CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2663

Author:(Eduardo Garcia)

As Amended Ver:July 30, 2020

Majority vote

SUMMARY:

Makes the statutory changes necessary to enable retail sale of dimethyl ether (DME)-propane fuel blend. Changes the Use Fuel Tax rate of dimethyl ether from $0.18 to $0.06 per gallon of DME used and $0.06 per gallon of DME-propane fuel blend used. Authorizes owners or operators of DME or DME-propane fuel blend powered vehicles, except interstate users, to pay the flat rate fuel tax

The Senate Amendments:

Starting July 1, 2021, the tax rate for DME and for DME-propane blend at the same tax rate as propane, $0.06 per gallon.

COMMENTS:

California Business and Professions Code (BPC) statutes specify the retail sale requirements for motor fuels, including fuels subject to the national fuel standards. A person selling motor fuel to the public must display a sign or price indicator showing the actual total price per gallon, or liter, including the fuel and sales taxes. The California Department of Food and Agriculture (CDFA) may grant variances for fuels not included in the national fuel standards; such fuels are considered developmental engine fuels.

The National Institute of Standards and Technology (NIST) at the United States Department of Commerce is a physical science laboratory that establishes national measurement standards for various products and services. Motor vehicle fuel gases such as CNG, LNG, LPG, and DME are specified in regulations. The NIST fuel standard for DME was added in 2018 and requires DME to meet the specifications in the latest version of ASTM D7901, "Standard Specifications for Dimethyl Ether for Fuel Purposes."

DME is a new motor fuel and there are currently no reported sales and use data. However, the California Energy Commission recently approved a $2.88 million grant for [this bill] sponsor, Oberon Fuels, under the Alternative and Renewable Fuel and Vehicle Technology Program. Oberon Fuels estimates annual DME production capacity at 1.56 million gallons.

According to the Author:

According to the author, "[This bill] will make the necessary amends to the CA Business and Professions Code and the CA Revenue and Taxation Code to authorize the retail sale and dispensing in California of DME and DME blended with LPG for use as motor vehicle fuels. DME is a clean burning, non-toxic fuel replacement for heavy duty diesel trucks and agriculture equipment that currently rely on petroleum diesel. Similarly, DME can also be used as a cost-effective blending agent with liquefied petroleum gas – which is used to fuel school buses, shuttles, and local government vehicles -- that can reduce LPG's carbon intensity. Moreover, up to 20% of DME can be blended with LPG without requiring any modifications to vehicles that operate on LPG or to the existing LPG fueling infrastructure. [This bill] will help facilitate enhanced production and commercial availability of cleaner burning alternative fuel options for California's consumers which, in turn, will provide tangible benefits to the state's air quality and economy."

Arguments in Support:

Western Propane Gas Association writes in support, "[We] wish to indicate our strong support for [this bill] DME fuel blend. This bill is authored by Assemblymember Eduardo Garcia and would enable dimethyl ether (DME) to be blended with propane (aka proposed "Propane – DME fuel blend") to be legally sold and dispensed at retail as an alternative fuel to the California public for use as a motor vehicle fuel. As such, we urge your support for this measure when it comes before your committee for consideration.

Since 1912, propane has been used in the United States as a transportation fuel and is the third most commonly used fuel in the country. Many vehicles fueled by propane are used in fleet applications, such as school buses, shuttle vehicles, and package delivery trucks. Propane has also proven useful in several niche applications, such as forklifts for warehouses, ports and at construction sites. Propane is the fuel of choice for many because of its low cost, low maintenance expense and low GHG emissions relative to conventional fuels. Our industry has our eye on the next generation of propane, which is renewable."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to Senate Appropriations Committee, "Minor one-time California Department of Food and Agriculture (CDFA) costs of approximately $30,000 to establish an interim fuel quality specification regulation for DME-propane fuel blend. When DME-propane fuel blends enter the retail market, which is expected to be at least five years in the future, ongoing costs for testing, training, and enforcement are expected to be minor and absorbable. (Food and Agriculture Fund).

Minor and absorbable California Department of Tax and Fee Administration (CDTFA) administrative costs to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers. (General Fund).

Unknown tax revenue impacts associated with lowering the DME excise tax rate from the default of $0.18 per gallon to $0.06 per gallon and allowing DME and DME-propane fuel blend powered vehicle owners and operators to pay a specified annual flat fuel tax rate instead of the per gallon rate. CDTFA notes that limited information is currently available regarding DME motor vehicle fuel sales and use."

VOTES:

ASM BUSINESS AND PROFESSIONS: 19-0-0

YES: Low, Brough, Arambula, Bloom, Chen, Chiu, Cunningham, Eggman, Fong, Gipson, Gloria, Grayson, Holden, Irwin, McCarty, Medina, Mullin, Obernolte, Ting

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Megan Dahle, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Petrie-Norris, McCarty, Robert Rivas, Voepel

ASSEMBLY FLOOR: 78-0-1

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Megan Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, 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: Quirk

SENATE FLOOR: 39-0-1

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

ABS, ABST OR NV: Jones

UPDATED:

VERSION: July 30, 2020

CONSULTANT: Danielle Sires / B. & P. / (916) 319-3301 FN: 0003574

 THIRD READING  

Bill No: AB 2663

Author: Eduardo Garcia (D)

Amended: 7/30/20 in Senate

Vote: 21

SENATE TRANSPORTATION COMMITTEE: 14-0, 8/4/20

AYES: Beall, Bates, Allen, Dahle, Dodd, Galgiani, Lena Gonzalez, McGuire, Morrell, Roth, Rubio, Skinner, Umberg, Wieckowski

NO VOTE RECORDED: Melendez

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/20/20

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

ASSEMBLY FLOOR: 78-0, 6/11/20 - See last page for vote

SUBJECT: Use fuel tax: dimethyl ether: fuel blend

SOURCE: Author

DIGEST:

This bill makes the statutory changes necessary to enable retail sale of dimethyl ether (DME)-propane fuel blend. It also changes the Use Fuel Tax rate of dimethyl ether from $0.18 to $0.06 per gallon of DME used and $0.06 per gallon of DME-propane fuel blend used. Finally, it also authorizes owners or operators of DME or DME-propane fuel blend powered vehicles, except interstate users, to pay the flat rate fuel tax.

ANALYSIS:

Existing law:

Fuel taxes

1. Establishes the Use Fuel Tax Law, which imposes a default tax of $0.18 per gallon on the use of certain fuels that are not taxed separately under the motor vehicle fuel tax (including gasoline) or the diesel fuel tax. (RTC §8651)
   
2. Sets tax rates below the $0.18 per gallon default, as specified, for liquefied petroleum gas (i.e. LPG, propane), liquid natural gas (LNG), compressed natural gas (CNG), or ethanol containing no more than 15% gasoline. (RTC §8651.5, 8651.6, 8651.8).
   
3. Allows the owner of vehicles that runs on propane, LNG, or CNG to pay a flat annual fuel tax rate instead of paying on a per gallon basis. (RTC §8651.7)

Fuel standards

1. Defines various types of motor vehicle fuels and fuel blends including biodiesel, ethanol, gasoline, and gasoline-oxide blend. (BPC §13400)
2. Specifies that the antiknock index for gasoline and gasoline oxygenated blends shall not be less than 87. (BPC §13440)
3. Requires CDFA to establish specification for automotive fuels through reference to standards developed by a recognized consensus organization or via interim specifications. Requires gasoline, gasoline-oxygenate blends, ethanol fuel blends, methanol fuel blends, liquefied petroleum gas, and natural gas to meet the latest specification set forth by ASTM International or SAE International, as specified. (BPC §13440, §13446)
4. Requires every business selling automotive fuels to display the total prices of the three major grades of motor vehicle fuel offered for sale so that they are clearly visible from the street. Exempts propane, electricity, and natural gas from the requirement that their price be visible from the street. (BPC §13531)

This bill:

Fuel taxes

1. Sets, starting July 1, 2021, the use fuel tax rate for DME-propane fuel blend at $0.06 per gallon and for DME at $0.06 per gallon.
2. Allows, beginning July 1, 2021, the owner of a vehicle that runs on DME or DME-propane fuel blend to pay this flat annual rate.

Fuel standards

1. Defines “Dimethyl ester-propane fuel blend,” as a motor vehicle fuel consisting primarily of liquefied petroleum gas meeting the requirements of ASTM International Standard Specification D1835 mixed with dimethyl ether meeting the requirements of ASTM International Standard Specification D7901.
2. Specifies that the antiknock index for dimethyl ether-propane fuel shall not be less than 87.
3. Requires dimethyl ether-propane fuel blends used as motor vehicle fuel to meet the latest specifications set forth by the ASTM International and, if ASTM International specifications do not exist, requires the secretary to establish interim specifications by regulation.
4. Exempts DME-propane blend from the requirement that price signage be visible from the road.

Background

Development of DME as a vehicle fuel. DME is widely used in the chemical industry and under development as an alternative to diesel. The overall environmental impact of using DME as a transportation fuel depends on multiple factors throughout its lifecycle, including whether it is made from fossil fuel or renewable feedstock. However, DME as an alternative to diesel can virtually eliminate particulate emissions and potentially negate the need for costly diesel particulate filters. Vehicles that operate on propane can also be fueled with a blend of propane and DME.

To date, CDTFA also has no reported DME fuel sales. However, the California Energy Commission (CEC) recently approved a $2.88 million grant for the sponsor of this measure, Oberon Fuels, Inc., under the Alternative and Renewable Fuel and Vehicle Technology Program.

Comments

1. Purpose. According to the author, “AB 2663 will make the necessary amends to the CA Business and Professions Code and the CA Revenue and Taxation Code to authorize the retail sale and dispensing in California of DME and DME blended with LPG for use as motor vehicle fuels. DME is a clean burning, non-toxic fuel replacement for heavy-duty diesel trucks and agriculture equipment that currently rely on petroleum diesel. Similarly, DME can also be used as a cost-effective blending agent with liquefied petroleum gas – which is used to fuel school buses, shuttles, and local government vehicles -- that can reduce LPG’s carbon intensity. Moreover, up to 20% of DME can be blended with LPG without requiring any modifications to vehicles that operate on LPG or to the existing LPG fueling infrastructure. AB 2663 will help facilitate enhanced production and commercial availability of cleaner burning alternative fuel options for California’s consumers which, in turn, will provide tangible benefits to the state’s air quality and economy.”
   
2. Regulation of alternative fuels. The CDFA is the only state agency with the authority to regulate the quality of fuel and automotive products. All fuels must comply with fuel-quality standards and advertising and labeling requirements. CDFA is tasked with establishing interim standards for emerging fuels if national standards do not exist.
   
   This bill makes the statutory changes to enable retail sale of DME-propane fuel blend as an alternative fuel. These changes include adding DME-propane fuel blend to the codified list of alternative fuels and defining it (DME and propane are already listed individually), requiring CDFA to establish interim quality specifications, and requiring DME-propane blend to have an anti-knock index above 87.
   
3. No price display from street. Current law requires gasoline prices to be visible from the street, but exempts electricity, natural gas, and propane sold as motor fuel from this signage requirement. This bill also exempts DME-propane fuel blend. Prices are still required on the pump or dispensing device.
   
4. Tax rates for alternative fuels. The Use Fuel Tax Law imposes a tax of $0.18 per gallon on the use of certain fuels, generally fuels other than gasoline and diesel which are taxed separately under the Motor Vehicle Tax Law and Diesel Fuel Tax Law respectively. However, alternative fuels have generally been promoted through tax rates below the default use fuel tax rate.
   
5. This bill reduces tax rates for DME and DME-propane blend. Because existing law does not set a specific tax rate for DME, it is subject to the $0.18 per gallon use fuel tax rate, a higher tax rate than for similar fuels. This bill sets, starting July 1, 2021, the tax rate for DME and for DME-propane blend at the same tax rate as propane, $0.06 per gallon.
   
6. Flat annual fee option extended to DME and DME-propane blend. Separately, existing law allows owners or operators of vehicles propelled by propane, LNG, and CNG to pay an annual flat fee instead of paying at the pump. This bill would, starting July 1, 2021, extend that option to vehicle running on DME or DME-propane blend.

Related/Prior Legislation

AB 808 (Ridley-Thomas, Chapter 591, Statutes of 2015) expanded the authority of the California Department of Food and Agriculture (CDFA) to include alternative fuels, as defined; requires the method of sale for all motor vehicle fuels and lubricants to be consistent with national standards, and requires the Secretary of the CDFA to establish interim standards for methods of sale if national standards do not exist; and makes other conforming changes.

AB 1907 (Ridley-Thomas, Chapter 805, Statutes of 2014) required compressed and liquefied natural gas (LNG) sold as motor vehicle fuels to be metered, labeled, and taxed in units of gasoline- and diesel-gallon equivalents, respectively.

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

According to the Senate Appropriations Committee:

• Minor one-time California Department of Food and Agriculture (CDFA) costs of approximately $30,000 to establish an interim fuel quality specification regulation for DME-propane fuel blend. When DME-propane fuel blends enter the retail market, which is expected to be at least five years in the future, ongoing costs for testing, training, and enforcement are expected to be minor and absorbable. (Food and Agriculture Fund)
  
• Minor and absorbable California Department of Tax and Fee Administration (CDTFA) administrative costs to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers. (General Fund)
• Unknown tax revenue impacts associated with lowering the DME excise tax rate from the default of $0.18 per gallon to $0.06 per gallon and allowing DME and DME-propane fuel blend powered vehicle owners and operators to pay a specified annual flat fuel tax rate instead of the per gallon rate. CDTFA notes that limited information is currently available regarding DME motor vehicle fuel sales and use.

SUPPORT: (Verified 8/20/20)

International Dme Association

Oberon Fuels

Shv Energy

Suburban Propane Partners, L.p.

Western Propane Gas Association

OPPOSITION: (Verified 8/20/20)

None received

ASSEMBLY FLOOR: 78-0, 6/11/20

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Megan Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, 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: Quirk

Prepared by: Amy Gilson / TRANS. / (916) 651-4121

8/21/20 18:01:36

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 2663 (Eduardo Garcia) - Use fuel tax: dimethyl ether: fuel blend

Bill Summary:

AB 2663 would make specified statutory changes necessary to enable dimethyl ether (DME) – propane fuel blend to be sold and dispensed at retail as an alternative motor vehicle fuel. The bill would also set the excise tax rate on DME and DME-propane fuel blend at $0.06 per gallon beginning on July 1, 2021, and authorize the owner or operator of a vehicle using these fuels to pay a specified annual flat rate fuel tax instead of the excise tax.

Fiscal Impact:

• Minor one-time California Department of Food and Agriculture (CDFA) costs of approximately $30,000 to establish an interim fuel quality specification regulation for DME-propane fuel blend. When DME-propane fuel blends enter the retail market, which is expected to be at least five years in the future, ongoing costs for testing, training, and enforcement are expected to be minor and absorbable. (Food and Agriculture Fund)
  
• Minor and absorbable California Department of Tax and Fee Administration (CDTFA) administrative costs to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers. (General Fund)
• Unknown tax revenue impacts associated with lowering the DME excise tax rate from the default of $0.18 per gallon to $0.06 per gallon and allowing DME and DME-propane fuel blend powered vehicle owners and operators to pay a specified annual flat fuel tax rate instead of the per gallon rate. CDTFA notes that limited information is currently available regarding DME motor vehicle fuel sales and use.

Background:

Existing law provides CDFA’s Division of Measurement Standards with general authority over the regulation of weights and measures and all commercially-used weighing and measuring devices, and requires CDFA to establish and enforce regulations and standards for the sale of motor vehicle fuels, petroleum products, and lubricants offered for sale in the state, including specified alternative fuels. The Secretary of CDFA is required to establish specification for automotive fuels through reference to standards developed by a recognized consensus organization. In the absence of national standards, the Secretary is authorized to adopt interim standards.

Existing law, the Use Fuel Tax Law, generally imposes a default tax rate of $0.18 per gallon on the use of certain fuels that are not taxed separately under the motor vehicle fuel tax or diesel fuel tax, except the state excise tax on liquefied petroleum gas is imposed at a rate of $0.06 per gallon. Existing law authorizes the owner or operator of a vehicle that runs on liquefied petroleum gas (propane), liquefied natural gas (LNG) or compressed natural gas (CNG), except an interstate user, to pay a specified annual flat rate fuel tax instead of paying use fuel taxes on a per gallon basis.

Proposed Law:

AB 2663 would make statutory changes necessary to enable DME–propane fuel blend to be sold and dispensed at retail as an alternative motor vehicle fuel, and set the fuel tax rates for DME and DME-propane fuel blend. Specifically, this bill would:

• Define “dimethyl ether-propane blend” as a motor vehicle fuel consisting primarily of liquefied petroleum gas meeting the requirements of ASTM International Standard Specification D1835 mixed with dimethyl ether meeting the requirements of ASTM International Standard Specification D7901.
• Include DME-propane blend in the definition of “alternative fuels.”
• Prohibit the antiknock index of DME-propane fuel blends from being less than 87.
• Require DME-propane fuel blends for use as motor vehicle fuel to meet the latest specifications set forth by the ASTM International, and require the Secretary of CDFA to establish interim specifications by regulation if no ASTM International specifications exist.
• Exempt DME-propane fuel blend from specified provisions that require businesses selling motor vehicle fuels to the public to clearly display the total prices of the three major grades of fuels offered for sale in a manner that is clearly visible from the street.
• Set the excise tax rate on DME and DME-propane fuel blend at $0.06 per gallon beginning on July 1, 2021.
• Authorize the owner or operator of a vehicle powered by DME or DME-propane fuel blend, except an interstate user, to pay a specified annual flat rate fuel tax instead of paying excise taxes on a per gallon basis.

Related Legislation:

AB 808 (Ridley-Thomas), Chap. 591/2015, expanded CDFA’s regulatory authority regarding alternative fuels, required the methods for sales of all motor vehicle fuels and lubricants to follow specified national standards, and required the Secretary of CDFA to establish interim standards for methods of sale if national standards do not exist.

AB 1907 (Ridley-Thomas), Ch. 805/2014, required that Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) sold at retail for use as a motor vehicle fuel be sold in a gasoline gallon or diesel gallon energy equivalent, respectively.

Staff Comments:

The California Energy Commission (CEC) recently awarded a $2.88 million grant to Oberon Fuels, Inc. for a “Renewable DME: Pathway to Zero Emission Fuels” project under the Alternative and Renewable Fuel and Vehicle Technology Program. Oberon Fuels plans to use the grant funds to scale up and modify their existing DME pilot production plant in Brawley, California in the Imperial Valley. At full capacity, the plant will have a target DME production capacity of approximately 1.56 million gallons per year. The fuel produced at this facility would be used for a demonstration program for local fleet trucks; Oberon plans to convert five diesel-powered trucks to run on DME. The stated end goal of the grant agreement is to demonstrate the technical, economic, and market viability of renewable DME as a California-produced, low-carbon, diesel replacement and a pathway for renewable hydrogen by building and testing a DME supply chain: fuel production, distribution, fueling infrastructure, and fleet utilization.

This bill lowers the tax rate for DME and DME-propane fuel blend from $0.18 to $0.06 per gallon, and also allows an owner or operator of a DMV or DME-propane fuel blend powered vehicle to pay a minimal annual flat rate of use tax in lieu of the per gallon rate. For trucks with an unladen weight of over 12,000 pounds, the annual flat rate would be $168. In general, the reduced tax rate is intended to represent the lower energy output of a gallon of DME compared to diesel fuel, and to encourage the use of cleaner alternative fuels. According to available research, an equal volume of DME has only about 53% of the potential energy of diesel fuel. Therefore, more DME needs to be burned for every power stroke in a diesel engine to achieve the same power output, assuming all other factors are equal. DME fuels do not currently appear to be commercially available in California. As such, the lower tax rates specified in the bill would not appear to have an immediate revenue impact, but would represent a foregone revenue impact when DME fuel and fuel blends become commercially available (less would be collected in a future year than would otherwise be collected using the current tax structure).

-- END --

SENATE COMMITTEE ON TRANSPORTATION

Senator Jim Beall, Chair

2019 - 2020 Regular

Bill No: Hearing Date: 8/4/2020

SUBJECT:

DIGEST: This bill makes the statutory changes necessary to enable retail sale of dimethyl ether (DME)-propane fuel blend. It also changes the Use Fuel Tax rate of dimethyl ether from $0.18 to $0.06 per gallon of DME used and $0.06 per gallon of DME-propane fuel blend used. Finally, it also authorizes owners or operators of DME or DME-propane fuel blend powered vehicles, except interstate users, to pay the flat rate fuel tax.

ANALYSIS:

Existing law:

Fuel taxes

1. Establishes the Use Fuel Tax Law, which imposes a default tax of $0.18 per gallon on the use of certain fuels that are not taxed separately under the motor vehicle fuel tax (including gasoline) or the diesel fuel tax. (RTC §8651)
   
2. Sets tax rates below the $0.18 per gallon default, as specified, for liquefied petroleum gas (i.e. LPG, propane), liquid natural gas (LNG), compressed natural gas (CNG), or ethanol containing no more than 15% gasoline. (RTC §8651.5, 8651.6, 8651.8).
   
   This bill sets, starting July 1, 2021, the use fuel tax rate for DME-propane fuel blend at $0.06 per gallon and for DME at $0.06 per gallon.
   
3. Allows the owner of vehicles that runs on propane, LNG, or CNG to pay a flat annual fuel tax rate instead of paying on a per gallon basis. (RTC §8651.7)
   
   This bill allows, beginning July 1, 2021, the owner of a vehicle that runs on DME or DME-propane fuel blend to pay this flat annual rate.

Fuel standards

1. Specifies that the Secretary of Agriculture shall establish the method of sale of motor vehicle fuels and lubricants sold at retail to the public. (BPC §13404.5)
   
2. Requires the Secretary of Agriculture to make rules and regulations to define and enforce the octane number, antiknock index labeling requirements, or other labeling requirements of engine fuels. (BPC §13480(c))
   
3. Authorizes the California Department of Food and Agriculture (CDFA) to allow engine fuels that are under development to meet requirements that vary from typical specifications. (BPC §13405)
   
4. Defines various types of motor vehicle fuels and fuel blends including biodiesel, ethanol, gasoline, and gasoline-oxide blend. (BPC §13400)
   
   This bill defines “Dimethyl ester-propane fuel blend,” as a motor vehicle fuel consisting primarily of liquefied petroleum gas meeting the requirements of ASTM International Standard Specification D1835 mixed with dimethyl ether meeting the requirements of ASTM International Standard Specification D7901.
   
5. Specifies that the antiknock index for gasoline and gasoline oxygenated blends shall not be less than 87. (BPC §13440)
   
   This bill specifies that the antiknock index for dimethyl ether-propane fuel shall not be less than 87.
   
6. Requires CDFA to establish specification for automotive fuels through reference to standards developed by a recognized consensus organization or via interim specifications. Requires gasoline, gasoline-oxygenate blends, ethanol fuel blends, methanol fuel blends, liquefied petroleum gas, and natural gas to meet the latest specification set forth by ASTM International or SAE International, as specified. (BPC §13440, §13446)
   
   This bill requires dimethyl ether-propane fuel blends used as motor vehicle fuel to meet the latest specifications set forth by the ASTM International and, if ASTM International specifications do not exist, requires the secretary to establish interim specifications by regulation.
   
7. Requires automotive fuels sold to conform to CDFA specifications. (BPC §13441)
   
8. Prohibits any business from selling automotive fuel unless the price, including taxes, of the fuel is displayed on the dispensing apparatus. (BPC §13470)
   

Requires every business selling automotive fuels to display the total prices of the three major grades of motor vehicle fuel offered for sale so that they are clearly visible from the street. Exempts propane, electricity, and natural gas from the requirement that their price be visible from the street. (BPC §13531)

This bill also exempts DME-propane blend from the requirement that price signage be visible from the road.

COMMENTS:

1. Purpose. According to the author, “AB 2663 will make the necessary amends to the CA Business and Professions Code and the CA Revenue and Taxation Code to authorize the retail sale and dispensing in California of DME and DME blended with LPG for use as motor vehicle fuels. DME is a clean burning, non-toxic fuel replacement for heavy duty diesel trucks and agriculture equipment that currently rely on petroleum diesel. Similarly, DME can also be used as a cost-effective blending agent with liquefied petroleum gas – which is used to fuel school buses, shuttles, and local government vehicles -- that can reduce LPG’s carbon intensity. Moreover, up to 20% of DME can be blended with LPG without requiring any modifications to vehicles that operate on LPG or to the existing LPG fueling infrastructure. AB 2663 will help facilitate enhanced production and commercial availability of cleaner burning alternative fuel options for California’s consumers which, in turn, will provide tangible benefits to the state’s air quality and economy.”
   
2. Development of DME as a vehicle fuel. DME is widely used in the chemical industry and under development as an alternative to diesel. It is an odorless gas at atmospheric pressure and may be compressed into liquid form for handling or applications. The overall environmental impact of using DME as a transportation fuel depends on multiple factors throughout its lifecycle, including whether it is made from fossil fuel or renewable feedstock. However, DME as an alternative to diesel can virtually eliminate particulate emissions and potentially negate the need for costly diesel particulate filters. DME has half the energy density of diesel fuel, though, getting about half as many miles per gallon of fuel. Vehicles need a specially designed engine to run on DME, and a number of DME vehicle demonstrations have been held in Europe and North America. However, vehicles that operate on propane can also be fueled with a blend of propane and DME. According to the California Department of Tax and Fee Administration (CDTFA), over 9 million gallons of propane vehicular fuel was sold in fiscal year 2018-2019.
   
   To date, CDTFA also has no reported DME fuel sales. However, the California Energy Commission (CEC) recently approved a $2.88 million grant for the sponsor of this measure, Oberon Fuels, Inc., under the Alternative and Renewable Fuel and Vehicle Technology Program. According to Oberon’s grant application, this funding will “move Oberon’s existing DME pilot facility to demonstration scale and facilitate the first production of [renewable] DME in the United States.” Writing in support, they say this upgrade will ramp up target DME production capacity to about 1.56 million gallons of DME per year, “The fuel produced under this CEC grant will ultimately be made available in the form of DME and DME blended with LPG to local fleets operating in Imperial Valley and other Southern California locations.”
3. Regulation of alternative fuels. The CDFA is the only state agency with the authority to regulate the quality of fuel and automotive products. No other state agency has the authority to regulate weights and measures, advertising, labeling, and fuel quality requirements for motor vehicle fuels and automotive products. All fuels must comply with fuel-quality standards and advertising and labeling requirements. CDFA’s regulatory authority over conventional fuels, gasoline and diesel, reaches back over a decade, and AB 808 (Ridley-Thomas, Chapter 591, Statutes of 2015) expanded their authority to alternative fuels- biodiesel, dimethyl ether, ethanol, and natural gas among them. Because national fuel quality standards may not exist for emerging fuels, AB 808 also tasked CDFA with establishing interim standards if national standards do not exist.
   
   This bill makes the statutory changes to enable retail sale of DME-propane fuel blend as an alternative fuel. These changes include adding DME-propane fuel blend to the codified list of alternative fuels and defining it (DME and propane are already listed individually), requiring CDFA to establish interim quality specifications, and requiring DME-propane blend to have an anti-knock index above 87.
   
4. No price display from street. Current law requires gasoline prices to be visible from the street, but exempts electricity, natural gas, and propane sold as motor fuel from this signage requirement. This bill also exempts DME-propane fuel blend. Prices are still required on the pump or dispensing device.
   
5. Tax rates for alternative fuels. The Use Fuel Tax Law imposes a tax of $0.18 per gallon on the use of certain fuels, generally fuels other than gasoline and diesel which are taxed separately under the Motor Vehicle Tax Law and Diesel Fuel Tax Law respectively. However, emerging alternative fuels have generally been promoted through tax rates below the default use fuel tax rate. California’s alternative fuels development efforts included a propane rate established in 1965 at $0.06 per gallon, which was lower than the $0.07 per gallon use fuel tax rate (AB 380, Chapter 747, Statutes of 1965). In 1970, the tax rate for LNG followed suit, also at $0.06 per gallon. Most recently, in 1981, California reduced the tax rate of E85/ethanol fuel to fifty percent of the use fuel tax rate, which was $0.035 per gallon at the time (SB 654, Chapter 950, Statutes of 1981). Proponents argued this tax rate made sense since alcohol fuel had about one-half the energy content of gasoline. 
   
6. Old tax rates. As gasoline and diesel fuel tax rates increased, most recently, under SB 1, LNG and LPG rates retained their reduced rates. E85 tax rates remained at one-half the use fuel tax rate, increasing from the $0.035 to the current $0.09 per gallon. AB 1907 (Ridley-Thomas, Chapter 805, Statutes of 2014) required the tax rate for LNG to be expressed in diesel gallon equivalents, a revenue-neutral change intended to provide a simple way of comparing the cost of LNG and diesel. Overall, taxes on these alternative fuels are arguably outdated since they have been largely set and forget.
   
7. This bill reduces tax rates for DME and DME-propane blend. DME appears to be the first novel, emerging fuel for the internal combustion engine in decades. Because existing law does not set a specific tax rate for DME, it is subject to the $0.18 per gallon use fuel tax rate, a higher tax rate than for similar fuels. This bill sets, starting July 1, 2021, the tax rate for DME and for DME-propane blend at the same tax rate as propane, $0.06 per gallon.
   
8. Flat annual fee option extended to DME and DME-propane blend. Separately, existing law allows owners or operators of vehicles propelled by propane, LNG, and CNG to pay an annual flat fee instead of paying at the pump. This bill would, starting July 1, 2021, extend that option to vehicle running on DME or DME-propane blend.
   
9. Single referral does not set precedent. COVID-19 response has constrained the legislative calendar and necessitated single referrals for many bill that would typically be heard by multiple committees. Under normal circumstances, AB 2663 would have been double referred to the Senate Committee on Governance and Finance as well as this committee. Its single referral does not set precedent for future referrals.

Related Legislation:

AB 808 (Ridley-Thomas, Chapter 591, Statutes of 2015) — expanded the authority of the California Department of Food and Agriculture (CDFA) to include alternative fuels, as defined; requires the method of sale for all motor vehicle fuels and lubricants to be consistent with national standards, and requires the Secretary of the CDFA to establish interim standards for methods of sale if national standards do not exist; and makes other conforming changes.

AB 1907 (Ridley-Thomas, Chapter 805, Statutes of 2014) — requires compressed and liquefied natural gas (LNG) sold as motor vehicle fuels to be metered, labeled, and taxed in units of gasoline- and diesel-gallon equivalents, respectively.

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

According to the Assembly Appropriation Committee:

• Minor and absorbable costs to the California Department of Tax and Fee Administration (CDTFA) to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers.
• CDTFA indicates the tax revenue impact is unknown due to limited information on DME motor vehicle fuel sales and use.

Assembly Votes:

Floor 78-0

Appropriations 18-0

Business and Professions 19-0

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

POSITIONS: (Communicated to the committee before noon on Monday,

July 27.)

SUPPORT:

International Dme Association

Oberon Fuels

Shv Energy

Suburban Propane Partners, L.p.

Western Propane Gas Association

OPPOSITION:

None received.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2663

Author:(Eduardo Garcia)

As Amended Ver:June 4, 2020

Majority vote

SUMMARY:

This bill changes the Use Fuel tax rate of dimethyl ether (DME) from $0.18 to $0.048 per gallon of DME used and specifies a $0.06 tax rate per gallon of propane fuel blend used. Also authorizes owners or operators of DME or propane fuel blend powered vehicles, except interstate users, to pay the flat rate fuel tax.

Major Provisions

1. Decreases the use fuel excise tax rate of DME, from $0.18 per gallon of DME used to $0.048 per gallon of DME used, and establishes a new $0.06 tax rate per gallon of propane fuel blend used.
2. Authorizes owners or operators of DME- or propane fuel blend powered-vehicles, except interstate users, to pay the flat-rate fuel tax in existing law in lieu of the per-gallon tax.
3. Expands the definition of alternative fuels to include "propane fuel blend."
4. Requires California Department of Food and Agriculture (CDFA) to establish automotive spark-ignition engine fuel standards for propane fuel blend.

In addition, as amended June 3, 2020, this bill:

1. Adds Revenue and Taxation Code (RTC) Section 8651.9 to change the use fuel excise tax rate for DME from $0.18 to $0.048 per gallon used. 
2. Delays the operative date of Section RTC 8651.9 to July 1, 2021.
3. Adds RTC Section 8651.4 to specify that a tax rate of $0.06 per gallon used shall apply to DME-liquefied petroleum gas fuel blend.
4. Delays the operative date of RTC Section 8651.4 to July 1, 2021.
5. Amends RTC Section 8651.7 to allow DME fuel and DME-liquefied petroleum gas fuel blend users, except interstate users, to pay the annual flat rate fuel tax in lieu of the per gallon tax.
6. Delays the operative date of RTC Section 8651.7 as it applies to DME fuel and DME-liquefied petroleum gas fuel blend, to July 1, 2021.
7. Amends RTC Section 8651.7 in two places to update references of "board" to "department" to reflect the CA Department of Tax and Fee Administration having succeeded the CA Board of Equalization.
8. Amends Business and Professions Code (BPC) Section 13400 to expand the definition of "alternative fuels" to include "Dimethyl ether-propane fuel blend."
9. Defines "Dimethyl ether-propane fuel blend" as a motor vehicle fuel with a specific blend and components.
10. Amends BPC Section 13440 to require California Department of Food and Agriculture (CDFA) to establish automotive spark-ignition engine fuel standards for dimethyl ether-propane fuel blend based on ASTM International Specifications, and if no ASTM International specifications exist, require the Secretary of CDFA to establish interim specifications by regulation.
11. Amends BPC Section 13531 to exempt dimethyl ether-propane fuel blend, along with the provision's current exemption for propane, from being considered a "motor vehicle fuel" for purposes of requiring that every person offering for sale or selling any motor vehicle fuel to the public from any place of business shall display on the premises an advertising medium that complies with CA law pertaining to price sign advertising and advertises the total prices of the three major grades of motor vehicle fuel offered for sale.

COMMENTS:

Existing state laws specify the retail sale requirements for motor fuels, including fuels subject to the national fuel standards. A person selling motor fuel to the public must display a sign or price indicator showing the actual total price per gallon, or liter, including the fuel and sales taxes. The California Department of Food and Agriculture (CDFA) may grant variances for fuels not included in the national fuel standards; such fuels are considered developmental engine fuels.

The National Institute of Standards and Technology (NIST) at the United States Department of Commerce is a physical science laboratory that establishes national measurement standards for various products and services. Motor vehicle fuel gases such as compressed natural gas (CNG), liquefied natural gas (LNG), liquefied petroleum gas (LPG), and DME are specified in regulations. The NIST fuel standard for DME was added in 2018 and requires DME to meet the specifications in the latest version of ASTM D7901, "Standard Specifications for Dimethyl Ether for Fuel Purposes."

DME is a new motor fuel and CDTFA has no reported sales and use data. However, the California Energy Commission (CEC) recently approved a $2.88 million grant for the bill's sponsor, Oberon Fuels, Inc., under the Alternative and Renewable Fuel and Vehicle Technology Program. Oberon estimates annual DME production capacity at 1.56 million gallons.

Most of the focus on DME in California has been on its application as a petroleum diesel fuel replacement, but DME can also serve as a blending agent with propane to reduce propane's carbon intensity. Research has shown that up to 20% of DME can be blended into motor fuel propane, LPG, making it a cleaner fuel than many other conventional fuels, without requiring any vehicle or infrastructure changes.

Oberon Fuels, Inc. (Oberon). Oberon, founded in 2010, is dedicated to developing technology to address the growing problems of emissions and particulate matter generated by diesel engine vehicles. In 2013, Oberon produced the country's first fuel-grade DME at it commercial demonstration facility in Brawley, California.

Oberon indicates it has worked for several years with state and federal agencies, including CDFA and the California Air Resources Board (CARB), to ensure the proper regulations are in place to support the commercialization of DME as a transportation fuel. DME was approved in 2015 for use in California as a transportation fuel.

As mentioned above, last year the CEC awarded Oberon Fuels $2.88 million to help fund a first-of-its-kind, multi-phase DME fuel production project. The project is intended to scale up and modify Oberon's existing DME pilot production plant to replicate commercial operations. Oberon indicates this plant will facilitate the first production of DME in the United States, which will be used as a diesel fuel replacement, as well as blended with LPG to provide a cleaner fuel.

According to the Author:

According to the Author, "DME is a clean-burning, non-toxic fuel, which has for decades been safely used as an aerosol propellant for products such as hairspray, deodorant, and sunscreen. When used as a transportation fuel, DME is a fuel replacement for heavy duty diesel trucks and agriculture equipment that currently rely on petroleum diesel. AB 2663 is intended to provide the necessary recognition and direction in the CA Business and Professions Code and the CA Revenue and Taxation Code of DME as an alternative fuel when sold and dispensed at retail to the CA public for use only as a motor vehicle fuel."

Arguments in Support:

Western Propane Gas Association writes in support, "[We] wish to indicate our strong support for [this bill] DME fuel blend. This bill is authored by Assemblymember Eduardo Garcia and would enable dimethyl ether (DME) to be blended with propane (aka proposed "Propane – DME fuel blend") to be legally sold and dispensed at retail as an alternative fuel to the California public for use as a motor vehicle fuel. As such, we urge your support for this measure when it comes before your committee for consideration.

Since 1912, propane has been used in the United States as a transportation fuel and is the third most commonly used fuel in the country. Many vehicles fueled by propane are used in fleet applications, such as school buses, shuttle vehicles, and package delivery trucks. Propane has also proven useful in several niche applications, such as forklifts for warehouses, ports and at construction sites. Propane is the fuel of choice for many because of its low cost, low maintenance expense and low GHG emissions relative to conventional fuels. Our industry has our eye on the next generation of propane, which is renewable."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee:

1. Minor and absorbable costs to the California Department of Tax and Fee Administration (CDTFA) to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers.
2. CDTFA indicates the tax revenue impact is unknown due to limited information on DME motor vehicle fuel sales and use.

VOTES:

ASM BUSINESS AND PROFESSIONS: 19-0-0

YES: Low, Brough, Arambula, Bloom, Chen, Chiu, Cunningham, Eggman, Fong, Gipson, Gloria, Grayson, Holden, Irwin, McCarty, Medina, Mullin, Obernolte, Ting

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Megan Dahle, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Petrie-Norris, McCarty, Robert Rivas, Voepel

UPDATED:

VERSION: June 4, 2020

CONSULTANT: Danielle Sires / B. & P. / (916) 319-3301 FN: 0002884

Date of Hearing: June 2, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2663

Author:(Eduardo Garcia) – As Amended Ver:May 5, 2020

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

SUMMARY:

This bill changes the use fuel excise tax rate of dimethyl ether (DME). Specifically, this bill:

1. Decreases the use fuel excise tax rate of dimethyl ether (DME), from $0.18 per gallon of DME used to $0.048 per gallon of DME used, and establishes a new $0.06 tax rate per gallon of propane fuel blend used.
2. Authorizes owners or operators of DME- or propane fuel blend powered-vehicles, except interstate users, to pay the flat-rate fuel tax in existing law in lieu of the per-gallon tax.
3. Expands the definition of alternative fuels to include “propane fuel blend.”
4. Requires California Department of Food and Agriculture (CDFA) to establish automotive spark-ignition engine fuel standards for propane fuel blend.

FISCAL EFFECT:

1. Minor and absorbable costs to the California Department of Tax and Fee Administration (CDTFA) to reprogram its Centralized Revenue Opportunity System (CROS) for the rate changes and fuel classifications, update regulations, publications and staff guidelines, and answer inquiries from taxpayers.
2. CDTFA indicates the tax revenue impact is unknown due to limited information on DME motor vehicle fuel sales and use.

COMMENTS:

1. Purpose. This bill seeks to recognize in state codes DME as an alternative fuel when sold and dispensed at retail to the public for use as a motor vehicle fuel. According to the author:

DME is a clean-burning, non-toxic fuel, which has for decades been safely used as an aerosol propellant for products such as hairspray, deodorant, and sunscreen. When used as a transportation fuel, DME is a fuel replacement for heavy duty diesel trucks and agriculture equipment that currently rely on petroleum diesel.

1. Background. Existing state laws specify the retail sale requirements for motor fuels, including fuels subject to the national fuel standards. A person selling motor fuel to the public must display a sign or price indicator showing the actual total price per gallon, or liter, including the fuel and sales taxes. The California Department of Food and Agriculture (CDFA) may grant variances for fuels not included in the national fuel standards; such fuels are considered developmental engine fuels.

The National Institute of Standards and Technology (NIST) at the United States Department of Commerce is a physical science laboratory that establishes national measurement standards for various products and services. Motor vehicle fuel gases such as compressed natural gas (CNG), liquefied natural gas (LNG), liquefied petroleum gas (LPG), and DME are specified in regulations. The NIST fuel standard for DME was added in 2018 and requires DME to meet the specifications in the latest version of ASTM D7901, “Standard Specifications for Dimethyl Ether for Fuel Purposes.”

DME is a new motor fuel and CDTFA has no reported sales and use data. However, the California Energy Commission (CEC) recently approved a $2.88 million grant for the bill’s sponsor, Oberon Fuels, Inc., under the Alternative and Renewable Fuel and Vehicle Technology Program. Oberon estimates annual DME production capacity at 1.56 million gallons.

Most of the focus on DME in California has been on its application as a petroleum diesel fuel replacement, but DME can also serve as a blending agent with propane to reduce propane’s carbon intensity. Research has shown that up to 20% of DME can be blended into motor fuel propane, LPG, making it a cleaner fuel than many other conventional fules, without requiring any vehicle or infrastructure changes.

1. Oberon Fuels, Inc. (Oberon). Oberon, founded in 2010, is dedicated to developing technology to address the growing problems of emissions and particulate matter generated by diesel engine vehicles. In 2013, Oberon produced the country’s first fuel-grade DME at it commercial demonstration facility in Brawley, California.

Oberon indicates it has worked for several years with state and federal agencies, including CDFA and the California Air Resources Board (CARB), to ensure the proper regulations are in place to support the commercialization of DME as a transportation fuel. DME was approved in 2015 for use in California as a transportation fuel.

As mentioned above, last year the CEC awarded Oberon Fuels $2.88 million to help fund a first-of-its-kind, multi-phase DME fuel production project. The project is intended to scale up and modify Oberon’s existing DME pilot production plant to replicate commercial operations. Oberon indicates this plant will facilitate the first production of DME in the United States, which will be used as a diesel fuel replacement, as well as blended with LPG to provide a cleaner fuel.

1. Prior Legislation.

AB 1907 (Ridley-Thomas), Chapter 805, Statutes of 2104, changed the excise tax rate for CNG from $0.07 per 100 cubic feet to $0.0887 per 5.66 pounds, and for LNG from $0.06 per gallon to $0.1017 per 6.06 pounds. These rates are the gasoline gallon equivalent (GGE) and diesel gallon equivalent (DGE), respectively

1. AB 2656 (Jones), of the 2013-14 Legislative Session, would have required each motor fuel transaction in this state to contain specified information regarding the estimated cost of compliance with any market-based compliance mechanism adopted by the CARB. AB 2656 was held on this committee’s Suspense File.

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

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 2663

Author:(Eduardo Garcia) – As Amended Ver:May 5, 2020

SUBJECT: Use fuel tax: dimethyl ether: propane fuel blend.

SUMMARY: This bill changes the Use Fuel tax rate of dimethyl ether (DME) from $0.18 to $0.048 per gallon of DME used and specifies a $0.06 tax rate per gallon of propane fuel blend used. Also authorizes owners or operators of DME or propane fuel blend powered vehicles, except interstate users, to pay the flat rate fuel tax.

EXISTING LAW:

1. Defines “service station” as any establishment which offers for sale or sells gasoline or other motor vehicle fuel to the public. (Business and Professions Code (BPC) § 13650)
2. Requires every service station in this state to display, at a conspicuous place on, at, or near the dispensing apparatus or at or near the point of sale, at least one clearly visible sign showing a list of applicable state and federal fuel taxes per gallon of motor vehicle fuel sold from the dispensing apparatus. (BPC § 13651)
3. Prohibits a person from selling at retail to the general public, any motor vehicle fuel from any place of business in this state unless there is displayed on the dispensing apparatus in a conspicuous place at least one sign or price indicator showing the total price per gallon, liter, or other unit of measurement adopted pursuant to BPC § 12107, 13404, or 13404.5 of all motor vehicle fuel sold. The total price per gallon, liter, or other unit of measurement shall include applicable fuel taxes and all sales taxes. (BPC § 13470)
4. Requires that petroleum price signs include "the total price per gallon or liter including all taxes" (BPC § 13532(a)).
5. Defines “market-based compliance mechanism” as either of the following: (1) a system of market-based declining annual aggregate emissions limitations for sources or categories of sources that emit greenhouse gases (GHGs) or (2) GHG emissions exchanges, banking, credits, and other transactions, governed by rules and protocols established by the CARB, that result in the same greenhouse gas emission reduction, over the same time period, as direct compliance with a greenhouse gas emission limit or emission reduction measure adopted by the California Air Resource Board (CARB), as specified. (Health and Safety Code (HSC) § 35805)
6. Authorizes the CARB to adopt market-based compliance mechanisms to ensure compliance with its regulations, as specified. (HSC § 38570)
7. Requires the CEC to gather, analyze, and interpret the information relating to the supply and price of petroleum products, with particular emphasis on motor vehicle fuels. (Public Resources Code (PRC) § 25356)

THIS BILL:

1. Adds Revenue and Taxation Code (RTC) § 8651.9 to change the use fuel excise tax rate for DME from $0.18 to $0.048 per gallon used.
2. Adds RTC Section 8651.4 to specify a tax rate of $0.06 per gallon of propane fuel blend, as defined in BPC § 13400.
3. Amends RTC § 8651.7 to allow DME fuel and propane fuel blend users, except interstate users, to pay the annual flat rate fuel tax in lieu of the per gallon tax.
4. Amends BPC § 13400 to expand the definition of “alternative fuels” to include “propane fuel blend.”
5. Defines “propane fuel blend” as a motor vehicle fuel with a specific blend and components.
6. Amends BPC § 13440 to require California Department of Food and Agriculture (CDFA) to establish automotive spark-ignition engine fuel standards for propane fuel blend.

FISCAL EFFECT: Unknown. This bill has been keyed fiscal by Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by Oberon Fuels, Inc. According to the Author, “DME is a clean-burning, non-toxic fuel, which has for decades been safely used as an aerosol propellant for products such as hairspray, deodorant, and sunscreen. When used as a transportation fuel, DME is a fuel replacement for heavy duty diesel trucks and agriculture equipment that currently rely on petroleum diesel. AB 2663 is intended to provide the necessary recognition and direction in the CA Business and Professions Code and the CA Revenue and Taxation Code of DME as an alternative fuel when sold and dispensed at retail to the CA public for use only as a motor vehicle fuel.”

Background. California BPC statutes specify the retail sale requirements for motor fuels, including fuels subject to the national fuel standards. A person selling motor fuel to the public must display a sign or price indicator showing the actual total price per gallon, or liter, including the fuel and sales taxes. The CDFA may grant variances for fuels not included in the national fuel standards; such fuels are considered developmental engine fuels.

The National Institute of Standards and Technology (NIST) at the United States Department of Commerce is a physical science laboratory that establishes national measurement standards for various products and services. Motor vehicle fuel gases such as CNG, LNG, LPG, and DME are specified in regulations. The NIST fuel standard for DME was added in 2018 and requires DME to meet the specifications in the latest version of ASTM D7901, “Standard Specifications for Dimethyl Ether for Fuel Purposes.”

DME is a new motor fuel and there are currently no reported sales and use data. However, the California Energy Commission recently approved a $2.88 million grant for the AB 2663 sponsor, Oberon Fuels, under the Alternative and Renewable Fuel and Vehicle Technology Program. Oberon Fuels estimates annual DME production capacity at 1.56 million gallons.

The propane fuel blend is a mixture of LPG with no more than 20% DME. This type of blended fuel is similar to E85, an ethanol fuel blend of not more than 15% gasoline with a $0.09 per gallon use fuel tax rate, or one-half of RTC Section 8651.

DME offers a pathway to zero-emissions for the global transportation sector and beyond. While most of the focus on DME in California has been on its application as a petroleum diesel fuel replacement, this renewable fuel can also serve as a cost-effective blending agent with propane to reduce propane’s carbon intensity when DME is made from renewable feedstocks.

As a diesel fuel replacement, DME has been noted to offer numerous advantages including:

• DME burns cleanly and quietly and can reduce greenhouse gas emissions by 68 – 101%, depending on which renewable feedstock is used. Calculations from CARB estimate dairy manure converted to DME to have a carbon intensity (CI) of -278 (versus diesel which has a CI of 95).

• DME is a single molecule fuel with no impurities. It is sulfur-free and burns with no particulate matter, making it easier to control nitrogen oxide (NOx) emissions.

• DME is also one of the few diesel replacement fuels that can truly be produced at scale locally. Urban waste streams, dairy manure, and other organic wastes can be repurposed to make DME fuel for fleets of trucks and other vehicles.

• DME also meets tough performance requirements, a must for trucking and other heavy-duty applications that need the power and torque of compression-ignition engines.

• DME vehicles are less expensive to run over their lifetime than those with natural gas engines, given operational costs and reduced payloads; and DME infrastructure is easy and relatively inexpensive to build, maintain, and expand.

Additionally, research has shown that DME can also be blended with motor fuel propane, otherwise known as liquefied petroleum gas (LPG), which has been used as a transportation fuel since 1912 and is the third most commonly used fuel in the United States, behind gasoline and diesel. Propane has a long and varied history in transportation applications. It has been used in rural and farming settings since its inception as a motor vehicle fuel. Over time, propane has also been used in several niche applications such as for fork lifts, both inside and outside warehouses, and at construction sites. According to CARB’s “Drive Clean” website, “[t]here are more than 270,000 on-road propane vehicles in the U.S. today, many of which are used in fleet applications, such as police cars, shuttles and school buses.” In California alone, over 4,000 registered on-road vehicles run on propane. Up to 20% of DME can be blended into propane, making it a cleaner fuel, without requiring any vehicle or infrastructure changes.

The sponsor has worked for several years with state and federal agencies, including CDFA and CARB, to ensure that the proper regulations are in place to support the commercialization of DME as a transportation fuel. As a result of this work, DME was approved in 2015 for use in California as a transportation fuel.

Last year, the California Energy Commission (CEC) awarded Oberon Fuels $2.88 million to help fund a first-of-its-kind, multi-phase DME fuel production project that will enable Oberon Fuels to scale up and modify the existing Oberon Fuels DME pilot production plant in order to replicate commercial operations and which will have a target DME production capacity of approximately 1.56 million gallons of DME per year (equivalent to 830,000 gallons of diesel per year. This plant will facilitate the first production of DME in the United States, which will be used as a diesel fuel replacement, as well as blended with LPG to provide a cleaner fuel.

Prior Related Legislation. AB 2656 (Jones) of 2014 would have required each motor fuel transaction in this state to contain specified information regarding the estimated cost of compliance with any market-based compliance mechanism adopted by the CARB. NOTE: This bill was held in the Assembly Appropriations Committee.

AB 32 (Nunez), Chapter 488, Statutes of 2006, enacts the Global Warming Solutions Act of 2006, which creates a statewide greenhouse gas emission limit that would reduce emissions by 25% by 2020.

ARGUMENTS IN SUPPORT:

Western Propane Gas Association writes in support, “[We] wish to indicate our strong support for [this bill] DME fuel blend. This bill is authored by Assemblymember Eduardo Garcia and would enable dimethyl ether (DME) to be blended with propane (aka proposed “Propane – DME fuel blend”) to be legally sold and dispensed at retail as an alternative fuel to the California public for use as a motor vehicle fuel. As such, we urge your support for this measure when it comes before your committee for consideration.

Since 1912, propane has been used in the United States as a transportation fuel and is the third most commonly used fuel in the country. Many vehicles fueled by propane are used in fleet applications, such as school buses, shuttle vehicles, and package delivery trucks. Propane has also proven useful in several niche applications, such as forklifts for warehouses, ports and at construction sites. Propane is the fuel of choice for many because of its low cost, low maintenance expense and low GHG emissions relative to conventional fuels. Our industry has our eye on the next generation of propane, which is renewable.”

ARGUMENTS IN OPPOSITION:

None on file.

POLICY ISSUE(S) TO CONSIDERATION:

Administrative: DME tax rate is currently $0.18 per gallon. DME is not gasoline or diesel fuel, but it is used in internal combustion engines of motor vehicles used on California roads. Accordingly, DME is a use fuel subject to the $0.18 per gallon tax. The Use Fuel Tax Law applies to any motor vehicle fuel, liquid or gas that is not otherwise subject to tax under the Motor Vehicle Fuel Tax Law, or the Diesel Fuel Tax Law. This bill specifies a lower tax rate for DME and propane fuel blend of $0.048 and $0.06 per gallon, respectively.

In general, the reduced tax rate represents the lower energy output of a gallon of DME compared to diesel fuel, and a lower tax rate is intended to encourage the use of cleaner alternative fuels.

REGISTERED SUPPORT:

Oberon Fuels (Sponsor)

International Dme Association

Shv Energy

Suburban Propane Partners, L.p.

Western Propane Gas Association

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Danielle Sires / B. & P. / (916) 319-3301