The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by December 31, 2026, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses. Existing law requires the state board to develop, by December 31, 2028, a comprehensive strategy for the states building sector to achieve a 40% net reduction in greenhouse gas emissions of building materials, as determined from a baseline calculated using a certain 2026 report, if that report is adequate, or as specified. Existing law requires that strategy to achieve this target as soon as possible, but no later than December 31, 2035, provides for an interim target of 20% net reduction by December 31, 2030, authorizes the state board to adjust the interim target, as provided, and requires the established targets to begin no sooner than January 1, 2027. Existing law also requires the state board to form and maintain a technical advisory committee, as described.

This bill would, among other changes, eliminate the interim target of 20% net reduction. The bill would require the baseline described above to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by the state board. The bill would also require the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established. The bill would delete the requirement that the state board form and maintain a technical advisory committee, and would instead require the state board to consult experts to advise the state board on methods to reduce the carbon intensity of building materials and covered projects, as specified. The bill would also exempt violations of these requirements from criminal penalties and authorize the imposition of specified civil penalties for those violations. The bill would express the intent of the Legislature regarding the applicable civil penalties.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.

This bill would authorize the state board to establish an embodied carbon trading system, as defined and as provided. The bill would authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would authorize the state board to adopt rules and regulations for the credit allocation approach, the anticipated carbon price in the scheme, and trading periods. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by December 31, 2026, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses. Existing law requires the state board to develop, by December 31, 2028, a comprehensive strategy for the states building sector to achieve a 40% net reduction in greenhouse gas emissions of building materials, as determined from a baseline calculated using a certain 2026 report, if that report is adequate, or as specified. Existing law requires that strategy to achieve this target as soon as possible, but no later than December 31, 2035, provides for an interim target of 20% net reduction by December 31, 2030, authorizes the state board to adjust the interim target, as provided, and requires the established targets to begin no sooner than January 1, 2027. Existing law also requires the state board to form and maintain a technical advisory committee, as described.

This bill would, among other changes, eliminate the interim target of 20% net reduction. The bill would require the baseline described above to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by the state board. The bill would also require the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established. The bill would delete the requirement that the state board form and maintain a technical advisory committee, and would instead require the state board to consult experts to advise the state board on methods to reduce the carbon intensity of building materials and covered projects, as specified. The bill would also exempt violations of these requirements from criminal penalties and authorize the imposition of specified civil penalties for those violations. The bill would express the intent of the Legislature regarding the applicable civil penalties.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.

This bill would authorize the state board to establish an embodied carbon trading system, as defined and as provided. The bill would authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would authorize the state board to adopt rules and regulations for the credit allocation approach, the anticipated carbon price in the scheme, and trading periods. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by December 31, 2026, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses. Existing law requires the state board to develop, by December 31, 2028, a comprehensive strategy for the states building sector to achieve a 40% net reduction in greenhouse gas emissions of building materials, as determined from a baseline calculated using a certain 2026 report, if that report is adequate, or as specified. Existing law requires that strategy to achieve this target as soon as possible, but no later than December 31, 2035, provides for an interim target of 20% net reduction by December 31, 2030, authorizes the state board to adjust the interim target, as provided, and requires the established targets to begin no sooner than January 1, 2027. Existing law also requires the state board to form and maintain a technical advisory committee, as described.

This bill would, among other changes, eliminate the interim target of 20% net reduction. The bill would require the baseline described above to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by the state board. The bill would also require the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established. The bill would delete the requirement that the state board form and maintain a technical advisory committee, and would instead require the state board to consult experts to advise the state board on methods to reduce the carbon intensity of building materials and covered projects, as specified. The bill would also exempt violations of these requirements from criminal penalties and authorize the imposition of specified civil penalties for those violations. The bill would express the intent of the Legislature regarding the applicable civil penalties.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.

This bill would authorize the state board to establish an embodied carbon trading system, as defined and as provided. The bill would authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would authorize the state board to adopt rules and regulations for the credit allocation approach, the anticipated carbon price in the scheme, and trading periods. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by July 1, 2025, December 31, 2026, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses. Existing law requires the framework to include state board to develop, by December 31, 2028, a comprehensive strategy for the states building sector to achieve a 40% net reduction in greenhouse gas emissions of building materials, as determined from a baseline calculated using a certain 2026 report, if that report is adequate, or as specified. Existing law requires that strategy to achieve this target as soon as possible, but no later than December 31, 2035, provides for an interim target of 20% net reduction by December 31, 2030, authorizes the state board to adjust the interim target, as provided, and requires the established targets to begin no sooner than January 1, 2027. Existing law also requires the state board to form and maintain a technical advisory committee, as described.

This bill would, among other changes, extend the date for the development of the framework to December 31, 2026, and would require the state board to develop a comprehensive strategy, by December 31, 2028, rather than by December 31, 2035, to achieve a 40-percent net reduction in greenhouse gas emissions of building materials as soon as possible, but no later than December 31, 2035. The bill would eliminate the interim target of 20% net reduction. The bill would require the baseline described above to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by the state board. The bill would also require the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established. The bill would delete the requirement that the state board form and maintain a technical advisory committee, and would instead require the state board to consult experts to advise the state board on methods to reduce the carbon intensity of building materials and covered projects, as specified. The bill would also exempt violations of these requirements from criminal penalties and authorize the imposition of specified civil penalties for those violations. The bill would express the intent of the Legislature regarding the applicable civil penalties.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.

This bill would authorize the state board to establish an embodied carbon trading system, as defined and as provided. The bill would authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would authorize the state board to adopt rules and regulations for the credit allocation method, approach, the anticipated carbon price in the scheme, and trading periods, and would make a violation of a rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted by the state board pursuant to these and other requirements of the bill an emission of an air contaminant for the purposes of the penalty provisions of the act. periods. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary. By expanding the scope of crimes, this bill would impose a state-mandated local program.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by July 1, 2025, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses. Existing law requires the framework to include a comprehensive strategy for the states building sector to achieve a 40% net reduction in greenhouse gas emissions of building materials, as determined from a baseline calculated using a certain 2026 report, if that report is adequate, or as specified. Existing law requires that strategy to achieve this target as soon as possible, but no later than December 31, 2035, provides for an interim target of 20% net reduction by December 31, 2030, authorizes the state board to adjust the interim target, as provided, and requires the established targets to begin no sooner than January 1, 2027. Existing law also requires the state board to form and maintain a technical advisory committee, as described.

This bill would, among other changes, extend the date for the development of the framework to December 31, 2026, and would require the state board to develop a comprehensive strategy, by December 31, 2028, rather than by December 31, 2035, to achieve a 40-percent net reduction in greenhouse gas emissions of building materials as soon as possible, but no later than December 31, 2035. The bill would eliminate the interim target of 20% net reduction. The bill would authorize require the baseline described above to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by the state board. The bill would also require the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established. The bill would delete the requirement that the state board form and maintain a technical advisory committee, and would instead require the state board to consult experts to advise the state board on methods to reduce the carbon intensity of building materials and covered projects, as specified.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.

This bill would authorize the state board to establish an embodied carbon trading system, as defined and as provided. The bill would authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would authorize the state board to adopt rules and regulations for the credit allocation method, the anticipated carbon price in the scheme, and trading periods, and would make a violation of a rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted by the state board pursuant to these and other requirements of the bill an emission of an air contaminant for the purposes of the penalty provisions of the act. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary. By expanding the scope of crimes, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045. Existing law, effective January 1, 2023, requires the state board, by July 1, 2025, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses.

This bill would require authorize the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies. defined and as provided. The bill would require authorize the state board to integrate the embodied carbon trading system into the framework for measuring the average carbon intensity of the materials used in the construction of new buildings, as described above, on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would require authorize the state board to adopt rules and regulations for the credit allocation method, the anticipated carbon price in the scheme, and trading periods, and would make a violation of a rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted by the state board pursuant to these and other requirements of the bill an emission of an air contaminant for the purposes of the penalty provisions of the act. The bill would also require the state board to periodically review and update its emission reporting and compliance standard requirements, as necessary. By expanding the scope of crimes, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.

Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045. Existing law, effective January 1, 2023, requires the state board, by July 1, 2025, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses.

This bill would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies. The bill would require the state board to integrate the embodied carbon trading system into the framework on or before December 31, 2026, and to implement the system on and after January 1, 2029. The bill would require the state board to adopt rules and regulations for the credit allocation method, the anticipated carbon price in the scheme, and trading periods, and would make a violation of a rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted by the state board pursuant to these and other requirements of the bill an emission of an air contaminant for the purposes of the penalty provisions of the act. The bill would also require the state board to periodically review and update its emission reporting requirements, as necessary. By expanding the scope of crimes, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. Existing law requires the state board, by July 1, 2023, to develop a comprehensive strategy for the states cement sector to achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045. Existing law, effective January 1, 2023, requires the state board, by July 1, 2025, to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average carbon intensity of the materials used in the construction of new buildings, including those for residential uses.

This bill would express the intent of the Legislature to enact future legislation establishing a Low Carbon Product Standard (LCPS) to facilitate a credit trading platform for building materials. The bill would express the further intent of the Legislature to enact future legislation to require that the LCPS establish a compliance system for purposes of the provisions described above.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 43

Author:(Holden)

As Amended Ver:September 8, 2023

Majority vote

SUMMARY

This bill authorizes the Air Resources Board (ARB) to create an Embodied Carbon Trading System (Trading System) to implement provisions of AB 2446 (Holden), Chapter 352, Statutes of 2022, and makes various revisions to the framework for measuring and reducing the carbon intensity of building materials used in the construction of new buildings crated by AB 2466.

Senate Amendments

1. State legislative intent that the penalty provisions are strictly limited to the penalties described in specified sections.
2. Revise provisions of AB 2446, including:
   1. Delete a provision specifying how ARB determines the baseline for the comprehensive strategy to achieve specified reductions in greenhouse gas (GHG) emissions associated with building materials (Strategy) and instead requires ARB to use the most relevant, up-to-date data available.
   2. Repeal an interim target of 20% reduction in net GHG emissions from building materials by December 31, 2030.
   3. Repeal the requirement that ARB, by December 31, 2029, evaluate feasibility and cost impact constraints and recommend measures and actions necessary to overcome those constraints.
   4. Specify that the targets established by AB 2446 begin to apply no sooner than January 1, 2027 "and two years after the baseline is established."
   5. Specify that the incorporation of lower carbon materials is limited or excluded to the extent that it has a cost impact or is unfeasible.
   6. Remove the requirement that ARB form and maintain a technical advisory committee and instead require ARB to consult experts, as specified.
   7. Require ARB to include measures to provide consumer access to building material embodied carbon data reported to ARB when developing the Strategy.
   8. Exempt specified provisions of AB 2446 from the Administrative Procedures Act.
   9. Make several other technical and clarifying changes to the provisions of AB 2446.
3. Delete the definition of "building materials providers."
4. Delete the definition of "full material life cycle" and replace it with a definition of "material life cycle."
5. Revise the definition of "low-carbon building standard."
6. Define "entity undertaking the construction of a project."
7. Authorize, rather than require, ARB to establish the Trading System.
8. Replace language requiring ARB to consider cost effectiveness and instead require ARB to design any rules and regulations to encourage the production of low-carbon materials for sale in California to ensure that entities undertaking the construction of a project have an adequate supply or low-carbon materials.
9. Authorize ARB to adopt compliance mechanisms through an administrative process.
10. Make related technical and clarifying changes.

COMMENTS

Embodied carbon. The term "embodied carbon" refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with "operational carbon" (the emissions associated with heating, cooling, and otherwise operating a building), there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.

In order to determine the emissions associated with building materials, the entire life cycle of those products must be considered. Life cycle analysis (LCA) is a method of quantifying the environmental impacts associated with a given product. In LCA, researchers create an inventory of resources used and pollutants generated in product production and use. LCAs can vary depending on the assumptions made and the extent of the life cycle considered. Notably, for LCAs of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate LCAs consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.

Buy Clean California Act. A first in the nation and widely emulated, the Buy Clean California Act (BCCA) is an innovative program establishing limits on embodied carbon emissions and construction materials procured by the state for public construction projects. The law requires the California Department of General Services (DGS) to publish, by January 1, 2022, acceptable maximum Global Warming Potential (GWP) limits for the following eligible materials: structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on Environmental Product Declarations (EPDs).

An EPD summarizes the life cycle impacts of product in a single report. The EPD provides information about a product’s impact upon the environment, such as global warming potential, smog creation, ozone depletion and water pollution. With an EPD, manufacturers report comparable, objective, and third-party verified data that helps purchasers better understand a product’s sustainable qualities and environmental repercussions so they can make more informed product selections. EPDs are typically cradle-to-gate analyses, which makes sense since they are used partly to determine which products to acquire for a given project.

Whole building life cycle assessment. Life cycle assessment (LCA) is a systematic way of compiling and analyzing all the inputs, outputs, and potential environmental impacts of a product or system over its lifetime, from initial extraction of raw materials through manufacture, distribution, use, and final disposal. In the context of buildings, LCA can be used to evaluate a single product – like a 2×4, an engineered wood beam, or a mass timber floor panel. It can also be used to analyze an entire building system by compiling data from all the individual building components. This is referred to as Whole Building Life Cycle Assessment to differentiate it from assessments focused on individual products or building components. Whole building LCA has emerged as an effective way to measure embodied carbon and other environmental impact measures associated with buildings at a holistic level.

Inflation Reduction Act. The Inflation Reduction Act (IRA) invests $350 million for grants, technical assistance and tools, including carbon labeling, to help manufacturers, institutional buyers, real estate developers, builders, and others measure, report, and substantially lower the levels of embodied carbon and other GHG emissions associated with all relevant stages of production, use and disposal of construction materials and products including steel, concrete, asphalt and glass.

This bill. If ARB elects to implement a Trading System, builders would be able to trade credits between projects below and projects above a certain whole-building LCA standard. Under a Trading System, buildings with embodied carbon lower than the standard would generate credits. The value of those credits would not be set, but rather a function of the supply and demand from projects below and above the established standard. However, because the cost impact provisions of AB 2446 and this bill mean that projects cannot exceed 5% costs for compliance, the demand for purchasing credits may be artificially low. However, it should be possible for ARB to set the carbon intensity targets at such a level as to still incentivize lower-carbon building materials.

According to the Author

As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible.

In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035.

To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.

Arguments in Support

According to a coalition of supporters:

Following the success of the landmark California policy, the Low Carbon Fuel Standard (LCFS), a similar LCBS trading system for lower embodied carbon building materials will create increased demand for and investment in these products and materials. As seen in the LCFS, a credit trading platform has generated opportunities for the industry while achieving remarkable reductions in the CI of California’s transportation fuel pool. A LCBS trading system will allow for market valuation of low embodied carbon products. This will allow building materials to compete on the basis of lowering carbon would send a continuous investment signal to transform the products available on the market, on a time scale set by the carbon reduction goals. Furthermore, a trading system would allow for flexible compliance, creating an incentive to overcomply with the program and bank credits for other projects or future compliance obligations.

Arguments in Opposition

A coalition of opponents state:

The completion of a project from the design phase to completion is a complex process which involves dozens of different employers and thousands of products, and a design professional’s primary responsibility is to deliver a safe project design. It would be unreasonable for this premature carbon trading system to be applied [to] architectural and engineering firms and construction contractors.

FISCAL COMMENTS

According to the Senate Appropriations Committee, ongoing costs in the millions of dollars annually (Cost of Implementation Account) for ARB to adopt embodied carbon rules and regulations – including a potential trading system – as well as consult with other entities, evaluate and track low-carbon intensity materials, develop and manage contracts, and provide enforcement, among other things.

VOTES:

ASM NATURAL RESOURCES: 8-1-2

YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur

NO: Mathis

ABS, ABST OR NV: Flora, Hoover

ASM APPROPRIATIONS: 12-3-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Sanchez

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 56-17-7

YES: Addis, Alvarez, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Rendon

NO: Alanis, Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Lackey, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis

ABS, ABST OR NV: Aguiar-Curry, Bains, Grayson, Mathis, Stephanie Nguyen, Rodriguez, Zbur

UPDATED

VERSION: September 8, 2023

CONSULTANT: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0002227

 THIRD READING  

Bill No: AB 43

Author: Holden (D)

Amended: 9/8/23 in Senate

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 7/5/23

AYES: Allen, Gonzalez, Hurtado, Menjivar, Skinner

NOES: Dahle, Nguyen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 9/1/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

ASSEMBLY FLOOR: 56-17, 5/25/23 - See last page for vote

SUBJECT: Greenhouse gas emissions: building materials: embodied carbon trading system

SOURCE: AJW

Mighty Buildings

DIGEST:

This bill makes a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expands the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System.

Senate Floor Amendments of 9/8/23 clarify the penalty provisions that apply to violations of the act.

ANALYSIS:

Existing law:

1. Requires, under the Buy Clean California Act (BCCA), the Department of General Services (DGS), in consultation with CARB, to establish and publish the maximum acceptable Global Warming Potential (GWP) limit for four eligible materials: structural steel, concrete reinforcing steel, flat glass, and mineral wool board insulation. Further states that when used in public works projects, these eligible materials must have a GWP that does not exceed the limit set by DGS. (Public Contract Code § 3500-3505)
2. Requires CARB to develop by July 1, 2023, a comprehensive strategy for the state's cement sector to achieve net-zero greenhouse gas (GHG emissions no later than December 31, 2045. (Health and Safety Code (HSC) § 38561.2)
3. Provides that under AB 2446 (Holden, Chapter 352, Statutes of 2022), among other things:
   1. States the intent of the Legislature to enact subsequent legislation to establish a low-carbon product standard that would achieve carbon intensity (CI) reductions in building materials.
   2. Requires CARB to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average CI of the materials used in the construction of specified new buildings, towards the interim goal of a 20% net reduction by December 31, 2030 and the goal of a 40% net reduction by December 31, 2035.
   3. Defines terms.
   4. Stipulates that if the entity undertaking the construction of a project finds that it is unable to achieve the applicable target due to unfeasibility or cost impacts, then the project shall be deemed to comply with the applicable target, as specified.

This bill:

1. States that it is the intent of the Legislature that the penalty provisions associated with this act are limited to only specified civil penalties described under HSC Section 42402(a)(b), and (d), which are for CARB’s enforcement of non-vehicular air pollution control, including specifically $5,000 or $10,000 penalties (per day) for various specified violations, and not any sections or parts referred to in those subdivisions.
2. Amends several provisions of AB 2446, including:
   1. Eliminating the interim target of 20% net reduction;
   2. Requiring the baseline for the framework to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by CARB;
   3. Requiring the established targets to begin to apply no sooner than January 1, 2027, and two years after the baseline is established;
   4. Removing the requirement for a technical advisory committee, instead specifying certain experts who must be consulted;
   5. Stating that, if an entity undertaking the construction of a project uses materials (or other specified methods) to comply with building embodied carbon targets, that they only need to do so up to the 5% cost impact limit, and must provide specified documentation to CARB;
   6. Requiring manufacturers of building materials to report data to CARB ensuring their product comply with applicable reduction targets;
   7. Directing CARB to consider measures to provide consumer access to building material embodied carbon data; and
   8. Stating that the Administrative Procedure Act and the California Environmental Quality Act do not apply to reporting regulations and reporting standards promulgated pursuant to this section, and make other provisions for information sharing.
3. Defines terms, including “entity undertaking the construction of a project” to mean a person or entity who owns the real property that is the subject of a development agreement.
4. Authorizes CARB to:
   1. Establish an embodied carbon trading system (ECTS) to help achieve the AB 2446 goals;
   2. Adopt further GHG emission reduction targets within the scope of the AB 2446 framework to alter the interim 2030 target or provide early reduction credit considering market adoption, if appropriate;
   3. Adopt rules and regulations to monitor, verify, and enforce reductions in embodied carbon in building materials.
5. Authorize CARB to do all of the following with regards to the ECTS:
   1. Adopt rules and regulations regarding credits, trading, and prices, among other things;
   2. Consider using ECTS to promote innovation and investment in building materials that reduce GHG emissions;
   3. Consider pertinent information from other jurisdictions and make reasonable efforts to promote consistency;
   4. Integrate ECTS within the AB 2446 framework; and
   5. Consult with specified other California state agencies to minimize duplicate or inconsistent regulatory requirements.

Background

1. Embodied carbon. The term “embodied carbon” refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with “operational carbon” (the emissions associated with heating, cooling, and otherwise operating a building), there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.

In order to determine the emissions associated with building materials, the entire life cycle of those products must be considered. Life cycle analysis (LCA) is a method of quantifying the environmental impacts associated with a given product. In LCA, researchers create an inventory of resources used and pollutants generated in product production and use. LCAs can vary depending on the assumptions made and the extent of the life cycle considered. Notably, for LCAs of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate LCAs consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.

1. Buy Clean California Act. A first in the nation and widely emulated, the BCCA is an innovative program establishing limits on embodied carbon emissions and construction materials procured by the state for public construction projects. The law requires the DGS to publish, by January 1, 2022, acceptable maximum GWP limits for the following eligible materials: structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on EPDs.

An EPD tells the life cycle story of a product in a single, comprehensive report. The EPD provides information about a product’s impact upon the environment, such as global warming potential, smog creation, ozone depletion and water pollution. With an EPD, manufacturers report comparable, objective, and third-party verified data that helps purchasers better understand a product’s sustainable qualities and environmental repercussions so they can make more informed product selections. EPDs are typically cradle-to-gate analyses, which makes sense since they are used partly to determine which products to acquire for a given project.

1. Whole building life cycle assessment. LCA is a systematic way of compiling and analyzing all the inputs, outputs, and potential environmental impacts of a product or system over its lifetime, from initial extraction of raw materials through manufacture, distribution, use, and final disposal. In the context of buildings, LCA can be used to evaluate a single product—like a 2×4, an engineered wood beam, or a mass timber floor panel. It can also be used to analyze an entire building system by compiling data from all the individual building components. This is referred to as Whole Building Life Cycle Assessment (WBLCA) to differentiate it from assessments focused on individual products or building components. WBLCA has emerged as an effective way to measure embodied carbon and other environmental impact measures associated with buildings at a holistic level.
2. Reducing embodied carbon with the Inflation Reduction Act. The Inflation Reduction Act (IRA) invests $350 million for grants, technical assistance and tools, including carbon labeling, to help manufacturers, institutional buyers, real estate developers, builders, and others measure, report, and substantially lower the levels of embodied carbon and other GHG emissions associated with all relevant stages of production, use and disposal of construction materials and products including steel, concrete, asphalt and glass.

Comments

1. Purpose of Bill. According to the author, “As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible.

“In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035.

“To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.”

1. What might successful implementation look like? If the state is successful in meeting the AB 2446 goals, California will achieve a 40% net reduction in GHG emissions from building materials by 2035. Considering that CARB’s latest GHG inventory has commercial and residential emissions together account for 14% of the state’s emissions, and the estimate from the Integrated Energy Policy Report that roughly half of those emissions are upfront, embodied emissions, this one program alone could account for several percent of the state’s total emission reductions. But, in more concrete terms, what would implementing AB 2446 (as amended by this bil) look like?

If CARB elects to implement an ECTS, as this bill authorizes them to do, success would likely involve trading of credits between projects below and projects above a certain whole-building LCA standard. An illustrative example can be found in the Low Carbon Fuel Standard (LCFS), where the overall carbon intensity of the state’s transportation fuels are reduced over time in accordance with a steadily decreasing CI target. Briefly, producers of fuels with a lower CI than the target generate credits, which producers of fuels with a higher CI than the target much purchase to comply with the regulation. Thus, higher CI fuels subsidize the development and production of lower CI fuels.

If CARB were to adopt comparable regulations—as this bill allows them to do—then how that would work deserves consideration. It seems likely that buildings with embodied carbon lower than the standard would generate credits. The value of those credits (as with LCFS credits) would not be set, but rather a function of the supply and demand from projects below and above, respectively, the desired standard. However, because the cost impact provisions of AB 2446 and this act mean that projects cannot exceed 5% costs for compliance, the demand for purchasing credits may be artificially low. Altogether, it should be possible, and is desirable, that CARB set the carbon intensity targets at such a level as to still incentivize lower-carbon building materials, even when considering the impacts of the 5% cost impact limit.

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

According to the Senate Appropriations Committee, ongoing costs in the millions of dollars annually (Cost of Implementation Account) for CARB to adopt embodied carbon rules and regulations—including a potential trading system—as well as consult with other entities, evaluate and track low-carbon intensity materials, develop and manage contracts, and provide enforcement, among other things.

SUPPORT: (Verified 9/8/23)

AJW (co-source)

Mighty Buildings (co-source)

Bamcore, LLC

Blue Planet Systems

Ecological Building Network

EHDD

International Living Future Institute

League of Women Voters of California

Leilac U.S., Inc.

Mass Timber Strategy

North American Insulation Manufacturers Association

Sierra Club

Sierra Institute for Community and Environment

Stopwaste

U.S. Green Building Council

Two individuals

OPPOSITION: (Verified 9/8/23)

American Council of Engineering Companies of California

California Cement Manufacturers Environmental Coalition

Transportation California

Trinity River Timber Company Dba North Fork Lumber Company

ARGUMENTS IN SUPPORT: According to one of this bill’s sponsors, Mighty Buildings, “Benefits include:

• Functionally, AB 2446 will require each building to exactly meet its carbon targets – which lacks the flexibility nor incentive for exceeding the standard.
• An ECTS will allow trading between different buildings, projects and developers such that an annual average is achieved – and the market can determine the most cost-effective means of compliance.
• The ECTS will offer the opportunity for additional revenue by providing credit generation opportunities for projects that choose to “over-comply” (e.g., LEED gold or platinum buildings)
• The ECTS will offer greater price discovery for the value of low-carbon material credits. A Trading System would require the reporting and tracking of credit trading, thus making clearer credit values across different material types.
• The ECTS will offer an opportunity to create a unified accounting system for Environmental Product Declarations and Life Cycle Assessments to make construction materials comparable in a manner that is reasonable and consistent when accounting for their embodied carbon emissions.”

ARGUMENTS IN OPPOSITION: According to the California Cement Manufacturers Environmental Coalition, “As the Senate Environmental Quality Committee may recall, our industry supported Assemblyman Holden’s AB 2446 during the 2021-22 legislation session, which required the California Air Resources Board to develop a framework strategy to measure and reduce greenhouse gas intensity of materials used in the construction of new buildings in California. In large part, our support was predicated on the fact that the framework and strategy would be developed in consultation with the relevant stakeholders.

“We believe that requiring the California Air Resources Board to develop a trading system for embodied carbon in buildings materials is premature and should instead be left to the ‘stakeholder process.’”

ASSEMBLY FLOOR: 56-17, 5/25/23

AYES: Addis, Alvarez, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Rendon

NOES: Alanis, Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Lackey, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis

NO VOTE RECORDED: Aguiar-Curry, Bains, Grayson, Mathis, Stephanie Nguyen, Rodriguez, Zbur

Prepared by: Eric Walters / E.Q. / (916) 651-4108

9/11/23 13:36:05

**** END ****

 THIRD READING  

Bill No: AB 43

Author: Holden (D)

Amended: 9/1/23 in Senate

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-2, 7/5/23

AYES: Allen, Gonzalez, Hurtado, Menjivar, Skinner

NOES: Dahle, Nguyen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 9/1/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

ASSEMBLY FLOOR: 56-17, 5/25/23 - See last page for vote

SUBJECT: Greenhouse gas emissions: building materials: embodied carbon trading system

SOURCE: AJW

Mighty Buildings

DIGEST:

This bill makes a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expands the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System.

ANALYSIS:

Existing law:

1. Requires, under the Buy Clean California Act (BCCA), the Department of General Services (DGS), in consultation with CARB, to establish and publish the maximum acceptable Global Warming Potential (GWP) limit for four eligible materials: structural steel, concrete reinforcing steel, flat glass, and mineral wool board insulation. Further states that when used in public works projects, these eligible materials must have a GWP that does not exceed the limit set by DGS. (Public Contract Code § 3500-3505)
2. Requires CARB to develop by July 1, 2023, a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045. (Health and Safety Code (HSC) § 38561.2)
3. Provides that under AB 2446 (Holden, Chapter 352, Statutes of 2022), among other things:
   1. States the intent of the Legislature to enact subsequent legislation to establish a low-carbon product standard that would achieve carbon intensity (CI) reductions in building materials.
   2. Requires CARB to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average CI of the materials used in the construction of specified new buildings, towards the interim goal of a 20% net reduction by December 31, 2030 and the goal of a 40% net reduction by December 31, 2035.
   3. Defines terms.
   4. Stipulates that if the entity undertaking the construction of a project finds that it is unable to achieve the applicable target due to unfeasibility or cost impacts, then the project shall be deemed to comply with the applicable target, as specified.

This bill:

1. States that it is the intent of the Legislature that the penalty provisions associated with this act are limited to only specified civil penalties described under HSC Section 42402(a)(b), and (d), which are for CARB’s enforcement of non-vehicular air pollution control, including specifically $5,000 or $10,000 penalties (per day) for various specified violations.
2. Amends several provisions of AB 2446, including:
   1. Eliminating the interim target of 20% net reduction;
   2. Requiring the baseline for the framework to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by CARB;
   3. Requiring the established targets to begin to apply no sooner than January 1, 2027, and two years after the baseline is established;
   4. Removing the requirement for a technical advisory committee, instead specifying certain experts who must be consulted;
   5. Stating that, if an entity undertaking the construction of a project uses materials (or other specified methods) to comply with building embodied carbon targets, that they only need to do so up to the 5% cost impact limit, and must provide specified documentation to CARB;
   6. Requiring manufacturers of building materials to report data to CARB ensuring their product comply with applicable reduction targets;
   7. Directing CARB to consider measures to provide consumer access to building material embodied carbon data; and
   8. Stating that the Administrative Procedure Act and the California Environmental Quality Act do not apply to reporting regulations and reporting standards promulgated pursuant to this section, and make other provisions for information sharing.
3. Defines terms, including “entity undertaking the construction of a project” to mean a person or entity who owns the real property that is the subject of a development agreement.
4. Authorizes CARB to:
   1. Establish an embodied carbon trading system (ECTS) to help achieve the AB 2446 goals;
   2. Adopt further GHG emission reduction targets within the scope of the AB 2446 framework to alter the interim 2030 target or provide early reduction credit considering market adoption, if appropriate;
   3. Adopt rules and regulations to monitor, verify, and enforce reductions in embodied carbon in building materials.
5. Authorize CARB to do all of the following with regards to the ECTS:
   1. Adopt rules and regulations regarding credits, trading, and prices, among other things;
   2. Consider using ECTS to promote innovation and investment in building materials that reduce GHG emissions;
   3. Consider pertinent information from other jurisdictions and make reasonable efforts to promote consistency;
   4. Integrate ECTS within the AB 2446 framework; and
   5. Consult with specified other California state agencies to minimize duplicate or inconsistent regulatory requirements.

Background

1. Embodied carbon. The term “embodied carbon” refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with “operational carbon” (the emissions associated with heating, cooling, and otherwise operating a building), there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.

In order to determine the emissions associated with building materials, the entire life cycle of those products must be considered. Life cycle analysis (LCA) is a method of quantifying the environmental impacts associated with a given product. In LCA, researchers create an inventory of resources used and pollutants generated in product production and use. LCAs can vary depending on the assumptions made and the extent of the life cycle considered. Notably, for LCAs of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate LCAs consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.

1. Buy Clean California Act. A first in the nation and widely emulated, the Buy Clean California Act (BCCA) is an innovative program establishing limits on embodied carbon emissions and construction materials procured by the state for public construction projects. The law requires the California Department of General Services (DGS) to publish, by January 1, 2022, acceptable maximum Global Warming Potential (GWP) limits for the following eligible materials: structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on Environmental Product Declarations (EPDs).

An EPD tells the life cycle story of a product in a single, comprehensive report. The EPD provides information about a product’s impact upon the environment, such as global warming potential, smog creation, ozone depletion and water pollution. With an EPD, manufacturers report comparable, objective, and third-party verified data that helps purchasers better understand a product’s sustainable qualities and environmental repercussions so they can make more informed product selections. EPDs are typically cradle-to-gate analyses, which makes sense since they are used partly to determine which products to acquire for a given project.

1. Whole building life cycle assessment. Life cycle assessment (LCA) is a systematic way of compiling and analyzing all the inputs, outputs, and potential environmental impacts of a product or system over its lifetime, from initial extraction of raw materials through manufacture, distribution, use, and final disposal. In the context of buildings, LCA can be used to evaluate a single product—like a 2×4, an engineered wood beam, or a mass timber floor panel. It can also be used to analyze an entire building system by compiling data from all the individual building components. This is referred to as Whole Building Life Cycle Assessment (WBLCA) to differentiate it from assessments focused on individual products or building components. WBLCA has emerged as an effective way to measure embodied carbon and other environmental impact measures associated with buildings at a holistic level.
2. Reducing embodied carbon with the Inflation Reduction Act. The Inflation Reduction Act (IRA) invests $350 million for grants, technical assistance and tools, including carbon labeling, to help manufacturers, institutional buyers, real estate developers, builders, and others measure, report, and substantially lower the levels of embodied carbon and other GHG emissions associated with all relevant stages of production, use and disposal of construction materials and products including steel, concrete, asphalt and glass.

Comments

1. Purpose of Bill. According to the author, “As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible.

“In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035.

“To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.”

1. What might successful implementation look like? If the state is successful in meeting the AB 2446 goals, California will achieve a 40% net reduction in GHG emissions from building materials by 2035. Considering that CARB’s latest GHG inventory has commercial and residential emissions together account for 14% of the state’s emissions, and the estimate from the Integrated Energy Policy Report that roughly half of those emissions are upfront, embodied emissions, this one program alone could account for several percent of the state’s total emission reductions. But, in more concrete terms, what would implementing AB 2446 (as amended by AB 43) look like?

If CARB elects to implement an ECTS, as AB 43 authorizes them to do, success would likely involve trading of credits between projects below and projects above a certain whole-building LCA standard. An illustrative example can be found in the Low Carbon Fuel Standard (LCFS), where the overall carbon intensity of the state’s transportation fuels are reduced over time in accordance with a steadily decreasing CI target. Briefly, producers of fuels with a lower CI than the target generate credits, which producers of fuels with a higher CI than the target much purchase to comply with the regulation. Thus, higher CI fuels subsidize the development and production of lower CI fuels.

If CARB were to adopt comparable regulations—as this bill allows them to do—then how that would work deserves consideration. It seems likely that buildings with embodied carbon lower than the standard would generate credits. The value of those credits (as with LCFS credits) would not be set, but rather a function of the supply and demand from projects below and above, respectively, the desired standard. However, because the cost impact provisions of AB 2446 and this act mean that projects cannot exceed 5% costs for compliance, the demand for purchasing credits may be artificially low. Altogether, it should be possible, and is desirable, that CARB set the carbon intensity targets at such a level as to still incentivize lower-carbon building materials, even when considering the impacts of the 5% cost impact limit.

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

According to the Senate Appropriations Committee, ongoing costs in the millions of dollars annually (Cost of Implementation Account) for CARB to adopt embodied carbon rules and regulations—including a potential trading system—as well as consult with other entities, evaluate and track low-carbon intensity materials, develop and manage contracts, and provide enforcement, among other things.

SUPPORT: (Verified 9/1/23)

AJW (co-source)

Mighty Buildings (co-source)

Bamcore, LLC

Blue Planet Systems

Ecological Building Network

EHDD

International Living Future Institute

League of Women Voters of California

Leilac U.S., Inc.

Mass Timber Strategy

North American Insulation Manufacturers Association

Sierra Club

Sierra Institute for Community and Environment

Stopwaste

U.S. Green Building Council

Two individuals

OPPOSITION: (Verified 9/1/23)

American Council of Engineering Companies of California

California Cement Manufacturers Environmental Coalition

Transportation California

Trinity River Timber Company Dba North Fork Lumber Company

ARGUMENTS IN SUPPORT: According to one of this bill’s sponsors, Mighty Buildings, “Benefits include:

• Functionally, AB 2446 will require each building to exactly meet its carbon targets – which lacks the flexibility nor incentive for exceeding the standard.
• An ECTS will allow trading between different buildings, projects and developers such that an annual average is achieved – and the market can determine the most cost-effective means of compliance.
• The ECTS will offer the opportunity for additional revenue by providing credit generation opportunities for projects that choose to “over-comply” (e.g., LEED gold or platinum buildings)
• The ECTS will offer greater price discovery for the value of low-carbon material credits. A Trading System would require the reporting and tracking of credit trading, thus making clearer credit values across different material types.
• The ECTS will offer an opportunity to create a unified accounting system for Environmental Product Declarations and Life Cycle Assessments to make construction materials comparable in a manner that is reasonable and consistent when accounting for their embodied carbon emissions.”

ARGUMENTS IN OPPOSITION: According to the California Cement Manufacturers Environmental Coalition, “As the Senate Environmental Quality Committee may recall, our industry supported Assemblyman Holden’s AB 2446 during the 2021-22 legislation session, which required the California Air Resources Board to develop a framework strategy to measure and reduce greenhouse gas intensity of materials used in the construction of new buildings in California. In large part, our support was predicated on the fact that the framework and strategy would be developed in consultation with the relevant stakeholders.

“We believe that requiring the California Air Resources Board to develop a trading system for embodied carbon in buildings materials is premature and should instead be left to the ‘stakeholder process.’”

ASSEMBLY FLOOR: 56-17, 5/25/23

AYES: Addis, Alvarez, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Rendon

NOES: Alanis, Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Lackey, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis

NO VOTE RECORDED: Aguiar-Curry, Bains, Grayson, Mathis, Stephanie Nguyen, Rodriguez, Zbur

Prepared by: Eric Walters / E.Q. / (916) 651-4108

9/2/23 16:58:04

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 43 (Holden) - Greenhouse gas emissions: building materials: embodied carbon trading system

Bill Summary:

This bill would make a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expand the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on September 1, 2023

Fiscal Impact:

• Ongoing costs in the millions of dollars annually (Cost of Implementation Account) for CARB to adopt embodied carbon rules and regulations—including a potential trading system—as well as consult with other entities, evaluate and track low-carbon intensity materials, develop and manage contracts, and provide enforcement, among other things.

Author Amendments:

These amendments would do the following:

1. Delay the deadline for CARB to develop the framework by six months.
2. Exempt certain violations from criminal penalties and authorize the imposition of specified civil penalties for these violations.
3. Make other changes.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 43 (Holden) - Greenhouse gas emissions: building materials: embodied carbon trading system

Bill Summary:

This bill would make a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expand the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System.

Fiscal Impact:

• CARB estimates ongoing costs of about $2.5 million beginning in 2026-27 (Cost of Implementation Account [COIA]) to adopt embodied carbon rules and regulations—including a potential trading system—as well as consult with other entities, evaluate and track low-carbon intensity materials, develop and manage contracts, and provide enforcement, among other things.

Background:

Embodied carbon. The term “embodied carbon” refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with “operational carbon” (the emissions associated with heating, cooling, and otherwise operating a building), there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.

In order to determine the emissions associated with building materials, the entire life cycle of those products must be considered. Life cycle analysis (LCA) is a method of quantifying the environmental impacts associated with a given product. In LCA, researchers create an inventory of resources used and pollutants generated in product production and use. LCAs can vary depending on the assumptions made and the extent of the life cycle considered. Notably, for LCAs of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate LCAs consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.

The CEC is required (by SB 1389, Bowen and Sher, Chapter 568, Statutes of 2002) to regularly produce an Integrated Energy Policy Report (IEPR) to assess and forecast all aspects of energy industry supply, production, transportation, delivery and distribution, demand, and prices.

The IEPR from 2021, within its volume on building decarbonization, had a section on embodied carbon, and a subsection on embodied carbon in building materials. It reported that in new building projects, on average, up to 50 percent of total GHG emissions, considered over a 30-year building life, are from the embodied carbon associated with the initial construction, and nearly 70 percent of that is from just six materials — concrete and steel (by far the most significant), flat glass, insulation, masonry, and wood products. There are, however, significant variations in estimations of the contribution of embodied carbon to the lifetime emissions from a building that warrant further analysis and contextualization for California.

Ultimately, the IEPR concluded that, “…there is enormous potential for innovation and use of low-carbon products in the built environment. Further research and development are needed, as well as collaboration with other jurisdictions, to develop best practices for reducing embodied carbon in buildings. Also, city planners, designers, and architects could benefit from greater clarity around low-carbon label claims and material-neutral embodied carbon standards.”

Buy Clean California Act. A first in the nation and widely emulated, the Buy Clean California Act (BCCA) is an innovative program establishing limits on embodied carbon emissions and construction materials procured by the state for public construction projects. The law requires the California Department of General Services (DGS) to publish, by January 1, 2022, acceptable maximum Global Warming Potential (GWP) limits for the following eligible materials: structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on Environmental Product Declarations (EPDs).

An EPD tells the life cycle story of a product in a single, comprehensive report. The EPD provides information about a product’s impact upon the environment, such as global warming potential, smog creation, ozone depletion and water pollution. With an EPD, manufacturers report comparable, objective, and third-party verified data that helps purchasers better understand a product’s sustainable qualities and environmental repercussions so they can make more informed product selections. EPDs are typically cradle-to-gate analyses, which makes sense since they are used partly to determine which products to acquire for a given project.

Whole building life cycle assessment. Life cycle assessment (LCA) is a systematic way of compiling and analyzing all the inputs, outputs, and potential environmental impacts of a product or system over its lifetime, from initial extraction of raw materials through manufacture, distribution, use, and final disposal. In the context of buildings, LCA can be used to evaluate a single product—like a 2×4, an engineered wood beam, or a mass timber floor panel. It can also be used to analyze an entire building system by compiling data from all the individual building components. This is referred to as Whole Building Life Cycle Assessment (WBLCA) to differentiate it from assessments focused on individual products or building components. WBLCA has emerged as an effective way to measure embodied carbon and other environmental impact measures associated with buildings at a holistic level.

Life cycle assessment is governed by several international standards, notably ISO 14040, which is referenced by this bill and AB 2446. Additionally, ISO 21930 provides the framework and requirements for environmental product declarations (EPDs) for construction products and services.

Proposed Law:

This bill would make a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expand the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System. Specifically, this bill would:

1. Amend provisions of AB 2446, including:
   1. Extending the date for the development of the framework to December 31, 2026, and would require CARB to develop a comprehensive strategy, by December 31, 2028, rather than by December 31, 2035, to achieve a 40% net reduction in GHG emissions of building materials;
   2. Eliminating the interim target of 20% net reduction;
   3. Requiring the baseline for the framework to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by CARB;
   4. Requiring the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established; and
   5. Removing the requirement for a technical advisory committee, instead specifying certain experts who must be consulted.
      
2. Define terms.
   
3. Authorize (but not require) CARB to:
   1. Establish an ECTS to help achieve the AB 2446 goals;
   2. Adopt further GHG emission reduction targets within the scope of the AB 2446 framework to alter the interim 2030 target or provide early reduction credit considering market adoption, if appropriate;
   3. Adopt rules and regulations to monitor, verify, and enforce reductions in embodied carbon in building materials
      
4. Authorize (but not require) CARB to do all of the following with regards to the ECTS:
   1. Adopt rules and regulations regarding credits, trading, and prices, among other things;
   2. Consider using ECTS to promote innovation and investment in building materials that reduce GHG emissions;
   3. Consider pertinent information from other jurisdictions and make reasonable efforts to promote consistency;
   4. Integrate ECTS within the AB 2446 framework; and
   5. Consult with specified other California state agencies to minimize duplicate or inconsistent regulatory requirements.

Related Legislation:

AB 2446 (Holden, Chapter 352, Statutes of 2022) requires CARB to develop a framework for measuring and reducing carbon emissions associated with new building construction.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2023 - 2024 Regular

Bill No: AB 43

SUBJECT: Greenhouse gas emissions: building materials: embodied carbon trading system

DIGEST: This bill makes a number of changes to the provisions created by AB 2446 (Holden, Chapter 352, Statutes of 2022), and expands the framework created therein by including authority for the California Air Resources Board (CARB) to establish an Embodied Carbon Trading System.

ANALYSIS:

Existing law:

1. Establishes the California Energy Resources Conservation and Development Commission (CEC) within the California Natural Resources Agency (CNRA), as the state's primary energy policy and planning agency. (Public Resources Code (PRC) § 25200 et seq.)
2. Establishes the Air Resources Board (CARB) as the air pollution control agency in California and requires CARB, among other things, to control emissions from a wide array of mobile sources and coordinate, encourage, and review the efforts of all levels of government as they affect greenhouse gases (GHG) emissions. (Health and Safety Code (HSC) § 39500 et seq.)
3. Requires, under the Buy Clean California Act (BCCA), the Department of General Services (DGS), in consultation with CARB, to establish and publish the maximum acceptable Global Warming Potential (GWP) limit for four eligible materials: structural steel, concrete reinforcing steel, flat glass, and mineral wool board insulation. Further states that when used in public works projects, these eligible materials must have a GWP that does not exceed the limit set by DGS. (Public Contract Code § 3500-3505)
4. Requires CARB to develop by July 1, 2023, a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045. (HSC § 38561.2)
5. Under AB 2446 (Holden, Chapter 352, Statutes of 2022), among other things:
   1. States the intent of the Legislature to enact subsequent legislation to establish a low-carbon product standard that would achieve carbon intensity (CI) reductions in building materials.
   2. Requires CARB to develop, in consultation with specified stakeholders, a framework for measuring and then reducing the average CI of the materials used in the construction of specified new buildings, towards the interim goal of a 20% net reduction by December 31, 2030 and the goal of a 40% net reduction by December 31, 2035.
   3. Defines the following terms:
      1. Feasibility with regards to impacts on project timing, economics, environmental impacts, health, safety, equivalent functions, commercial availability, reliability, and useful life, among other considerations; and
      2. “Cost impact” to mean an increase of 5% or more in the operational or overall material cost of a project because of the use of lower carbon material.
   4. Stipulates that if the entity undertaking the construction of a project finds that it is unable to achieve the applicable target due to unfeasibility or cost impacts, as defined, (and there are no alternative materials or methods that are feasible and without cost impact that would allow the project to achieve the target) then the project shall be deemed to comply with the applicable target. Directs CARB to form and maintain a technical advisory committee composed of representatives of building product manufacturers, builders, and design professionals.
      

This bill:

1. Amends provisions of AB 2446, including:
   1. Extending the date for the development of the framework to December 31, 2026, and would require CARB to develop a comprehensive strategy, by December 31, 2028, rather than by December 31, 2035, to achieve a 40% net reduction in GHG emissions of building materials;
   2. Eliminating the interim target of 20% net reduction;
   3. Authorizing the baseline for the framework to be established based on either an industry average of environmental product declarations reported for the 2026 calendar year or on the most relevant, up-to-date information available, as determined by CARB;
   4. Requiring the established targets to begin to apply no sooner than January 1, 2027, and 2 years after the baseline is established; and
   5. Removing the requirement for a technical advisory committee, instead specifying certain experts who must be consulted.
      
2. Defines the following terms:
   1. Carbon intensity to mean the quantity of life-cycle greenhouse gas emissions per unit of building material, and specifically the ratio between the net upstream carbon dioxide impact (emissions minus storage) of a material and the weight of the material;
   2. Embodied carbon trading system (ECTS) to mean a market-based credit trading platform of GHG emissions exchanges, banking, credits, and other transactions, governed by rules and protocols established by CARB, that result in the same GHG emission reduction, over the same time period, as direct compliance with a GHG emission limit or emission reduction measure adopted to achieve the AB 2446 goal;
   3. Full material life-cycle to mean the aggregate of GHG emissions associated with material production, as defined in the International Organization for Standardization (ISO) 14040 series of standards with a focus on the Product Stage phases (A1-A3); and
   4. Low-carbon product standard (LCPS) to mean an AB 2446 framework within the ECTS, to facilitate a credit trading platform for building materials along with other requirements as specified.
      
3. Authorizes (but does not require) CARB to:
   1. Establish an ECTS to help achieve the AB 2446 goals;
   2. Adopt further GHG emission reduction targets within the scope of the AB 2446 framework to alter the interim 2030 target or provide early reduction credit considering market adoption, if appropriate;
   3. Adopt rules and regulations to monitor, verify, and enforce reductions in embodied carbon in building materials
      
4. Authorizes (but does not require) CARB to do all of the following with regards to the ECTS:
   1. Adopt rules and regulations regarding credits, trading, and prices, among other things;
   2. Consider using ECTS to promote innovation and investment in building materials that reduce GHG emissions;
   3. Consider pertinent information from other jurisdictions and make reasonable efforts to promote consistency;
   4. Integrate ECTS within the AB 2446 framework; and
   5. Consult with specified other California state agencies to minimize duplicate or inconsistent regulatory requirements;
      

Background

1. Embodied carbon. The term “embodied carbon” refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with “operational carbon” (the emissions associated with heating, cooling, and otherwise operating a building), there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.
   
   In order to determine the emissions associated with building materials, the entire life cycle of those products must be considered. Life cycle analysis (LCA) is a method of quantifying the environmental impacts associated with a given product. In LCA, researchers create an inventory of resources used and pollutants generated in product production and use. LCAs can vary depending on the assumptions made and the extent of the life cycle considered. Notably, for LCAs of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate LCAs consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.
   
   The CEC is required (by SB 1389, Bowen and Sher, Chapter 568, Statutes of 2002) to regularly produce an Integrated Energy Policy Report (IEPR) to assess and forecast all aspects of energy industry supply, production, transportation, delivery and distribution, demand, and prices.
   
   The IEPR from 2021, within its volume on building decarbonization, had a section on embodied carbon, and a subsection on embodied carbon in building materials. It reported that in new building projects, on average, up to 50 percent of total GHG emissions, considered over a 30-year building life, are from the embodied carbon associated with the initial construction, and nearly 70 percent of that is from just six materials — concrete and steel (by far the most significant), flat glass, insulation, masonry, and wood products. There are, however, significant variations in estimations of the contribution of embodied carbon to the lifetime emissions from a building that warrant further analysis and contextualization for California.
   
   Ultimately, the IEPR concluded that, “…there is enormous potential for innovation and use of low-carbon products in the built environment. Further research and development are needed, as well as collaboration with other jurisdictions, to develop best practices for reducing embodied carbon in buildings. Also, city planners, designers, and architects could benefit from greater clarity around low-carbon label claims and material-neutral embodied carbon standards.”
   
2. Buy Clean California Act. A first in the nation and widely emulated, the Buy Clean California Act (BCCA) is an innovative program establishing limits on embodied carbon emissions and construction materials procured by the state for public construction projects. The law requires the California Department of General Services (DGS) to publish, by January 1, 2022, acceptable maximum Global Warming Potential (GWP) limits for the following eligible materials: structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on Environmental Product Declarations (EPDs).
   
   An EPD tells the life cycle story of a product in a single, comprehensive report. The EPD provides information about a product’s impact upon the environment, such as global warming potential, smog creation, ozone depletion and water pollution. With an EPD, manufacturers report comparable, objective, and third-party verified data that helps purchasers better understand a product’s sustainable qualities and environmental repercussions so they can make more informed product selections. EPDs are typically cradle-to-gate analyses, which makes sense since they are used partly to determine which products to acquire for a given project.
   
3. Whole building life cycle assessment. Life cycle assessment (LCA) is a systematic way of compiling and analyzing all the inputs, outputs, and potential environmental impacts of a product or system over its lifetime, from initial extraction of raw materials through manufacture, distribution, use, and final disposal. In the context of buildings, LCA can be used to evaluate a single product—like a 2×4, an engineered wood beam, or a mass timber floor panel. It can also be used to analyze an entire building system by compiling data from all the individual building components. This is referred to as Whole Building Life Cycle Assessment (WBLCA) to differentiate it from assessments focused on individual products or building components. WBLCA has emerged as an effective way to measure embodied carbon and other environmental impact measures associated with buildings at a holistic level.
   
   Life cycle assessment is governed by several international standards, notably ISO 14040, which is referenced by this bill and AB 2446. Additionally, ISO 21930, which provides the framework and requirements for environmental product declarations (EPDs) for construction products and services, defines the following four stages of the life cycle:
   1. Production Stage: Modules A1 – A3. A1 starts with raw material extraction or harvest; A2 is the transportation of those raw materials to the factory or mill; and A3 is manufacturing of the product itself. Together, these modules are often referred to as “cradle-to-gate.”
   2. Construction Stage: Modules A4 and A5. A4 is transportation of the product to the construction site; A5 is installation and/or the construction process.
   3. Use Stage: Module B (B1 – B7). These modules include maintenance, repair, replacement, and refurbishment, as well as operational water and energy use for the duration of the building’s life.
   4. End-of-Life Stage: Module C (C1 – C4). C1 includes deconstruction and/or demolition; C2 is transportation of waste to the disposal or processing site; C3 is waste processing; and C4 is the final disposal of that waste.
      

Modules A1 through C4 define the system boundary that fully represent the life cycle of the building; this is often referred to as “cradle-to-grave.” EPDs and the scope of AB 2446 and AB 43 are “cradle-to-gate” or modules A1-A3, the production stage. This is because these policies are attempting to impact the selection of materials by developers, not the practices adopted in building operation and end-of-life.

1. Reducing embodied carbon with the Inflation Reduction Act. The Inflation Reduction Act (IRA) invests $350 million for grants, technical assistance and tools, including carbon labeling, to help manufacturers, institutional buyers, real estate developers, builders, and others measure, report, and substantially lower the levels of embodied carbon and other GHG emissions associated with all relevant stages of production, use and disposal of construction materials and products including steel, concrete, asphalt and glass.

Comments

1. Purpose of Bill. According to the author, “As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible.
   
   “In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035.
   
   “To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.”
   
2. What might successful implementation look like? If the state is successful in meeting the AB 2446 goals, California will achieve a 40% net reduction in GHG emissions from building materials by 2035. Considering that CARB’s latest GHG inventory has commercial and residential emissions together account for 14% of the state’s emissions, and the estimate from the IEPR that roughly half of those emissions are upfront, embodied emissions, this one program alone could account for several percent of the state’s total emission reductions. But, in more concrete terms, what would implementing AB 2446 (as amended by AB 43) look like?
   
   If CARB elects to implement an ECTS, as AB 43 authorizes them to do, success would likely involve trading of credits between projects below and projects above a certain standard. An illustrative example can be found in the Low Carbon Fuel Standard (LCFS), where the overall carbon intensity of the state’s transportation fuels are reduced over time in accordance with a steadily decreasing CI target. Briefly, producers of fuels with a lower CI than the target generate credits, which producers of fuels with a higher CI than the target much purchase to comply with the regulation. Thus, higher CI fuels subsidize the development and production of lower CI fuels.
   
   In practice, recently the LCFS has contributed around 22 cents to the price of gasoline, or around 4% of the total cost. This is in furtherance of the LCFS’s guiding goal: a 20% reduction in fuel CI over almost 20 years. Compare this to the AB 2446 goal: a 40% reduction in building material CI over just over 10 years. The ambition of the goal should focus our attention on the “unfeasibility and cost impact” provisions of AB 2446.
   
   Specifically, HSC § 38561.3(i)(2) states, “If the entity undertaking the construction of a project finds that it is unable to achieve the applicable target due to unfeasibility or cost impact” (i.e. a 5% increase) “and there are no alternative materials or methods that are feasible and without cost impact that would allow the project to achieve the target, then the project shall be deemed to comply with the applicable target.” So what would happen if the ambition of AB 2446 leads to the market valuing ECTS credits so highly that they regularly cause a 5%+ cost impact? If implementing low carbon materials would have a 5%+ cost impact, does AB 2446 have any impact on a project whatsoever? Taken to an extreme, what if every impacted project claims a 5%+ cost impact from complying with AB 2446, and thus is “deemed to comply” without doing anything? Could that lead to a 2035 California where every project AB 2446 is simply “deemed to comply” and yet the state woefully fails to achieve the 40% reduction in CI of building materials? What impacts would such a situation have on the market demand for ECTS credits?
   
   Ultimately, the answers to many of these questions come down to the regulations CARB has broad discretion under this bill to promulgate. However, it is the opinion of committee staff that the “deemed to comply” provisions’ interaction with ECTS deserve a little more specificity and clarity.
   
   The committee may wish to direct CARB to, if they adopt an ECTS to support compliance with AB 2446, require regulated entities to demonstrate they have or will exercise methods of compliance, subject to the feasibility criteria and up to the cost impact limit , even if otherwise “deemed to comply” with the applicable target pursuant to HSC § 38561.3(i).
   
   This is intended to maintain demand for ECTS credits and low-CI building materials, even if cost impacts are greater than 5% for projects. Continued robust demand for these products and ECTS credits is desirable, because it would be expected to drive development of low-CI building materials. Thus, it is important that there continue to be buyers for them even if the “deemed to comply” provisions come into effect frequently.
   
3. A matter of baselines. It is important to consider any data with appropriate comparisons, baselines, and context. The state’s GHG emission reduction goals are set compared to a 1990 baseline. The LCFS sets a reducing CI goal based on a gasoline CI baseline. These are fixed, relevant, and tangible baselines, and relative reductions from that baseline can be assessed easily and accurately. Contrastingly, some of the most egregious abuses of carbon offsets come from the use of variable, estimated, impossible-to-verify baselines (such as when landowners are allowed to report their own counterfactual, or when unalike forests are used for comparison). In short, reductions only matter as a proportional reduction from a real baseline, and those are the most helpful when there is no question what the comparison is to be made against.
   
   This pertains to AB 43 because of language included in the definition of “cost impact” under AB 2446. Specifically, “the baseline material shall be the material that would have been used by the entity undertaking the construction of the project if this section did not apply to the project at the time the application for the building permit is submitted for a model home or project, as applicable.” (emphasis added) This appears to leave significant discretion for the entity undertaking the construction of the project to skew the baseline by inaccurately representing what “would have been used” instead. This situation somewhat resembles forest offset protocols, where an entity may have a financial incentive to overstate the baseline emissions in order to maximize the spread between that and reality. However, within AB 43 and AB 2446, CARB is tasked with developing a baseline of building material CI based on industry averages and other specified data. It seems reasonable that this industry average-based approach (or something like it) would be used to determine what “would have been used.” If so, this would hopefully avoid the baseline issues that have plagued other carbon reduction efforts.
   
4. Who’s responsible for making the right decisions? Recent amendments to AB 43 narrow the scope of the entities affected by the bill to mirror AB 2446: “entities undertaking a construction project.” However, that is not explicitly defined. This has caused significant consternation by the engineers, architects, and contractors who are vital participants in the process of undertaking a construction project, but who do not have the ability to make the types of choices AB 2446 and AB 43 push developers to make (i.e. choosing lower-CI building materials).
   
   Moreover, those same stakeholders worry that bona fide entities undertaking a construction project could attempt to foist any penalties associated with these bills on those other participants contractually, as a condition of doing business. They are requesting amendments to more specifically target the bill as the author seems to have intended, though the California Building Industry Association object to the language being proposed by the contractors (and other associated professionals).
   
   While this issue can be improved from current text of the bill today, it is the understanding of the committee that the affected entities will continue to negotiate language. The goal is to strike a mutually agreeable solution that will ensure the culpable party takes responsibility for any penalties levied as a result of their actions while neither inappropriately indemnifying or burdening any party with those responsibilities.
   
   The committee may wish to consider:
   1. Defining “entities undertaking a construction project” to mean “a person or entity who owns the real property which is the subject of a development agreement”; and
   2. Prohibiting those entities from delegating, transferring, or assigning culpability for complying with an ECTS to any other party, including but not limited to a contractor, subcontractor, or design professional, unless the penalty arises out of that party’s act or omission.
      
5. A little housekeeping. Recent amendments to AB 43 amend the code sections created by AB 2446, and these include the removal of the 2030 interim 20% GHG reduction target. However, this interim target is still referenced in the code section created by AB 43. The committee may wish to strike that reference from HSC § 38561.6(d), and make other nonsubstantive and conforming amendments, including changing the term “Low-carbon product standard” for “Low-carbon building standard” to better reflect the scope of the bill.
   
6. Committee amendments. Staff recommends the committee adopt the bolded amendments contained in comments 2, 4, and 5 above.
   

Related/Prior Legislation

AB 2446 (Holden, Chapter 352, Statutes of 2022) requires CARB to develop a framework for measuring and reducing carbon emissions associated with new building construction.

SOURCE:

AJW

Mighty Buildings

SUPPORT:

Ajw, INC.
Bamcore, LLC
Blue Planet Systems
Ecological Building Network
Ehdd
International Living Future Institute
League of Women Voters of California
Mass Timber Strategy
Mighty Buildings
North American Insulation Manufacturers Association
Sierra Club
Sierra Institute for Community and Environment
Stopwaste
U.S. Green Building Council

2 Individuals

OPPOSITION:

American Council of Engineering Companies of California

California Cement Manufacturers Environmental Coalition
Transportation California

Trinity River Timber Company Dba North Fork Lumber Company

ARGUMENTS IN SUPPORT:

According to one of this bill’s sponsors, Mighty Buildings, “Benefits [of AB 43 include]:

• Functionally, AB 2446 will require each building to exactly meet its carbon targets – which lacks the flexibility nor incentive for exceeding the standard.
• An ECTS will allow trading between different buildings, projects and developers such that an annual average is achieved – and the market can determine the most cost-effective means of compliance.
• The ECTS will offer the opportunity for additional revenue by providing credit generation opportunities for projects that choose to “over-comply” (e.g., LEED gold or platinum buildings)
• The ECTS will offer greater price discovery for the value of low-carbon material credits. A Trading System would require the reporting and tracking of credit trading, thus making clearer credit values across different material types.
• The ECTS will offer an opportunity to create a unified accounting system for Environmental Product Declarations and Life Cycle Assessments to make construction materials comparable in a manner that is reasonable and consistent when accounting for their embodied carbon emissions.”

ARGUMENTS IN OPPOSITION:

According to a coalition representing engineers, contractors, and other professional organizations, “… In large part, there are few if any alternative materials available today that are both less carbon-intensive and equally structurally sound as compared to the building material(s) traditionally utilized for the specific job at hand. Thus, design professionals will be faced with an unenviable situation in which they must bear the costs of utilizing building materials for which they may not employ an alternative (if an appropriate one even exists), materials which they themselves do not provide, and on a project that they do not ultimately own…

It is for these reasons that ACEC California, AGC of California, CalGeo, and CELSA must respectfully oppose AB 43 unless it is amended to remove the bill’s application to architectural and engineering firms and construction contractors and to ensure that penalties incurred by developers and materials manufacturers are not forcibly passed along to these other parties.”

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ASSEMBLY THIRD READING

ATR Bill Id:AB 43

Author:(Holden)

As Amended Ver:March 30, 2023

Majority vote

SUMMARY

Requires the Air Resources Board (ARB) to develop a market-based embodied carbon trading system (trading system) to facilitate compliance with the state's strategy to reduce the carbon intensity of building materials by 40% by 2035.

Major Provisions

1. Requires ARB to establish the trading system in compliance with the requirements of AB 2446 (Holden), Chapter 352, Statutes of 2022, and this bill, as specified.
2. Requires ARB to integrate the trading system with the framework described in AB 2446 by December 31, 2026, and fully implement the trading system by January 1, 2029.
3. Grants ARB discretion to adopt further greenhouse gas (GHG) emission reduction targets within the scope of AB 2446 prior to December 31, 2035, or to alter the interim 2030 target, as appropriate, or provide early reduction credit considering market adoption, if appropriate.
4. Requires ARB, when developing the plan, to identify opportunities for emission reduction measures from all verifiable and enforceable voluntary actions and best management practices.
5. Requires ARB to adopt rules and regulations to monitor, verify, and enforce voluntary GHG emission reductions from building materials that are authorized by ARB to comply with limits established by ARB pursuant to AB 2446.
6. Requires ARB to adopt rules and regulations through an open public process to achieve the maximum technologically feasible and cost-effective GHG emission reductions from construction building materials.
7. Requires ARB to consider the cost-effectiveness of the rules and regulations without limiting consideration to monetary costs and benefits. Requires ARB to also consider societal benefits, as specified.
8. Specifies that a violation of a rule or other such measure adopted pursuant to the bill shall be deemed to result in the emission of an air contaminant for enforcement purposes.
9. Specifies that the bill does not authorize the creation of a revenue-generating program or any other program that would result in moneys being paid to the state, other than relevant penalties.

COMMENTS

Embodied carbon. The term "embodied carbon" refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building's total embodied carbon is released upfront at the beginning of a building's life. Unlike with operational carbon, there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.

In California, according to ARB's GHG Emission Inventory, residential and commercial buildings account for more than 10% of the state's total GHG emissions. However, residential and commercial buildings are responsible for roughly 25% of California's GHG emissions when accounting for fossil fuels consumed onsite and electricity demand. Refrigerants used in heating and cooling systems also contribute to building-related GHG emissions. It is unclear what the exact breakdown is between embodied and operating emissions, but due to California's mild climate, increasing renewable electricity supply, and relatively efficient building stock, our state's operational emissions may be a smaller percentage of total building energy use, compared to the embodied carbon in new construction.

Reducing building emissions. Achieving net zero GHG emissions – when GHG emissions are either zero or are offset by equivalent atmospheric GHG removal – is an important part of reducing GHG emissions and minimizing the effects of climate change. Net zero GHG emissions is also often used interchangeably with carbon neutrality; however, net zero GHG emissions includes GHGs other than those that contain carbon, such as nitrous oxide. Constructing buildings to be net zero will substantially reduce the state's GHG emissions.

Building decarbonization framework. AB 2446 requires ARB to develop a framework for measuring and reducing GHG emissions associated with new building construction. This bill requires the framework to include a comprehensive strategy to achieve a 40% net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035 and an interim target to achieve a 20% net reduction in carbon intensity by the end of 2030.

This bill. This bill requires ARB to develop a trading system, to be incorporated into the framework, to facilitate compliance with the 40% GHG emissions reduction requirement for the in the building sector. The author points out that California is facing a housing shortage, and while it is imperative that the state meet its housing goals, those goals should not come at the expense of California's climate goals. This bill is intended to facilitate the achievement of those goals without increasing the costs for homeowners.

According to the Author

As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible. In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035. To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.

Arguments in Support

According to Mighty Buildings, writing in support, "AB 43 creates an important system that seeks to continue to advance building decarbonization through conscious design to reduce embodied carbon materials."

Arguments in Opposition

According to a coalition of opponents to the bill, "Construction is an inherently complex process that involves dozens of different employers on any given jobsite and thousands of products. To the extent that AB 2446 directed CARB to develop a framework, AB 43 is premature."

FISCAL COMMENTS

ARB estimates costs of approximately $6.6 million in fiscal year (FY) 2023-24, $7.1 million in FY 2024-25, and $7.7 million in FY 2025-26 [Cost of Implementation Account (COIA)] for 29 new positions and contract funds to implement the requirements of this bill.

ARB notes these cost estimates are contingent on the approval of ARB's budget change proposal (BCP) submitted as part of the Governor's January budget for FY 2023-24 to support implementation of AB 2446, which is the precursor to and foundation of this bill. ARB's BCP requests $5.7 million in FY 2023-24 and FY 2024-25 and $4.5 million in FY 2025-26 and ongoing (COIA) for 15 new positions and contract funds to develop and implement a framework to reduce embodied carbon emissions from building materials pursuant to AB 2446. If these resources are not approved in the budget, ARB notes its cost estimate for this bill will be significantly higher to accommodate the workload necessary to implement both AB 2446 and this bill.

VOTES

ASM NATURAL RESOURCES: 8-1-2

YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur

NO: Mathis

ABS, ABST OR NV: Flora, Hoover

ASM APPROPRIATIONS: 12-3-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Sanchez

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: March 30, 2023

CONSULTANT: Elizabeth MacMillan / NAT. RES. / (916) 319-2092 FN: 0000485

Date of Hearing: April 19, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 43

Author:(Holden) – As Amended Ver:March 30, 2023

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

SUMMARY:

This bill requires the Air Resources Board (ARB) to develop a market-based embodied carbon trading system (trading system) to facilitate compliance with the state’s strategy to reduce the carbon intensity of building materials by 40% by 2035.

Specifically, this bill, among other things:

1. Requires ARB to establish the trading system in compliance with the requirements of AB 2446 (Holden), Chapter 352, Statutes of 2022, and this bill, as specified.
2. Requires ARB to integrate the trading system with the framework described in AB 2446 by December 31, 2026, and fully implement the trading system by January 1, 2029.
3. Grants ARB discretion to adopt further greenhouse gas (GHG) emission reduction targets within the scope of AB 2446 prior to December 31, 2035, or to alter the interim 2030 target, as appropriate, or provide early reduction credit considering market adoption, if appropriate.
4. Requires ARB, when developing the plan, to identify opportunities for emission reduction measures from all verifiable and enforceable voluntary actions and best management practices.
5. Requires ARB to adopt rules and regulations to monitor, verify, and enforce voluntary GHG emission reductions from building materials that are authorized by ARB to comply with limits established by ARB pursuant to AB 2446.
6. Requires ARB to adopt rules and regulations through an open public process to achieve the maximum technologically feasible and cost-effective GHG emission reductions from construction building materials.
7. Requires ARB to consider the cost-effectiveness of the rules and regulations without limiting consideration to monetary costs and benefits. Requires ARB to also consider overall societal benefits, as specified.
8. Specifies that a violation of a rule or other such measure adopted pursuant to the bill shall be deemed to result in the emission of an air contaminant for enforcement purposes.
9. Specifies that the bill does not authorize the creation of a revenue-generating program or any other program that would result in moneys being paid to the state, other than relevant penalties.

FISCAL EFFECT:

ARB estimates costs of approximately $6.6 million in fiscal year (FY) 2023-24, $7.1 million in FY 2024-25, and $7.7 million in FY 2025-26 (Cost of Implementation Account (COIA)) for 29 new positions and contract funds to implement the requirements of this bill.

ARB notes these cost estimates are contingent on the approval of ARB’s budget change proposal (BCP) submitted as part of the Governor’s January budget for FY 2023-24 to support implementation of AB 2446 (Holden), Chapter 352, Statutes of 2022, which is the precursor to and foundation of this bill. ARB’s BCP requests $5.7 million in FY 2023-24 and FY 2024-25 and $4.5 million in FY 2025-26 and ongoing (COIA) for 15 new positions and contract funds to develop and implement a framework to reduce embodied carbon emissions from building materials pursuant to AB 2446. If these resources are not approved in the budget, ARB notes its cost estimate for this bill will be significantly higher to accommodate the workload necessary to implement both AB 2446 and this bill.

COMMENTS:

1) Purpose. According to the author:

As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible. In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035. To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.

2) Embodied Carbon. Embodied carbon refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance and disposal of building materials. Operational carbon refers to the GHG emissions associated with building energy consumption. Unlike with operational carbon, there is no chance to decrease embodied carbon with improvements to energy efficiency after the building is constructed. In California, according to the latest GHG Emission Inventory from ARB, residential and commercial buildings are responsible for roughly 25% of California’s GHG emissions when accounting for fossil fuels consumed onsite and electricity demand. According to the California Energy Commission’s 2021 Integrated Energy Policy Report (IEPR), in new building projects, on average, up to 50% of total GHG emissions, considered over a 30-year building life, are from the embodied carbon associated with the initial construction, and nearly 70% of this total is from just six materials – concrete, steel, flat glass, insulation, masonry, and wood products. There are significant variations in estimations of the contribution of embodied carbon to the lifetime emissions from a building that warrant further analysis for California. The IEPR contends there is enormous potential for innovation and use of low-carbon products in buildings, and that further research and development are needed, as well as collaboration with other jurisdictions, to develop best practices for reducing embodied carbon in buildings.

There is significant innovation and a growing early market for low-carbon construction materials in California and around the world. Reducing emissions from the building sector will be critical to meeting the state’s climate goals, and tackling embodied carbon and maximizing the carbon sequestration potential of building materials is an increasingly key component of decarbonizing the built environment.

3) Prior Legislation. AB 2446 (Holden), Chapter 352, Statutes of 2022, required ARB to develop a framework for measuring and reducing GHG emissions associated with new building construction. AB 2446 required the framework to include a comprehensive strategy to achieve a 40% net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035 and an interim target to achieve a 20% net reduction in carbon intensity by the end of 2030.

SB 596 (Becker), Chapter 246, Statutes of 2021, required ARB to develop a comprehensive strategy for the state’s cement sector to achieve net zero emissions of GHGs associated with cement used within the state as soon as possible, but no later than December 31, 2045.

AB 262 (Bonta), Chapter 816, Statutes of 2017, established the Buy Clean California Act, and established environmental performance standards for four leading construction materials used in state building projects: steel rebar, flat glass, structural steel, and mineral wool-board insulation.

Analysis Prepared by: Nikita Koraddi / APPR. / (916) 319-2081

Date of Hearing: March 27, 2023

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Luz Rivas, Chair

ABPCA Bill Id:AB 43 (

Author:Holden) – As Amended Ver:March 2, 2023

SUBJECT: Greenhouse gas emissions: building materials: embodied carbon trading system

SUMMARY: Requires the Air Resources Board (ARB) to develop a market-based embodied carbon trading system (trading system) to facilitate compliance with the state’s strategy to reduce the carbon intensity of building materials by 40% by 2035.

EXISTING LAW:

1. Requires ARB, pursuant to California Global Warming Solutions Act of 2006 [AB 32 (Núñez), Chapter 488, Statutes of 2006], to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020 and adopt regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. AB 32 authorizes ARB to permit the use of market-based compliance mechanisms to comply with GHG reduction regulations once specified conditions are met. Requires ARB to approve a statewide GHG emissions limit equivalent to 85% below the 1990 level by 2045. (Health and Safety Code (HSC) § 38500-38599.11)
2. Requires, under the Buy Clean California Act (BCCA) the Department of General Services (DGS), in consultation with ARB, to establish and publish the maximum acceptable Global Warming Potential (GWP) limit for four eligible materials: structural steel, concrete reinforcing steel, flat glass, and mineral wool board insulation. Further states that when used in public works projects, these eligible materials must have a GWP that does not exceed the limit set by DGS. (Public Contract Code § 3500-3505)
   
3. Requires ARB to develop by July 1, 2025, a framework for measuring and reducing the carbon intensity of new building construction. (HSC § 38561.3)
   
4. Requires the framework to include a comprehensive strategy to achieve a 40% net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035. Establishes an interim target of reducing the carbon intensity of construction materials 20% by December 31, 2030, and requires ARB to assess the feasibility and cost impact of meeting the 2030 interim goal. (HSC § 38561.3)
   
5. Authorizes ARB to include a tracking and reporting mechanism in the framework and charge a fee that may only cover ARB’s costs to administer the reporting mechanism. (HSC § 38561.3)
   
6. Requires ARB to develop, by July 1, 2023, a comprehensive strategy for the state's cement sector to achieve net-zero GHG emissions no later than December 31, 2045. (HSC § 38561.2)

THIS BILL:

1. Defines terms used in the bill, including:
   1. “Carbon intensity” as the quantity of life-cycle GHG emissions per unit of building material, and specifically the ratio between the net upstream carbon dioxide impact of a material and the weight of the material;
   2. “Embodied carbon trading system” as a market-based credit trading platform of GHG emissions exchanges, banking, credits, and other transactions, governed by rules and protocols established by ARB that result in the same GHG emissions reduction, over the same time period, as direct compliance with a GHG emissions limit or emission reduction measure adopted by the ARB;
   3. “Full material life-cycle” as the aggregate of GHG emissions of a building material, including direct emissions and significant indirect emissions, as specified, including those that arise from extracting, producing, transporting, manufacturing, as well as operational and end-of-life emissions; and,
   4. “Low carbon product standard” as a framework created to reduce the carbon intensity of building materials by 40% to facilitate a credit trading platform for building materials along with other requirements, as specified.
2. Requires ARB to establish the trading system in compliance with the requirements of the framework and this bill that meets both of the following:
   1. The system applies to building materials providers, developers, architectural and engineering firms, and construction companies; and,
   2. The trading system unit of measurement is the GWP per gross square foot.
3. Grants ARB the flexibility to design the trading system, and requires ARB to:
   1. Adopt rules and regulations for the credit allocation method, including those governing any tradable compliance instrument, make efforts to avoid an overabundance of compliance credits in the market, including the authority to set an upper limit on the amount of credits, as specified.
   2. Consider using the credits generated through the trading system to help promote innovation and investment in building construction materials.
   3. Consider all relevant information pertaining to low-carbon building materials reduction programs in other states, localities, and nations, and review existing and proposed international, federal, and state GHG emission reporting programs, make reasonable efforts to promote consistency among the programs, and streamline reporting requirements.
   4. Consult with the California Building Standards Commission, the Department of Housing and Community Development, and the State Energy Resources Conservation and Development Commission in the development of building regulations in order to minimize duplicate or inconsistent regulatory requirements.
   5. Integrate the trading system with the framework by December 31, 2026, and fully implement the trading system by January 1, 2029.
4. Grants ARB the discretion to adopt further GHG emission reduction targets within the scope of HSC 38561.3 prior to December 31, 2025, or to alter the interim 2030 target, as appropriate, or provide early reduction credit considering market adoption, if appropriate.
5. Requires, when developing the plan, ARB to identify opportunities for emission reduction measures from all verifiable and enforceable voluntary actions and best management practices.
6. Requires ARB to adopt rules and regulations to monitor, verify, and enforce voluntary GHG emission reductions from building materials that are authorized by ARB to comply with limits established by ARB pursuant to HSC 38561.3.
7. Requires ARB to adopt rules and regulations through an open public process to achieve the maximum technologically feasible and cost-effective GHG emission reductions from construction building materials.
8. Requires ARB to consider the cost-effectiveness of the rules and regulations, but shall not limit consideration to monetary costs and benefits. Requires ARB to also consider overall societal benefits, including reductions in other air pollutants, diversification of energy sources, and other benefits to the economy, environment, and public health.
9. Authorizes ARB to consider the use of third-parties, such as verifiers, for purposes of implementing the bill.
10. Specifies that a violation of a rule, regulation, order, emission limitation, emissions reduction measure, or other measure adopted pursuant to the bill shall be deemed to result in the emission of an air contaminant for enforcement purposes.
11. Requires ARB to periodically review and update its emission reporting requirements as necessary.
12. Specifies that the bill does not authorize the creation of a revenue-generating program or any other program that would result in moneys being paid to the state, other than relevant penalties.
13. Specifies that no reimbursement is required pursuant to the bill, pursuant to the California Constitution.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author’s statement:

As you all are aware, in 2018, Governor Jerry Brown issued Executive Order B-55-18, which ordered a statewide goal to achieve carbon neutrality as soon as possible.

In response to the executive order, last year, I authored AB 2446, which now requires CARB to develop a framework to include a comprehensive strategy to achieve a 40 percent net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035.
To ensure that the industry is able to comply with this new law, AB 43 would require the state board to establish an embodied carbon trading system, as defined, and would make it applicable to building materials providers, developers, architectural and engineering firms, and construction companies.

1. Embodied carbon. The term “embodied carbon” refers to the GHG emissions arising from the manufacturing, transportation, installation, maintenance, and disposal of building materials. The majority of a building’s total embodied carbon is released upfront at the beginning of a building’s life. Unlike with operational carbon, there is no chance to decrease embodied carbon with updates in efficiency after the building is constructed.
   
   In California, according to ARB’s GHG Emission Inventory, residential and commercial buildings account for more than 10% of the state’s total GHG emissions. However, residential and commercial buildings are responsible for roughly 25% of California’s GHG emissions when accounting for fossil fuels consumed onsite and electricity demand. Refrigerants used in heating and cooling systems also contribute to building-related GHG emissions. It is unclear what the exact breakdown is between embodied and operating emissions, but due to California’s mild climate, increasing renewable electricity supply, and relatively efficient building stock, our state’s operational emissions may be a smaller percentage of total building energy use, compared to the embodied carbon in new construction.
2. Reducing building emissions. Achieving net zero GHG emissions – when GHG emissions are either zero or are offset by equivalent atmospheric GHG removal – is an important part of reducing GHG emissions and minimizing the effects of climate change. Net zero GHG emissions is also often used interchangeably with carbon neutrality; however, net zero GHG emissions includes GHGs other than those that contain carbon, such as nitrous oxide. Constructing buildings to be net zero will substantially reduce the state’s GHG emissions.
   
   Buildings can also sequester carbon. Building materials, depending on how they are manufactured, can be considered to sequester carbon. For example, the carbon that comprises wood (roughly 50% by weight) is from the carbon dioxide (CO₂) the tree absorbed from the air. California policies typically consider a 100-year time horizon for the sequestration to be considered permanent. Thus, if atmospheric CO₂ could—reliably and accountably—be made stored in building as wood for at least a century, those could potentially be counted as sequestered. Given California’s stated goal of net zero GHG emissions by 2045, there is a need for GHG emissions to be balanced by atmospheric GHG removal.
3. Buy Clean California Act. The BCCA establishes limits on embodied carbon emissions and construction materials procured by the state for public construction projects. By January 1, 2022, the law requires DGS to publish acceptable maximum GWP limits for structural steel, concrete reinforcing steel (rebar), flat glass, and mineral wool board insulation. In order to determine and compare the GWPs of different products and materials, DGS relies on environmental product declarations (EPDs).
4. Environmental product declarations and life cycle assessments. An EPD is a widely-accepted, verified report of the ways in which product affects the environment throughout its life cycle. It provides information about a product’s impact upon the environment, such as GWP, air emissions, ozone depletion, and water pollution. EPDs allow purchasers to have comparable, objective, and third-party verified data to better understand a product’s environmental impacts so they can make more informed product selections.

Life cycle analyses attempt to quantify the environmental impacts associated with a given product. The analyses can vary depending on the assumptions made and the extent of the life cycle considered. For life cycle analyses of building materials, assessments are usually either cradle-to-gate or cradle-to-grave. Cradle-to-gate analyses consider the emissions associated from extraction up until arrival at the project site, while cradle-to-grave continue further to consider any emissions associated with the product’s use within the project and building and, ultimately, its end of life.

1. Building decarbonization framework. AB 2446 (Holden), Chapter 352, Statutes of 2022, requires ARB to develop a framework for measuring and reducing GHG emissions associated with new building construction. This bill requires the framework to include a comprehensive strategy to achieve a 40% net reduction in the carbon intensity of construction and materials used in new construction as soon as possible, but no later than December 31, 2035 and an interim target to achieve a 20% net reduction in carbon intensity by the end of 2030.
2. This bill. This bill requires ARB to develop a trading system, to be incorporated into the framework, to facilitate compliance with the 40% GHG emissions reduction requirement for the in the building sector. The author points out that California is facing a housing shortage, and while it is imperative that the state meet its housing goals, those goals should not come at the expense of California’s climate goals. This bill is intended to facilitate the achievement of those goals without increasing the costs for homeowners.
3. Suggested amendment. This bill allows the use of credits for innovation and investment for building materials, but it does not specify that it needs to be innovation and investment in building materials that lower GHG emissions. The committee may wish to amend the bill to clarify that the use of credits for innovation and investment must be for building materials that reduce GHG emissions.

REGISTERED SUPPORT / OPPOSITION:

Support

AJW, INC.

BamCore, LLC

Opposition

None on file

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