), and polystyrene (PS) beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination. Some market experts are hopeful that cleaner plastic materials, including those included in the ban, may be allowed in the future.

Following China’s actions, other Southeast Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Earlier this year, India announced that it will ban scrap plastic imports. Thailand has announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers. Recycling requires markets to create new products and close the loop. This challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which has been shown to provide jobs, economic, and environmental benefits.

In addition to the RMDZ program, CalRecycle had indicated that it intends to continue to build and support recycling markets and infrastructure within California to reduce the state's need to export recycled material. CalRecycle’s Greenhouse Gas Reduction Grant and Loan Program, funded by the Greenhouse Gas Reduction Fund, provides financial incentives for capital investments in infrastructure for composting, anaerobic digestion, and recycling and manufacturing facilities that reduce greenhouse gas emissions. Additionally, CalRecycle continues to pursue options to reduce waste and increase the recyclability of packaging through its packaging reform process and to reduce the contamination levels in all recycling streams.

Related/Prior Legislation

SB 162 (Galgiani) extends the CAEATFA Sales and Use Tax Exclusion Program until January 1, 2030. SB 162 has been referred to the Assembly Revenue and Taxation Committee.

DOUBLE REFERRAL

If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Governance and Finance Committee.

SOURCE:

Californians Against Waste & Republic Services (co-sponsors)

SUPPORT:

Californians Against Waste (co-sponsor)

Republic Services (co-sponsor)*

California League of Conservation Voters

California State Associations of Counties

City of Huntington Beach

Coalition of Renewable Natural Gas

Fiona Ma, California State Treasurer

Heal the Bay

Los Angeles Alliance for a New Economy

Lutheran Office of Public Policy - California

Mojave Desert and Mountain Recycling Authority

Plastic Pollution Coalition

Republic Services

Roots of Change

Rural County Representatives of California

Save Our Shores

Seventh Generation Advisors

Sierra Club California

StopWaste

Surfrider Foundation

The 5 Gyres Institute

The Center for Oceanic Awareness, Research, and Education (COARE)

The Story of Stuff Project

Trust for Public Land

Wishtoyo Chumash Foundation

Zero Waste USA

OPPOSITION:

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1583

Author:(Eggman)

As Amended Ver:May 20, 2019

Majority vote

SUMMARY:

Establishes the California Recycling Market Development Act. Establishes two incentive programs to encourage recycling of paper and organic waste. Extends the sunset on various recycling incentive programs.

Major Provisions

1. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the "chasing arrows" recycling symbol.
2. Extends the sunset on the following recycling incentive programs from January 1, 2021 to January 1, 2031:
   1. California Alternative Energy and Transportation Financing Authority (CAEATFA) financial assistance in the form of a sales and use tax exclusion for projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock.
   2. CalRecycle's Recycling Market Development Zone (RMDZ) Loan Program to encourage California-based recycling businesses that prevent, reduce or recycle recovered waste materials through value-added processing or manufacturing.
3. By July 1, 2020, requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises and environmental organizations with expertise in recycling to issue recommendations and identify recyclable or compostable products, as specified.

COMMENTS:

Organic Waste. AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016, required the California Air Resources Board ARB to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 both from the 2014 level.

Recycling Market Challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.

In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013 to increase inspections of imported bales of recyclables and return bales that did not meet requirements, at the exporters' expense. In 2017, China established Operation National Sword, to include additional inspections and a filing with the World Trade Organization (WTO) indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate (PET), polyethylene (PE), polyvinyl chloride (PVC) and polystyrene (PS), beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination.

The National Sword policy creates serious challenges for recyclers. However, this challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which provides economic and environmental benefits.

Following China's actions, other Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Last month, India announced it will ban scrap plastic imports. Thailand announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers.

This challenge provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure and to provide jobs and economic and environmental benefits.

According to the Author:

Policy and economic developments in recent years have left gaps in California's recycling infrastructure and policy. These gaps have made meeting our environmental goals increasingly difficult and have stagnated progress in our recycling industry.

In 2016, the Legislature enacted SB 1383 (Lara), Chapter 395, Statutes of 2016, which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. This significant investment has been further exacerbated by China's new recycling policy, "National Sword."

In 2018, China instituted its National Sword policy which bans 24 types of solid waste and sets a tougher standard for acceptable levels of contamination within its recycled imports. Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills.

The United States' recycling infrastructure has, for far too long, relied on overseas markets, and these countries are beginning to adopt policies that limit the import of foreign waste. While some have argued that this means that we should give up on recycling or start burning all of our trash, this legislation seizes the opportunity to reinvest in California recycling.

AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing].

The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the "Chasing Arrows" on all plastic products, whether or not they are recyclable.

Arguments in Support:

Supporters of this bill state that AB 1583 takes a comprehensive approach by reauthorizing two of the state's most successful recycling market development programs. Additionally, the legislation eliminates a confusing legislative mandate to include the "chasing arrows" / "recycling symbol" on all plastic products, whether or not they are recyclable. Finally, AB 1583 establishes a Statewide Commission on Recycling Markets and Curbside Recycling comprised of local governments and private sector recyclers to identify uniform product redesign suggestions in order to provide clear guidance for manufacturers to produce products that can actually be recycled.

Arguments in Opposition:

None

FISCAL COMMENTS:

Unknown

VOTES:

ASM NATURAL RESOURCES: 11-0-0

YES: Friedman, Flora, Chau, Eggman, Cristina Garcia, Limón, Mathis, McCarty, Melendez, Muratsuchi, Mark Stone

ASM APPROPRIATIONS: 13-0-5

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Brough, Diep, Fong, Obernolte

UPDATED:

VERSION: May 20, 2019

CONSULTANT: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0000972

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1583

Author:(Eggman) – As Introduced Ver:February 22, 2019

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

SUMMARY:

This bill establishes the California Recycling Market Development Act. Specifically, this bill:

1. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
2. Extends the sunset on the following recycling incentive programs from January 1, 2021 to January 1, 2031:
   1. California Alternative Energy and Transportation Financing Authority (CAEATFA) financial assistance in the form of a sales and use tax exclusion for projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock.
   2. CalRecycle’s Recycling Market Development Zone (RMDZ) Loan Program to encourage California-based recycling businesses that prevent, reduce or recycle recovered waste materials through value-added processing or manufacturing.
3. Establishes the Paper Recycling Infrastructure Development Incentive Program, as specified.
4. Establishes the Organic Waste Recycling Infrastructure Development Incentive Program, as specified
5. By July 1, 2020, requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises and environmental organizations with expertise in recycling to issue recommendations and identify recyclable or compostable products, as specified.
   

FISCAL EFFECT:

To implement the various programs under the bill, CalRecycle estimates a need for 27.25 PYs and annual costs of $3.5 million from the Integrated Waste Management Account (IWMA).

COMMENTS:

1. Purpose. AB 1583 extends the sunsets on two programs for expanding recycling markets: the Recycling Market Development Zone Program, a low interest revolving loan program at CalRecycle; and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program, which provides a sales tax exclusion for recycling equipment at the Treasurer’s office.

Additionally, this bill establishes incentive programs for organics and paper recycling infrastructure based on the Plastic Market Development Program at CalRecycle.

Lastly, this bill helps the state develop strategies for developing recycling markets and eliminates the confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.

1. Organic Waste. AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016, required the California Air Resources Board ARB to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 both from the 2014 level.

1. Recycling Market Challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.
   
   In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013 to increase inspections of imported bales of recyclables and return bales that did not meet requirements, at the exporters' expense. In 2017, China established Operation National Sword, to include additional inspections and a filing with the World Trade Organization (WTO) indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate (PET), polyethylene (PE), polyvinyl chloride (PVC) and polystyrene (PS), beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination.

The National Sword policy creates serious challenges for recyclers. However, this challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which provides economic and environmental benefits.

Following China’s actions, other Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Last month, India announced it will ban scrap plastic imports. Thailand announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers.

This challenge provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure and to provide jobs and economic and environmental benefits.

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

Date of Hearing: April 22, 2019

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Laura Friedman, Chair

ABPCA Bill Id:AB 1583 (

Author:Eggman) – As Introduced Ver:February 22, 2019

SUBJECT: The California Recycling Market Development Act

SUMMARY: Establishes the California Recycling Market Development Act. Establishes two incentive programs to encourage recycling of paper and organic waste. Extends the sunset on various recycling incentive programs.

EXISTING LAW:

1. Establishes a state recycling goal of 75% of solid waste generated be diverted from landfill disposal by 2020 through source reduction, recycling, and composting.
2. Establishes methane emission reduction goals that include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level. Requires the Department of Resources Recycling and Recovery (CalRecycle), in consultation with the Air Resources Board (ARB), to adopt regulations to achieve the organics reduction targets, which go into effect in 2022.
3. Establishes the Food Waste Prevention and Rescue Grant Program, administered by CalRecycle, to award competitive grants to lower overall greenhouse gas (GHG) emissions by establishing new or expanding existing food waste prevention projects (i.e., source reduction or food rescue for people) in California to reduce the amount of food being disposed in landfills.
   
4. Establishes the Organics Grant Program, administered by CalRecycle to award competitive grants to lower overall GHG emissions by expanding existing capacity or establishing new facilities in California to reduce the amount of California-generated green materials, food materials, and/or Alternative Daily Cover being sent to landfills.
5. Establishes the Recycled Fiber, Plastic, and Glass Grant Program administered by CalRecycle, to award competitive grants to lower overall GHG emissions by expanding existing capacity or establishing new facilities in California that use California-generated postconsumer recycled fiber (i.e., old corrugated cardboard, paper board, or textiles), plastic, or glass to manufacture products.
6. Establishes the GHG Reduction Loan Program, administered by CalRecycle, to support new or expanded organics infrastructure, such as composting and anaerobic digestion facilities, as well as for facilities that manufacture fiber, plastic or glass waste materials into beneficial products. The purpose of this investment is to reduce methane emissions from landfills and further GHG reductions in upstream resource management and manufacturing processes; benefit disadvantaged communities by upgrading existing facilities and, where warranted, establishing new facilities that reduce GHG emissions; result in air and water quality improvements; and, create jobs.
7. Establishes the Recycling Market Development Revolving Loan Program, administered by CalRecycle, to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing. Facilities must be located within a CalRecycle-designated Recycled Market Development Zone (RMDZ) and use postconsumer or secondary recovered waste feedstock generated in California.
8. Requires that all rigid plastic bottles and rigid plastic containers sold in California be labeled with the resin code inside a triangle formed by three “chasing arrows.” The resin codes are:
   1. 1 for polyethylene terephthalate (PET);
   2. 2 for high density polyethylene (HDPE)
   3. 3 for vinyl (V);
   4. 4 for low density polyethylene (LDPE);
   5. 5 for polypropylene (PP);
   6. 6 for polystyrene (PS); and,
   7. 7 for all other types of resins, including multilayer.
9. Establishes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) in the Office of State Treasurer, which provides financing through conduit or revenue bonds, loan guarantees, loan loss reserves, and a state and local sales and use tax exemption for facilities that use alternative energy sources and technologies or engage in advanced manufacturing.
10. Directs CAEATFA to administer a state and local sales and use tax exemption for renewable technology projects, including tangible personal property where at least 50% of its use is to process recycled feedstock intended to be reused in the production of another project, or using recycled feedstock in the production of another product or soil amendment, subject to an application and evaluation process, and board approval, and to administer a similar state and local sales and use tax for advanced manufacturing. Sunsets these provisions on January 1, 2021.
11. Allows CAEATFA to allocate exemptions to successful applicants for programs up to $100 million annually; however, CAEATFA must evaluate all applicants to determine whether the net environmental and economic benefits received by the state will outweigh forgone sales and use tax revenue, and can only allocate exemptions to projects that demonstrate such a benefit.

THIS BILL:

1. States that it shall be known as the California Recycling Market Development Act.
2. Specifies that the resin code labels on rigid plastic bottles and rigid plastic containers do not have to include the “chasing arrows” recycling symbol.
3. Extends the sunset on the following recycling incentive programs from January 1, 2021 to January 1, 2031:
   1. CAEATFA financial assistance to projects that promote the use of advanced manufacturing, including tangible personal property that primarily processes or uses recycled feedstock, in the form of a sales and use tax (SUT) exclusion.
   2. CalRecycle’s Recycling Market Development Zone (RMDZ) Loan Program to encourage California-based recycling businesses located within California financing businesses that prevent, reduce, or recycle recovered waste materials through value-added processing or manufacturing.
4. Establishes the Paper Recycling Infrastructure Development Incentive Program, which, upon appropriation:
   1. Requires CalRecycle establish a paper recycling incentive program to make incentive payments to in-state processors of waste paper, including, but not limited to, pulping or milling facilities.
   2. Requires CalRecycle to establish specified criteria consistent with achieving the state’s 75% recycling policy goal.
5. Establishes the Organic Waste Recycling Infrastructure Development Incentive Program, which, upon appropriation:
   1. Requires CalRecycle to establish an organic waste recycling infrastructure development incentive program to make incentive payments to in-state organic waste recycling facilities that process organic waste collected from municipal sources, including, but not limited to, anaerobic digestion, composting, and food recovery facilities.
   2. Requires CalRecycle to establish specified criteria consistent with achieving the state’s organic waste diversion goal of 50% reduction in the level of the statewide disposal from the 2014 level by 2020 and 75% reduction in the level of the statewide disposal from the 2014 level by 2025.
      
6. By July 1, 2020, requires CalRecycle to convene a Statewide Commission on Recycling Markets and Curbside Recycling (Commission) consisting of representatives of public agencies, private solid waste enterprises, and environmental organizations with expertise in recycling. By January 1, 2021, requires the Commission to:
   
   1. Issue policy recommendations to achieve specified recycled market development goals, the state’s 75% recycling policy goal, and the state’s organic waste recycling policy goals; and,
      
   2. Identify products that are recyclable or compostable, as specified, and regularly collected in curbside recycling programs.
      
7. Requires the Commission to update the recommendations at least annually and to provide regular feedback to CalRecycle on public messaging designed to encourage proper recycling and to minimize contamination in curbside recycling programs.
   

FISCAL EFFECT: Unknown

COMMENTS:

1. Author’s statement:

Policy and economic developments in recent years have left gaps in California’s recycling infrastructure and policy. These gaps have made meeting our environmental goals increasingly difficult and have stagnated progress in our recycling industry.

In 2016, the Legislature enacted SB 1383 (Lara), Chapter 395, Statutes of 2026, which sought to reduce statewide methane emissions, along with other Short Lived Climate Pollutants. This bill mandated a 75% reduction in the disposal of organic waste by 2025, an ambitious goal that will require the establishment of a statewide organics recycling infrastructure. This significant investment has been further exacerbated by China’s new recycling policy, “National Sword.”

In 2018, China instituted its National Sword policy which bans 24 types of solid waste and sets a tougher standard for acceptable levels of contamination within its recycled imports. Prior to 2018, China was one of the largest exporters of California recycled material. As a result of National Sword, much of the recycled material California once exported to China now sits in landfills.

The United States’ recycling infrastructure has, for far too long, relied on overseas markets, and these countries are beginning to adopt policies that limit the import of foreign waste. While some have argued that this means that we should give up on recycling or start burning all of our trash, this legislation seizes the opportunity to reinvest in California recycling.

AB 1583 extends the sunsets on two of our most effective programs for expanding recycling markets: the Recycling Market Development Zone Program (a low interest revolving loan program) and the California Alternative Energy Advanced Transportation Financing Authority (CAEATFA) program [which provides a Sales Tax Exemption for recycling equipment, along with other sustainable manufacturing].

The bill also proposes to establish an incentive program for organics and paper recycling infrastructure, materials which, in total, account for three quarters of our waste stream. The incentive program will be based on the model used for other successful market development programs, such as the Plastic Market Development Program.

The bill also helps the state develop a Commission of private and public sector recyclers to develop strategies for education and to promote product design for recyclability. Additionally, the bill eliminates a confusing requirement to use the “Chasing Arrows” on all plastic products, whether or not they are recyclable.

1. Meeting the state’s recycling goals. An estimated 35 million tons of waste are disposed of in California’s landfills annually, of which 32% is compostable organic materials, 29% is construction and demolition debris, and 17% is paper. CalRecycle is tasked with diverting at least 75% of solid waste from landfills statewide by 2020. Local governments have been required to divert 50% of the waste generated within the jurisdiction from landfill disposal since 2000. AB 341 (Chesbro), Chapter 476, Statutes of 2011, requires commercial waste generators, including multi-family dwellings, to arrange for recycling services for the material they generate and requires local governments to implement commercial solid waste recycling programs designed to divert solid waste generated by businesses out of the landfill. A follow up bill, AB 1826 (Chesbro), Chapter 727, Statutes of 2014, requires generators of organic waste (i.e., food waste and yard waste) to arrange for recycling services for that material to keep it out of the landfill.

SB 1383 (Lara), Chapter 395, Statutes of 2016, required ARB to approve and implement a comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030. In order to accomplish these goals, the bill specified that the methane emission reduction goals include targets to reduce the landfill disposal of organic waste 50% by 2020 and 75% by 2025 from the 2014 level.

1. Market challenges. The United States has not developed significant markets for recycled content materials, including plastic and mixed paper. Historically, China has been the largest importer of recycled materials. According to the International Solid Waste Association, China accepted 56% by weight of global recycled plastic exports. In California, approximately one-third of recycled material is exported; 85% of the state's recycled mixed paper has been exported to China in recent years.
   
   In an effort to improve the quality of the materials it accepts and to combat the country's significant environmental challenges, China enacted Operation Green Fence in 2013, under which it increased inspections of imported bales of recyclables and returned bales that did not meet specified requirements at the exporters' expense. In 2017, China established Operation National Sword, which included additional inspections of imported recycled materials and a filing with the World Trade Organization indicating its intent to ban the import of 24 types of scrap, including mixed paper and paperboard, polyethylene terephthalate (PET), polyethylene (PE), polyvinyl chloride (PVC), and polystyrene (PS) beginning January 1, 2018. In November 2017, China announced that imports of recycled materials that are not banned will be required to include no more than 0.5% contamination. Some market experts are hopeful that cleaner plastic materials, including those included in the ban, may be allowed in the future.
   
   Following China’s actions, other Southeast Asian countries have enacted policies limiting or banning the importation of recycled materials, primarily plastic and mixed paper. Last year, Malaysia and Vietnam implemented import restrictions. Earlier this month, India announced that it will ban scrap plastic imports. Thailand has announced a ban that will go into effect in 2021. These policies create serious challenges for recyclers. Recycling requires markets to create new products and close the loop. This challenge also provides an opportunity for California to improve its efforts to reduce the amount of waste it generates and expand its efforts to develop recycling manufacturing infrastructure, which has been shown to provide jobs, economic, and environmental benefits.
   
   CalRecycle had indicated that it intends to continue to build and support recycling markets and infrastructure within California to reduce the state's need to export recycled material. CalRecycle’s Greenhouse Gas Reduction Grant and Loan Program, funded by the Greenhouse Gas Reduction Fund, provides financial incentives for capital investments in infrastructure for composting, anaerobic digestion, and recycling and manufacturing facilities that reduce greenhouse gas emissions. The Recycling Market Development Zone Program provides loans, technical assistance, and product marketing for new businesses, expanding existing businesses, creating jobs, and diverting waste from landfills. Additionally, CalRecycle continues to pursue options to reduce waste and increase the recyclability of packaging through its packaging reform process and to reduce the contamination levels in all recycling streams.

REGISTERED SUPPORT / OPPOSITION:

Support

California League of Conservation Voters
California State Association of Counties
Californians Against Waste
Center for Oceanic Awareness, Research, & Education
Coalition for Renewable Natural Gas
Heal the Bay
Los Angeles Alliance for a New Economy
Lutheran Office of Public Policy - California
Mojave Desert and Mountain Recycling Authority
Plastic Pollution Coalition
Republic Services
Roots of Change
Rural County Representatives of California
Save Our Shores
Seventh Generation Advisors
Sierra Club California
StopWaste
The 5 Gyres Institute
The Story of Stuff Project
The Trust for Public Land
Wishtoyo Chumash Foundation
Zero Waste USA

Opposition

None on file

Analysis Prepared by: Elizabeth MacMillan / NAT. RES. /