Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources. Existing law generally designates the State Air Resources Board as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources.

Existing law requires the board of every air district to establish by regulation a system by which all reductions in the emission of air contaminants that are to be used to offset certain future increases in the emission of air contaminants be banked prior to use to offset future increases in emissions, except as specified. Existing law requires the state board to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and areawide sources when those credits are used interchangeably, consistent with certain requirements. Existing law also requires the state board to periodically update the methodology as it applies to future transactions, if necessary.

Existing law provides for the establishment of the San Joaquin Valley Unified Air Pollution Control District vested with the authority to regulate air emissions from stationary sources located in the San Joaquin Valley Air Basin.

This bill would require the state board, except as provided, to conduct an analysis of each credit identified in the San Joaquin Valley Unified Air Pollution Control Districts ledger of available emission reduction credit banks for certain pollutants credits to determine if any credits were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance, and to complete the analysis no later than January 1, 2027. As part of the analysis, the bill would require the state board to ensure that emission reduction credits are deemed invalid if they were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance. If the invalidation of those credits leads, or would have led, to the districts program failing to meet applicable federal emission reduction requirements, the bill would require current and future credits to be valued at the time of use. The bill would also require the state board to conduct a stationary source analysis for all permits in the district that use a credit for oxides of nitrogen (NOx), volatile organic compounds (VOCs), or a pollutant for which the invalidation of credits leads, or would have led, to the failure to meet federal requirements, as provided. The bill would require, upon completion of the analyses, analysis, the state board to submit a report to the Legislature that includes a summary of the results of the analyses. analysis.

This bill would require the district to aggregate and make publicly available on its internet website specified information regarding permits issued during a specified time period that require or required the use of one or more emission reduction credits. By adding to the duties of the district, this bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for the San Joaquin Valley Air Basin.

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.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources. Existing law generally designates the State Air Resources Board as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources.

Existing law requires the board of every air district to establish by regulation a system by which all reductions in the emission of air contaminants that are to be used to offset certain future increases in the emission of air contaminants be banked prior to use to offset future increases in emissions, except as specified. Existing law requires the state board to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and areawide sources when those credits are used interchangeably, consistent with certain requirements. Existing law also requires the state board to periodically update the methodology as it applies to future transactions, if necessary.

Existing law provides for the establishment of the San Joaquin Valley Unified Air Pollution Control District vested with the authority to regulate air emissions from stationary sources located in the San Joaquin Valley Air Basin.

This bill would require the district to revise the regulation establishing its emission reduction credit system to require specify a time period by which existing and future emission reduction credits to expire after a specified time period. will expire. The bill would provide that this revision of the emission reduction credit system is subject to disapproval by the state board within 60 days after adoption by the district.

This bill would require the state board, except as provided, to conduct an analysis of the San Joaquin Valley Unified Air Pollution Control Districts emission reduction credit banks for particulate matter below 10 microns (PM10), carbon monoxide (CO), and oxides of sulfur (SOx) certain pollutants and to complete the analysis no later than January 1, 2027. As part of the analysis, the bill would require the state board to ensure that emission reduction credits are deemed invalid if they were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance. If the invalidation of those credits leads, or would have led, to the districts program failing to meet applicable federal emission reduction requirements, the bill would require current and future credits to be valued at the time of use. The bill would also require the state board to conduct a stationary source analysis for all permits in the district that use a credit for oxides of nitrogen (NOx) or (NO_x), volatile organic compounds (VOCs), or a pollutant for which the invalidation of credits leads, or would have led, to the failure to meet federal requirements, as provided. The bill would require, upon completion of the analyses, the state board to submit a report to the Legislature that includes a summary of the results of the analyses.

By adding to the duties of the district, this bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for the San Joaquin Valley Air Basin.

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.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources. Existing law generally designates the State Air Resources Board as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources.

Existing law requires the board of every air district to establish by regulation a system by which all reductions in the emission of air contaminants that are to be used to offset certain future increases in the emission of air contaminants be banked prior to use to offset future increases in emissions, except as specified. Existing law requires the state board to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and areawide sources when those credits are used interchangeably, consistent with certain requirements. Existing law also requires the state board to periodically update the methodology as it applies to future transactions, if necessary.

Existing law provides for the establishment of the San Joaquin Valley Unified Air Pollution Control District vested with the authority to regulate air emissions from stationary sources located in the San Joaquin Valley Air Basin.

This bill would require the district to revise the regulation establishing its emission reduction credit system by requiring to require existing and future emission reduction credits to expire after a specified time period and by requiring an emission reduction credit to be valued at its time of use. period. The bill would provide that this revision of the emission reduction credit system is subject to disapproval by the state board within 60 days after adoption by the district.

By adding to the duties of the district, this bill would impose a state-mandated local program.

This bill would make legislative findings and declarations as to the necessity of a special statute for the San Joaquin Valley Air Basin.

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.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources. Existing law generally designates the State Air Resources Board as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources.

This bill would state the intent of the Legislature to enact subsequent legislation to examine potential solutions to reduce or eliminate stationary and mobile sources of air pollution. require the district to revise the regulation establishing its emission reduction credit system by requiring existing and future emission reduction credits to expire after a specified time period and by requiring an emission reduction credit to be valued at its time of use. The bill would provide that this revision of the emission reduction credit system is subject to disapproval by the state board within 60 days after adoption by the district.

Existing law imposes various limitations on emissions of air contaminants for the control of air pollution from vehicular and nonvehicular sources. Existing law generally designates the State Air Resources Board as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources.

This bill would state the intent of the Legislature to enact subsequent legislation to examine potential solutions to reduce or eliminate stationary and mobile sources of air pollution.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 985

Author:(Arambula)

As Amended Ver:July 6, 2023

Majority vote

SUMMARY

Requires the Air Resources Board (ARB) to conduct an analysis of the San Joaquin Valley Unified Air Pollution Control District's (District) emission reduction credit (ERC) banks for air pollutants by January 1, 2027.

Senate Amendments

1. Delete the requirement for the District to revise its ERC regulation to specify a time period by which existing and future ERCs will expire.
2. Clarify that the bill requires ARB to conduct an analysis of each credit identified in the District's ledger of available ERCs to determine if any credits were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance.
3. Delete the requirement for ARB to ensure that the ERCs are deemed invalid if they were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance.

Delete the requirement for ARB to conduct a stationary source analysis for all permits in the district that use a credit for oxides of nitrogen (NOx), volatile organic compounds (VOCs), or a pollutant for which the invalidation of credits leads, or would have led, to the failure to meet federal requirements, as provided.

1. Provide that ARB is not required to analyze any available ERC that was reviewed as part of the June 2020 report.
2. Require the District to aggregate and make publicly available on its internet website specified information regarding permits issued during a specified time period that require or required the use of one or more ERCs.

COMMENTS

The U.S. Environmental Protection Agency's health-based limits for particulate matter (PM), ozone, NOx, sulfur oxides (Sox), carbon monoxide (CO), and lead require states and local governments to take steps to reduce emissions to attain the standards. Geographic areas within each state that do not meet a standard are called non-attainment for that air pollutant. The designation of an area as non-attainment triggers the regulatory requirements for banking and use of emission reductions credits.

All air districts in California are authorized by the federal Clean Air Act to operate ERC programs within their jurisdictions. These programs function similarly to cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be "quantifiable, enforceable, permanent, and surplus." These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit. Credits are stored in "banks" managed by the air districts. There are ten credit banks at the District, each comprised of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.

The San Joaquin Valley is prone to one of the most challenging air quality problems in the nation and is designated as an attainment area for the federal lead, NOx, SOx, and CO under the National Ambient Air Quality Standards, but the Valley is designated as a nonattainment area for the federal 1997 annual and 2006/2012 PM2.5 standards and the federal 8-hour ozone standards. The American Lung Association's 2022 State of the Air report gave the Valley an 'F' for Ozone, an 'F' for particle pollution in a 24-hour period, and a failing grade for particle pollution annually. 

On January 24th, 2019, ARB conducted a review of the District's ERC program. The resultant report discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.

The author states concern that it is likely that a similar analysis of the other major banks, which are for PM10, CO, and SOx, may reveal similar errors and should be reviewed. Thus, AB 985 would require ARB to analyze the District's ERC banks for each air pollutant by January 1, 2027.

According to the Author

Issues with the District's credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District's credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action. The state must require the District to address the disproportionate burden on vulnerable communities it has allowed under its watch.

Arguments in Support

The Central Valley Air Quality Coalition writes, "The [District] has been mismanaging their Emissions Reduction Credit system for decades, resulting in more pollution concentrated in environmental justice neighborhoods allowing the oil industry and other major pollution sources to use old credits that were overvalued or never should have been issued instead of cleaning up their pollution on site … To restore clean air to the Valley and address the disproportionate burden on communities of color and low income communities, issues with the credits, banks, and permits used by the oil industry and other major pollution sources must be fully assessed and addressed."

Arguments in Opposition

The League of California Cities writes, "AB 985 would create an effective moratorium on permitting projects for a wide range of essential public services. The significant time, staffing, and costs required to meet the provisions of this bill will not provide improved air quality and could instead be better invested in other activities like providing incentives for much-needed reductions in mobile source emissions which make up the majority of emissions in the San Joaquin Valley and other parts of California."

FISCAL COMMENTS

According to the Senate Appropriations Committee, this bill will result in ongoing costs of $4.5 million annually for at least five years (Air Pollution Control Fund) for ARB to review each ERC and report to the Legislature.

VOTES:

ASM NATURAL RESOURCES: 8-3-0

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

NO: Flora, Hoover, Mathis

ASM APPROPRIATIONS: 11-4-1

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

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 45-21-14

YES: Addis, Alvarez, Arambula, Bauer-Kahan, Bennett, Boerner, Bonta, Bryan, Calderon, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Garcia, Gipson, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, McCarty, McKinnor, Muratsuchi, Ortega, Papan, Pellerin, Petrie-Norris, Ramos, Reyes, Luz Rivas, Rodriguez, Santiago, Schiavo, Ting, Ward, Weber, Wicks, Wood, Zbur, Rendon

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

ABS, ABST OR NV: Aguiar-Curry, Berman, Juan Carrillo, Gabriel, Grayson, Irwin, Maienschein, Stephanie Nguyen, Pacheco, Quirk-Silva, Robert Rivas, Blanca Rubio, Valencia, Wilson

UPDATED

VERSION: July 6, 2023

CONSULTANT: Paige Brokaw / NAT. RES. / (916)319-2092 FN: 0001852

 THIRD READING  

Bill No: AB 985

Author: Arambula (D), et al.

Amended: 7/6/23 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: 45-21, 5/31/23 - See last page for vote

SUBJECT: San Joaquin Valley Unified Air Pollution Control District: emission reduction credit system

SOURCE: Author

DIGEST:

This bill requires the California Air Resources Board to analyze all the San Joaquin Valley Air Pollution Control District’s banked Emission Reduction Credits, as defined that they had not in the June 2020 Report, as defined. This bill also requires the District to provide information regarding the location and utilization of credits over the last twenty years.

ANALYSIS:

Existing law:

1. Sets, through the Federal Clean Air Act (FCAA) and its implementing regulations, National Ambient Air Quality Standards (NAAQS) for six criteria pollutants, designates air basins that do not achieve NAAQS as nonattainment, allows only California to set emissions standards stricter than the federal government, and require states with nonattainment areas to submit a State Implementation Plan (SIP) detailing how they will achieve compliance with NAAQS. (42 U.S.C. §7401 et seq.)
2. Establishes the California 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 air quality. (Health and Safety Code (HSC) § 39500 et seq.)
3. Requires, subject to the powers and duties of CARB, local air pollution control districts and air quality management districts (air districts) to adopt and enforce rules and regulations to achieve and maintain the state standards and NAAQS in all areas affected by emission sources under their jurisdiction, and to enforce all applicable provisions of state and federal law. (HSC § 40001)
4. Requires CARB to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and area-wide sources when those credits are used interchangeably, consistent with certain requirements. Requires CARB to periodically update the methodology as it applies to future transactions, if necessary. (HSC § 40716)

This bill:

1. Makes findings and declarations regarding air pollution, NAAQS, and the history of controversy around emission reduction credits (ERCs) in the District.
2. Requires CARB to, by January 1, 2027, except for where already analyzed as part of the June 2020 report, as defined, analyze the District’s ERC banks (exempting already-reviewed oxides of nitrogen (NOx) and volatile organic compounds (VOCs)), to determine if any of the credits were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance.
3. Requires the District to, for all permits issued between January 1, 2004 and December 31, 2020, that required the use of one or more ERCs, to aggregate and make publicly available specified information regarding those permits including the permit applicant, the facility name, the permitted emissions by type and quantity, and any of several specified pollution control measures that were used.

Background

1. The San Joaquin Valley’s air quality is uniquely bad due to uniquely difficult geographic, meteorological, and industrial conditions. The San Joaquin Valley (Valley) is surrounded by mountain ranges which trap air pollutants within the air basin. The Valley’s weather conditions include frequent periods of high pressure, temperature inversions, long, hot summers, and stagnant, foggy winters, all of which are conducive to the formation and retention of air pollutants. This problem is exacerbated by high levels of pollution emission from heavy vehicle traffic along I-5 and highway 99, locomotive traffic, tractors and irrigation pumps from the agriculture industry, flares from fossil fuel extraction, and smoke from wood-burning stoves and fireplaces. These factors have led to the air quality in the Valley consistently being ranked among the worst in the country by such groups as the World Health Organization, the American Lung Association, and the United States Environmental Protection Agency (US EPA).
2. Having pollutant level above a NAAQS can lead to severe health impacts, particularly in disadvantaged communities. The NAAQS are the result of an intensive science assessment process and risk exposure assessments to determine levels that will protect human and environmental health. Numerous scientific studies have linked exposure to air pollution to increased severity of asthma attacks, development of chronic bronchitis, decreased lung function in children, respiratory and cardiovascular hospitalizations and even premature death in people with existing heart or lung disease.

The health burden of air pollution depends on several key factors including exposure to the pollutant, susceptibility to its effects, access to healthcare, and psychological stress. Because of historic practices of redlining and other discriminatory practices and policies, people of color are disproportionally located in areas closer to sources of air pollution. There is also evidence that having low income also increases risk from air pollution due to having fewer resources to relocate away from sources as well as less access to quality and affordable healthcare.

1. Emissions reduction credits (ERCs). All air districts in California are authorized by the federal Clean Air Act and by the state to operate ERC programs within their jurisdictions. These programs function not unlike cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be “quantifiable, enforceable, permanent, and surplus.” These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit.

Credits are stored in “banks” managed by the air districts. There are ten credit banks at the District, and each consists of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.

Also not unlike cap-and-trade, there has been an abundance of controversy around ERC’s implementation, impacts on pollution-burdened communities, and lack of behavioral change induced in industrial polluters.

1. June 2020 report. In November 2018, Earthworks released the report Undeserved Credit: Why emissions banking in California’s San Joaquin Valley puts air quality at risk, which was a catalyst for CARB’s 2020 review. The Earthworks report made the following findings and conclusions, among others: “a significant proportion of [credits] in the District’s bank appear to be invalid;” “ARB should audit the District [credit] system;” “equivalency should be questioned;” and, “ARB should not allow [credits] to last forever.”

On January 24th, 2019, CARB conducted a review of the District’s Emission Reduction Credit program. The resultant Review of the San Joaquin Valley Air Pollution Control District Emission Reduction Credit System discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.

[NOTE: For a more comprehensive background and analysis of AB 985, please refer to the Senate Environmental Quality Committee analysis of 7/3/2023.]

Comments

1. Purpose of Bill. According to the author, “The San Joaquin Valley is home to some of the most disenfranchised people in the state. This includes those in rural or farmworker communities, Disadvantaged Communities, Tribal nations, young people, and those living at or below the poverty level. These people live adjacent to transportation corridors or stationary sources of pollution with extremely localized and severe pollution levels.

“Poor air quality has numerous negative impacts on health, including the development of asthma and other respiratory illnesses in children as well as increased risk of cancer and cardiovascular disease in adults. Exposure to air pollution can also slow and stunt lung development in growing children, harming their health now and reducing their lung function as adults. It also leads to premature death. However, the distribution of premature deaths is not equal as disadvantaged communities are at a disproportionately higher risk. People of color additionally are more likely to be exposed to air pollution and more likely to suffer harm to their health from air pollution than white people.

“Issues with the Air District’s credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District’s credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action. The state must require the Air District to address the disproportionate burden on vulnerable communities it has allowed under its watch.”

1. Balancing costs and impacts. This is a thorny issue, and both sides raise valid and important concerns. On one hand, it is helpful to remember that ERCs are not just abstract numbers to be bought and sold. Fundamentally, they are an instrument that guarantees residents the air is getting cleaner, even while economic activity continues and expands. If ERCs are found to be invalid, this is not just an academic issue; it is a matter of residents trusting their air district to protect them and that trust being betrayed. Thus, the author and supporters are fighting to address the root issue, even if that upsets a precariously balanced status quo.

On the other hand, the air districts and any of the myriad air district permit-holders who oppose this bill do so with good cause as well. Becoming unable to obtain economical permits for their operations could lead many facilities to fold or leave the Valley. There is no splitting the “bad” polluters from the “good” with the ERC system, unfortunately; constraining the supply of available ERCs makes it much harder for everyone to get permits, including some essential operations. Particularly in light of the fact that the majority of the air pollution burden facing the San Joaquin Valley comes from mobile sources, it becomes increasingly challenging to justify the massive economic impacts this clamping down on stationary source permits may cause.

Nevertheless, just because it may be intractable to tackle this whole issue in one fell swoop, more transparency could help guide future actions, be they subsequent legislation or local engagement. Thus, amendments taken in the Senate Environmental Quality Committee narrowed the scope of th bill considerably, while still providing valuable information to residents and advocates in the Valley.

As amended, AB 985 no longer affects the pricing or availability of ERCs, on which so many of the entities originally opposed to this bill depend. The bill still has CARB analyze all the credits they had not in the June 2020 Report, and it would require the District to provide information that will map where ERCs are claimed and used. Taken together, this information will allow residents and policymakers to gain a better understanding of which ERCs may not be truly linked to the pollution reductions they claim, and to better know where the use of those ERCs may be disproportionately burdening certain Valley communities.

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

According to the Senate Appropriations Committee, CARB estimates ongoing costs of $4.5 million annually for at least five years (Air Pollution Control Fund [APCF]) to review each ERC and report to the Legislature.

SUPPORT: (Verified 9/1/23)

350 Humboldt

Azul

Ban Single Use Plastic

California Environmental Voters

California Nurses for Environmental Health and Justice

Central California Asthma Collaborative

Central California Environmental Justice Network

Central Valley Air Quality Coalition

Clean Water Action

Cleanearth4kids

Climate Action California

Coalition for Clean Air

Earthjustice

Elders Climate Action NorCal Chapter

Elders Climate Action SoCal Chapter

Environmental Working Group

Facts: Families Advocating for Chemical & Toxics Safety

Leadership Counsel for Justice and Accountability

Little Manila Rising

Mi Familia Vota

Natural Resources Defense Council

Pesticide Action Network

Public Health Advocates

Sacramento Area Congregations Together

Santa Cruz Climate Action Network

Sierra Club California

The Climate Center

Valley Improvement Projects

Vote Solar

OPPOSITION: (Verified 9/1/23)

African American Farmers of California

Agricultural Council of California

Almond Alliance of California

BizFed Central Valley

California Air Pollution Control Officers Association

California Association of Sanitation Agencies

California Association of Winegrape Growers

California Chamber of Commerce

California Compost Coalition

California Council for Environmental & Economic Balance

California Farm Bureau Federation

California Fresh Fruit Association

California League of Food Producers

California Manufacturers & Technology Association

California State Association of Counties

California Walnut Commission

California Women for Agriculture

City of Riverbank

City of Waterford

County of Fresno

County of Kern

County of Merced

County of San Joaquin

County of Stanislaus

Far West Equipment Dealers Association

Los Angeles County Business Federation

Los Angeles County Sanitation Districts

Madera County

Madera County of Supervisors

Manufacturers Council of the Central Valley

Merced County Board of Supervisors

Milk Producers Council

Nisei Farmers League

San Joaquin County Board of Supervisors

San Joaquin Valley Policy Council

San Joaquin Valley Unified Air Pollution Control District

South Coast Air Quality Management District

Stanislaus County Board of Supervisors

Vector Environmental, Inc.

Western Agricultural Processors Association

Western Growers Association

Western Plant Health Association

Western States Petroleum Association

Wine Institute

ARGUMENTS IN SUPPORT: According to a coalition of environmental and environmental justice groups, “The Valley Air District’s ERC system is clearly corrupt and needs to be corrected. Community groups and advocates have engaged for years with the District to seek changes to this system to no avail. For almost two years, representatives of Central Valley Air Quality Coalition, Clean Water Action, and Earthjustice were active members of the Emission Reduction Credit (ERC) Public Advisory Workgroup (PAW) that was tasked to address CARB’s findings. These representatives ultimately resigned the PAW as a result of being disappointed in the lack of constructive dialogue and real outcomes.

“To restore clean air to the Valley and address the disproportionate burden on communities of color and low income communities, issues with the credits, banks, and permits used by the oil industry and other major pollution sources must be fully assessed and addressed. Communities across the San Joaquin Valley deserve answers as to the implications of these findings for existing permits and clean-up plans that rely on incorrect information.”

ARGUMENTS IN OPPOSITION: According to the California Air Pollution Control Officers Association (CAPCOA), AB 985 “…would require an extremely resource-intensive review of emission reduction credits (ERCs) used in permitting actions in the San Joaquin Valley Air Pollution Control District’s (SJVAPCD or District) offsets program, which creates a costly unfunded state mandate that will not result in improved air quality and instead divert limited air district resources away from efforts that actually improve public health…

“AB 985 would require CARB to conduct an extensive analysis of the SJVAPCD’s ERC banks as well as a costly and extremely resource-intensive review of permits that utilize ERCs. This requirement does not recognize that the air district is in attainment for PM10 and CO emissions, that ERC banking actions and permits that trigger ERC requirements are both publicly noticed, and that CARB and US EPA review and approve every ERC project prior to their issuance. Repeating work that has already taken place will not improve air quality. Consistent with existing state and federal regulations, the District is already required to constantly re-evaluate emission reduction opportunities to satisfy Best Available Control Technologies (BACT), Best Available Control Measures (BACM), and Most Stringent Measures (MSM). As a result of these efforts, CARB and US EPA have repeatedly found that the District’s rules and regulations not only meet these requirements but are among the most stringent requirements in the nation. AB 985 imposes a new unfunded state mandate on the SJVAPCD; the significant amount of air district resources in time, staffing, and costs required to meet these new provisions will not provide improved air quality and could instead be better invested in other activities like incentivizing clean transportation which will provide much needed emissions reductions in the District.”

ASSEMBLY FLOOR: 45-21, 5/31/23

AYES: Addis, Alvarez, Arambula, Bauer-Kahan, Bennett, Boerner, Bonta, Bryan, Calderon, Wendy Carrillo, Cervantes, Connolly, Mike Fong, Friedman, Garcia, Gipson, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, McCarty, McKinnor, Muratsuchi, Ortega, Papan, Pellerin, Petrie-Norris, Ramos, Reyes, Luz Rivas, Rodriguez, Santiago, Schiavo, Ting, Ward, Weber, Wicks, Wood, Zbur, Rendon

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

NO VOTE RECORDED: Aguiar-Curry, Berman, Juan Carrillo, Gabriel, Grayson, Irwin, Maienschein, Stephanie Nguyen, Pacheco, Quirk-Silva, Robert Rivas, Blanca Rubio, Valencia, Wilson

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

9/2/23 15:01:38

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 985 (Arambula) - San Joaquin Valley Unified Air Pollution Control District: emission reduction credit system

Bill Summary:

This bill would require the California Air Resources Board (CARB) to analyze each credit identified in the San Joaquin Valley Unified Air Pollution Control District (District) ledger of available emission reduction credits (ERCs) and report to the Legislature, as specified.

Fiscal Impact:

• CARB estimates ongoing costs of $4.5 million annually for at least five years (Air Pollution Control Fund [APCF]) to review each ERC and report to the Legislature.

Background:

The San Joaquin Valley’s air quality is uniquely bad due to uniquely difficult geographic, meteorological, and industrial conditions. The San Joaquin Valley (Valley) is surrounded by mountain ranges which trap air pollutants within the air basin. The Valley’s weather conditions include frequent periods of high pressure, temperature inversions, long, hot summers, and stagnant, foggy winters, all of which are conducive to the formation and retention of air pollutants. This problem is exacerbated by high levels of pollution emission from heavy vehicle traffic along I-5 and highway 99, locomotive traffic, tractors and irrigation pumps from the agriculture industry, flares from fossil fuel extraction, and smoke from wood-burning stoves and fireplaces. These factors have led to the air quality in the Valley consistently being ranked among the worst in the country by such groups as the World Health Organization, the American Lung Association, and the United States Environmental Protection Agency (US EPA).

Having pollutant level above a NAAQS can lead to severe health impacts, particularly in disadvantaged communities. The NAAQS are the result of an intensive science assessment process and risk exposure assessments to determine levels that will protect human and environmental health. Numerous scientific studies have linked exposure to air pollution to increased severity of asthma attacks, development of chronic bronchitis, decreased lung function in children, respiratory and cardiovascular hospitalizations and even premature death in people with existing heart or lung disease.

The health burden of air pollution depends on several key factors including exposure to the pollutant, susceptibility to its effects, access to healthcare, and psychological stress. Because of historic practices of redlining and other discriminatory practices and policies people of color are disproportionality located in areas closer to sources of air pollution. There is also evidence that having low income also increases risk from air pollution due to having fewer resources to relocate away from sources as well as less access to quality and affordable healthcare.

Emissions reduction credits (ERCs). All air districts in California are authorized by the federal Clean Air Act and by the state to operate ERC programs within their jurisdictions. These programs function not unlike cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be “quantifiable, enforceable, permanent, and surplus.” These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit.

Credits are stored in “banks” managed by the air districts. There are ten credit banks at the District, and each consists of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.

Also not unlike cap-and-trade, there has been an abundance of controversy around ERC’s implementation, impacts on pollution-burdened communities, and lack of behavioral change induced in industrial polluters.

Surplus at time-of-issuance versus at time-of-use. As stated above, ERCs are only issued for reductions that are quantifiable, enforceable, permanent, and surplus. The question of whether an emission reduction is surplus or not is more complicated than it first appears. Suppose a facility was regulated to meet a standard of 50 parts per million (ppm) for a pollutant. If they chose to reduce their emissions further to 30 ppm, they would receive a bankable ERC for the 20 ppm of “surplus” reduction beyond what was required at the time the credit was issued.

Now, suppose that same credit were used in the future by a different project to offset its emissions of that same pollutant, and the regulatory standard had since been strengthened to 40 ppm. While that credit was 20 ppm surplus beyond the 50 ppm required level at the time it was issued, it is now only 10 ppm surplus of the 40 ppm required level at time-of-use. In other words, the value of credit decreases over time as regulations become more stringent. As a specific example, the District estimated in 2016 that banked NOx credits, when valued at time-of-use, were worth about 18% of the time-of-issuance value because of more stringent NOx regulations.

The federal Environmental Protection Agency (EPA) values ERC at time-of-use, but air districts may opt to use time-of-issuance valuation, provided they justify their actions with a so-called “equivalency demonstration.” These extremely complicated and technical documents make the case that the district, despite using a less stringent ERC valuation (i.e. time-of-issuance rather than time-of-use), still meets or exceeds federal emission requirements overall.

The San Joaquin Valley Unified Air Pollution Control District has chosen to continue using time-of-issuance ERC valuation (as is their right), but as such must submit equivalency demonstrations for each bank each year. This is with the extremely notable exceptions of NOx and VOCs, which, after a 2020 report from CARB found inconsistencies and inaccuracies in those banks, failed their equivalency demonstrations and were thus required to use time-of-use valuation. This bill would require similar assessments be made of the other eight ERC banks, which could well have the effect of triggering failed equivalency demonstrations and subsequent time-of-use ERC valuation too.

June 2020 report. In November 2018, Earthworks released the report Undeserved Credit: Why emissions banking in California’s San Joaquin Valley puts air quality at risk, which was a catalyst for CARB’s 2020 review. The Earthworks report made the following findings and conclusions, among others: “a significant proportion of [credits] in the District’s bank appear to be invalid;” “ARB should audit the District [credit] system;” “equivalency should be questioned;” and, “ARB should not allow [credits] to last forever.”

On January 24th, 2019, CARB conducted a review of the District’s Emission Reduction Credit program. The resultant Review of the San Joaquin Valley Air Pollution Control District Emission Reduction Credit System discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.

Specifically, CARB found that the District should make adjustments to how it implements its rule for the timeliness of credit application submittals, and could be more rigorous in its determination of surplus reductions in individual credits. For example, in 15 of the 52 credit projects reviewed, the District granted credits, generated by facility shutdowns, in which emissions ceased more than 180 days before submission of the credit application. In addition, in four of the 52 credit projects reviewed, CARB determined that it was unclear whether the emission reductions were surplus of every federal, state, or district law, rule, order, permit, or regulation. This benefitted the applicant by providing a greater face value to the credit. But, as a result, the District had to find additional reductions to cover the non-surplus credits.

CARB notes in the report that many of their findings—regarding the issuance of individual credits, the time of issuance valuation of credits, and others—“relate to decisions made decades ago. Since these decisions were made, conditions have changed. Air quality has improved substantially, but ambient air quality standards have increased in stringency. Even though these decisions were made decades ago, they generate implications for air quality today.”

Proposed Law:

This bill would:

1. Require the District to revise its ERC regulation to specify an expiration date for existing and future banked ERCs, subject to disapproval from CARB, as specified.
2. Require CARB to, by January 1, 2027, analyze each credit identified in the District’s ledger of available emission reduction credits, as specified, to determine if any credits were issued in violation of state, local, or district laws, rules, regulations or procedures in place at the time of original issuance.
3. Require CARB, upon completion of the analysis, to report to the Legislature a summary of the analysis results.
4. Require the District to aggregate and make publicly available on its internet website specified information regarding permits issued during a specified time period that require or required the use of one or more emission reduction credits.
5. Make findings and declarations regarding air pollution, NAAQS, and the history of controversy around ERCs in the District.

Related Legislation:

AB 2550 (Arambula, 2022) would have required CARB, if the District did not receive a determination of attainment from the federal Environmental Protection Agency by the appropriate deadline, to coordinate with the district and community-based organizations to identify gaps in the state and district implementation plan, and would have required CARB to develop a program, rules, or regulations that they deem necessary to enable the district to attain and maintain the NAAQS and authorizes those solutions to have the same force and effect as a program, rule or regulation adopted by the district. AB 2550 was vetoed by Governor Newsom.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2023 - 2024 Regular

SUBJECT: San Joaquin Valley Unified Air Pollution Control District: emission reduction credit system

DIGEST: This bill requires the San Joaquin Valley Unified Air Pollution Control District (District) to develop an expiration standard for all Emission Reduction Credits (ERCs) banked by the District. It also requires the California Air Resources Board (CARB) to conduct an analysis, building upon a 2020 CARB study, to review the other eight pollutant ERC banks maintained by the District, and potentially make adjustments as specified.

ANALYSIS:

Existing law:

1. Sets, through the Federal Clean Air Act (FCAA) and its implementing regulations, National Ambient Air Quality Standards (NAAQS) for six criteria pollutants, designates air basins that do not achieve NAAQS as nonattainment, allows only California to set emissions standards stricter than the federal government, and require states with nonattainment areas to submit a State Implementation Plan (SIP) detailing how they will achieve compliance with NAAQS. (42 U.S.C. §7401 et seq.)
2. Establishes the California 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 air quality. (Health and Safety Code (HSC) § 39500 et seq.)
3. Requires, subject to the powers and duties of CARB, local air pollution control districts and air quality management districts (air districts) to adopt and enforce rules and regulations to achieve and maintain the state standards and NAAQS in all areas affected by emission sources under their jurisdiction, and to enforce all applicable provisions of state and federal law. (HSC § 40001)
   
4. Requires the board of every air district to establish, by regulation, a system by which all reductions in the emission of air contaminants that are to be used to offset certain future increases in the emission of air contaminants be banked prior to use to offset future increases in emissions. (HSC § 40709)
5. Requires CARB to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and area-wide sources when those credits are used interchangeably, consistent with certain requirements. Requires CARB to periodically update the methodology as it applies to future transactions, if necessary. (HSC § 40716)
6. Establishes the San Joaquin Valley Unified Air Pollution Control District (District) and vests it with the authority to regulate air emissions from stationary sources located in the San Joaquin Valley Air Basin. (HSC § 40600)

This bill:

1. Makes findings and declarations regarding air pollution, NAAQS, and the history of controversy around ERCs in the District.
   
2. Requires the District to revise its ERC regulation to specify an expiration date for existing and future banked ERCs, subject to disapproval from CARB, as specified.
   
3. Requires CARB to, by January 1, 2027, build upon the June 2020 report, as defined, to analyze eight of the District’s ERC credit banks (exempting oxides of nitrogen (NOx) and volatile organic compounds (VOCs)), to determine if any of the credits for those pollutants were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance.
   
4. Specifies numerous details for the required CARB report to align with and differentiate from the June 2020 report, including:
   1. Using the same statistical sampling methods used in the June 2020 report;
   2. Requiring CARB to ensure:
      1. Certain ERCs will be deemed invalid and removed from the bank; and
      2. That if removing the ERC from the bank causes an equivalency demonstration to fail, then that and certain future credits will be required to be valued at time-of-use;
   3. Allowing CARB to avoid analyzing a certain pollutant’s bank if CARB requires the District to value the ERCs at time-of-use; and
   4. Requiring CARB to do a stationary source analysis for all permits in the District that use ERCs for NOx or VOCs, as specified, and expands this requirement to any of the other eight banks that may fail an equivalency demonstration.
      

Background

1. The San Joaquin Valley’s air quality is uniquely bad due to uniquely difficult geographic, meteorological, and industrial conditions. The San Joaquin Valley (Valley) is surrounded by mountain ranges which trap air pollutants within the air basin. The Valley’s weather conditions include frequent periods of high pressure, temperature inversions, long, hot summers, and stagnant, foggy winters, all of which are conducive to the formation and retention of air pollutants. This problem is exacerbated by high levels of pollution emission from heavy vehicle traffic along I-5 and highway 99, locomotive traffic, tractors and irrigation pumps from the agriculture industry, flares from fossil fuel extraction, and smoke from wood-burning stoves and fireplaces. These factors have led to the air quality in the Valley consistently being ranked among the worst in the country by such groups as the World Health Organization, the American Lung Association, and the United States Environmental Protection Agency (US EPA).
   
2. Having pollutant level above a NAAQS can lead to severe health impacts, particularly in disadvantaged communities. The NAAQS are the result of an intensive science assessment process and risk exposure assessments to determine levels that will protect human and environmental health. Numerous scientific studies have linked exposure to air pollution to increased severity of asthma attacks, development of chronic bronchitis, decreased lung function in children, respiratory and cardiovascular hospitalizations and even premature death in people with existing heart or lung disease.

The health burden of air pollution depends on several key factors including exposure to the pollutant, susceptibility to its effects, access to healthcare, and psychological stress. Because of historic practices of redlining and other discriminatory practices and policies people of color are disproportionality located in areas closer to sources of air pollution. There is also evidence that having low income also increases risk from air pollution due to having fewer resources to relocate away from sources as well as less access to quality and affordable healthcare.

1. Emissions reduction credits (ERCs). All air districts in California are authorized by the federal Clean Air Act and by the state to operate ERC programs within their jurisdictions. These programs function not unlike cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be “quantifiable, enforceable, permanent, and surplus.” These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit.
   
   Credits are stored in “banks” managed by the air districts. There are ten credit banks at the District, and each consists of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.
   
   Also not unlike cap-and-trade, there has been an abundance of controversy around ERC’s implementation, impacts on pollution-burdened communities, and lack of behavioral change induced in industrial polluters.
   
2. Surplus at time-of-issuance versus at time-of-use. As stated above, ERCs are only issued for reductions that are quantifiable, enforceable, permanent, and surplus. The question of whether an emission reduction is surplus or not is more complicated than it first appears. Suppose a facility was regulated to meet a standard of 50 parts per million (ppm) for a pollutant. If they chose to reduce their emissions further to 30 ppm, they would receive a bankable ERC for the 20 ppm of “surplus” reduction beyond what was required at the time the credit was issued.
   
   Now, suppose that same credit were used in the future by a different project to offset its emissions of that same pollutant, and the regulatory standard had since been strengthened to 40 ppm. While that credit was 20 ppm surplus beyond the 50 ppm required level at the time it was issued, it is now only 10 ppm surplus of the 40 ppm required level at time-of-use. In other words, the value of credit decreases over time as regulations become more stringent. As a specific example, the District estimated in 2016 that banked NOx credits, when valued at time-of-use, were worth about 18% of the time-of-issuance value because of more stringent NOx regulations.
   
   The federal Environmental Protection Agency (EPA) values ERC at time-of-use, but air districts may opt to use time-of-issuance valuation, provided they justify their actions with a so-called “equivalency demonstration.” These extremely complicated and technical documents make the case that the district, despite using a less stringent ERC valuation (i.e. time-of-issuance rather than time-of-use), still meets or exceeds federal emission requirements overall.
   
   The San Joaquin Valley Unified Air Pollution Control District has chosen to continue using time-of-issuance ERC valuation (as is their right), but as such must submit equivalency demonstrations for each bank each year. This is with the extremely notable exceptions of NOx and VOCs, which, after a 2020 report from CARB found inconsistencies and inaccuracies in those banks, failed their equivalency demonstrations and were thus required to use time-of-use valuation. This bill would require similar assessments be made of the other eight ERC banks, which could well have the effect of triggering failed equivalency demonstrations and subsequent time-of-use ERC valuation too.
   
3. June 2020 report. In November 2018, Earthworks released the report Undeserved Credit: Why emissions banking in California’s San Joaquin Valley puts air quality at risk, which was a catalyst for CARB’s 2020 review. The Earthworks report made the following findings and conclusions, among others: “a significant proportion of [credits] in the District’s bank appear to be invalid;” “ARB should audit the District [credit] system;” “equivalency should be questioned;” and, “ARB should not allow [credits] to last forever.”
   
   On January 24th, 2019, CARB conducted a review of the District’s Emission Reduction Credit program. The resultant Review of the San Joaquin Valley Air Pollution Control District Emission Reduction Credit System discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.
   
   Specifically, CARB found that the District should make adjustments to how it implements its rule for the timeliness of credit application submittals, and could be more rigorous in its determination of surplus reductions in individual credits. For example, in 15 of the 52 credit projects reviewed, the District granted credits, generated by facility shutdowns, in which emissions ceased more than 180 days before submission of the credit application. In addition, in four of the 52 credit projects reviewed, CARB determined that it was unclear whether the emission reductions were surplus of every federal, state, or district law, rule, order, permit, or regulation. This benefitted the applicant by providing a greater face value to the credit. But, as a result, the District had to find additional reductions to cover the non-surplus credits.
   
   CARB notes in the report that many of their findings—regarding the issuance of individual credits, the time of issuance valuation of credits, and others—“relate to decisions made decades ago. Since these decisions were made, conditions have changed. Air quality has improved substantially, but ambient air quality standards have increased in stringency. Even though these decisions were made decades ago, they generate implications for air quality today.”

Comments

1. Purpose of Bill. According to the author, “The San Joaquin Valley is home to some of the most disenfranchised people in the state. This includes those in rural or farmworker communities, Disadvantaged Communities, Tribal nations, young people, and those living at or below the poverty level. These people live adjacent to transportation corridors or stationary sources of pollution with extremely localized and severe pollution levels.
   
   “Poor air quality has numerous negative impacts on health, including the development of asthma and other respiratory illnesses in children as well as increased risk of cancer and cardiovascular disease in adults. Exposure to air pollution can also slow and stunt lung development in growing children, harming their health now and reducing their lung function as adults. It also leads to premature death. However, the distribution of premature deaths is not equal as disadvantaged communities are at a disproportionately higher risk. People of color additionally are more likely to be exposed to air pollution and more likely to suffer harm to their health from air pollution than white people.
   
   “Issues with the Air District’s credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District’s credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action. The state must require the Air District to address the disproportionate burden on vulnerable communities it has allowed under its watch.”
   
2. Something needs to change. Every year that passes without reaching attainment is another year that the approximately four million people who live in the San Joaquin Valley are exposed to hazardously high levels of pollution. The burdens are felt heaviest by disadvantaged communities, especially communities of color, and the continued pushing back of attainment deadlines deepens experiences of betrayal and feelings of mistrust of the air district. Solving this problem quickly would require large changes beyond the already strict regulations in place, like radically changing the transportation patterns and industrial sectors of the Valley to eliminate emissions sources, expansions of incentive programs to replace polluting vehicles, and investment in forest management practices to reduce the amount of wildfire smoke that becomes trapped in the Valley.
   
   While this bill does not make those radical changes, it does endeavor to reckon with the questionable accounting that has allowed the situation to reach this point.
   
3. 99 problems, and stationary sources are one. The San Joaquin Valley has the worst air quality in the nation, and that dubious honor is the result of many interrelated factors, including its geography, meteorology, and topography; goods movement along Interstate 5 and Highway 99 and other emissions sources; and a fast growing population. Surrounded by mountains and frequently impacted by high pressure, strong inversion, and high heat conditions, the Valley’s unique conditions require a substantially greater level of emissions reductions to meet clean air targets than other regions that have more favorable conditions and relatively better air quality even with significantly greater emissions per square mile as compared to the Valley.
   
   According to information provided by the District, the region has achieved a 93% reduction in stationary source emissions since 1980. Moreover, the majority of air pollution (including over 80% of the remaining NOx emissions) come from mobile sources, which are the purview of CARB rather than the air districts. In other words, even if every stationary source of pollution in the region were shuttered tomorrow, the Valley would still face considerable air pollution challenges due to its geography and mobile source emissions.
   
   This bill addresses the ERC system, which is one part of the permitting review processes conducted by the District for stationary sources. As such, it would only directly impact the ability of stationary pollution sources to begin and continue operating, and it would have no direct impact on mobile emissions.
   
   Stationary sources of air pollution vary significantly, both in terms of local air quality impacts, their contributions to and impact on the community. Regardless, any facility that has to go through a new source review under the FCAA would be affected by any change in ERC prices that results from this bill (or other reforms). These sources range from refineries and other fossil fuel operations, to compost facilities, hospitals, utilities, and a naval air station, among many others. The cost impacts on these operations may be significant, depending on the impact on ERC supply that results from taking action.
   
4. Everything, everywhere, all at once. There is no doubt that more must be done to improve the air the San Joaquin Valley’s residents breathe; the region fails to achieve multiple Federal Clean Air Act standards. Even though stationary sources of air pollution are not the largest contributor to the Valley’s air quality woes, the author and supporters of this bill contend that the ERC program—long the subject of significant concern—needs reform and further review. The opposition to this bill believes that stationary sources in general, and the ERC program specifically, are the wrong focus for legislation, given the relative contributions of mobile versus stationary sources and the economic impacts of shrinking the ERC banks.
   
   The presence of a bigger problem does not eliminate a smaller problem, however. It likely provides little comfort to residents living next to an oil refinery to learn that, actually, the freeway on the other side of them has an even bigger regional impact on air quality. Particularly when that refinery is able to obtain a permit to operate on the shaky justification provided by decades-old ERCs, community members are justifiably upset. To create an environmentally just California, we must endeavor to reduce emissions from mobile and stationary sources to the best of our ability.
   
5. Relying on invalid ERCs. There is no question that the ERC system—as it is currently operated by the District—has allowed businesses to comply with air district permitting regulations while still supporting and expanding the region’s economy. Understandably, there is trepidation about changing that system for fear it may affect the region’s businesses. But, if that system is built upon using invalid ERCs to obtain permits, then it is understandable why the author would want to address that underlying issue, not avoid it for fear of disrupting the status quo.
   
   Despite the issues raised by the opposition that establishing an expiration date for ERCs would be unfair towards credit-generators, this is an established practice. Examples include other major oil and gas-producing states: Texas limits credits to five years after the time of reductions that occurred after January 2001, Pennsylvania limits credits to ten years from the time of reduction, Louisiana limits the use of credits to ten years from the date of emission reduction, and Colorado’s ERC program requires that credits expire after seven years from the date of certification.
   
   All air districts are authorized to operate ERC banks under the Federal Clean Air Act, and this bill would not eliminate the program for the District. It would, however, be expected to considerably constrain the supply of available ERCs, which would be expected to affect their price and availability accordingly. It bears repeating, however: if the current price of ERCs is artificially low because of an abundance of inexpensive banked credits that do not reflect real-world, comparable reductions, then it is understandable why the author would want to address the underlying problem, even though there may be cost impacts to businesses for doing so.
   
6. Balancing costs and impacts. This is a thorny issue, and both sides raise valid and important concerns.
   
   On one hand, it is helpful to remember that ERCs are not just abstract numbers to be bought and sold. Fundamentally, they are an instrument that guarantees residents the air is getting cleaner, even while economic activity continues and expands. If ERCs are found to be invalid, this is not just an academic issue; it is a matter of residents trusting their air district to protect them and that trust being betrayed. Thus, the author and supporters are fighting to address the root issue, even if that upsets a precariously balanced status quo.
   
   On the other hand, the air districts and any of the myriad air district permit-holders who oppose this bill do so with good cause as well. Becoming unable to obtain economical permits for their operations could lead many facilities to fold or leave the Valley. There is no splitting the “bad” polluters from the “good” with the ERC system, unfortunately; constraining the supply of available ERCs makes it much harder for everyone to get permits, including some essential operations. Particularly in light of the fact that the majority of the air pollution burden facing the San Joaquin Valley comes from mobile sources, it becomes increasingly challenging to justify the massive economic impacts this clamping down on stationary source permits may cause.
   
   Nevertheless, just because it may be intractable to tackle this whole issue in one fell swoop, it is the opinion of committee staff that more transparency could help guide future actions, be they subsequent legislation or local engagement. Thus, the pieces of this bill that provide a clearer picture of where ERCs come from and what permits lay claim to them could still provide significant value.
   
   To aid the affected communities in working towards an ERC system that upholds health protections while recognizing the important services provided by air district permit-holders (and thus the importance of the ERCs they rely on), the committee may wish to amend the bill significantly to:
   1. Remove Section 2 in its entirety, which would have created an expiration date for ERCs;
   2. Remove all of the elements of Section 3 that would have required certain ERCs to be valued at time-of-use or invalidated under certain circumstances;
   3. Clarify that CARB’s analysis of the District’s ERC banks include only ERCs that were not part of the June 2020 report;
   4. Remove the requirement for CARB to conduct a stationary source analysis for all permits in the district that used an ERC for NOx or VOCs; and to instead
   5. Require the District to aggregate and make available information (the information that had previously been required of CARB in their stationary source analysis) regarding all permits issued between January 1, 2004 and December 31, 2020 that used one or more ERCs.
      

This will narrow the scope of the bill considerably, while still providing valuable information to residents and advocates in the Valley. As proposed to be amended, AB 985 would no longer affect the pricing or availability of ERCs, on which so many of the entities opposed to this bill depend. The bill would still have CARB analyze all the credits they had not in the June 2020 Report, and it would require the District to provide information that will map where ERCs are claimed and used. Taken together, this information will allow residents and policymakers to gain a better understanding of which ERCs may not be truly linked to the pollution reductions they claim, and to better know where the use of those ERCs may be disproportionately burdening certain Valley communities.

Related/Prior Legislation

AB 2550 (Arambula, 2022) would have required CARB, if the District did not receive a determination of attainment from the federal Environmental Protection Agency by the appropriate deadline, to coordinate with the district and community-based organizations to identify gaps in the state and district implementation plan, and would have required CARB to develop a program, rules, or regulations that they deem necessary to enable the district to attain and maintain the NAAQS and authorizes those solutions to have the same force and effect as a program, rule or regulation adopted by the district. AB 2550 was vetoed by Governor Newsom.

SOURCE:

Author

SUPPORT:

350 Humboldt
Azul
Ban Single Use Plastic (SUP)
California Environmental Voters
California Environmental Voters (formerly Clcv)
California Nurses for Environmental Health and Justice
Central California Asthma Collaborative
Central California Environmental Justice Network
Central Valley Air Quality Coalition (CVAQ)
Clean Water Action
Climate Action California
Coalition for Clean Air
Earthjustice
Elders Climate Action Norcal Chapter
Elders Climate Action Socal Chapter
Environmental Working Group
Facts: Families Advocating for Chemical & Toxics Safety
Leadership Counsel for Justice and Accountability
Little Manila Rising
Mi Familia Vota
Natural Resources Defense Council
Natural Resources Defense Council (NRDC)
Pesticide Action Network
Public Health Advocates
Sacramento Area Congregations Together
Santa Cruz Climate Action Network
Sierra Club California
The Climate Center
Valley Improvement Projects (VIP)
Vote Solar

OPPOSITION:

African American Farmers of California
Agricultural Council of California
Almond Alliance of California
Bizfed Central Valley
California Air Pollution Control Officers Association

California Association of Sanitation Agencies
California Association of Winegrape Growers
California Chamber of Commerce

California Compost Coalition
California Council for Environmental & Economic Balance (CCEEB)
California Farm Bureau Federation
California Fresh Fruit Association
California League of Food Producers
California Manufacturers & Technology Association
California State Association of Counties (CSAC)
California Walnut Commission
California Women for Agriculture
City of Riverbank
City of Waterford
County of Fresno
County of Kern
County of Merced
County of San Joaquin
County of Stanislaus
Far West Equipment Dealers Association
Los Angeles County Business Federation (BIZFED)
Los Angeles County Sanitation Districts
Madera County
Manufacturers Council of The Central Valley
Milk Producers Council
Nisei Farmers League
San Joaquin Valley Policy Council
San Joaquin Valley Unified Air Pollution Control District
South Coast Air Quality Management District
Vector Environmental, INC.
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute

ARGUMENTS IN SUPPORT:

According to a coalition of environmental and environmental justice groups, “The Valley Air District’s ERC system is clearly corrupt and needs to be corrected. Community groups and advocates have engaged for years with the District to seek changes to this system to no avail. For almost two years, representatives of Central Valley Air Quality Coalition, Clean Water Action, and Earthjustice were active members of the Emission Reduction Credit (ERC) Public Advisory Workgroup (PAW) that was tasked to address CARB’s findings. These representatives ultimately resigned the PAW as a result of being disappointed in the lack of constructive dialogue and real outcomes.

“To restore clean air to the Valley and address the disproportionate burden on communities of color and low income communities, issues with the credits, banks, and permits used by the oil industry and other major pollution sources must be fully assessed and addressed. Communities across the San Joaquin Valley deserve answers as to the implications of these findings for existing permits and clean-up plans that rely on incorrect information.”

ARGUMENTS IN OPPOSITION:

According to a coalition of business and agricultural groups, “ERC use does not negate the responsibility of the project seeking a permit to use the best available control technology, conduct an Ambient Air Quality Analyses, conduct public noticing, and comply with the California Environmental Quality Act and all state and District rules. Meeting all of these standards and exceeding the District’s current emission standards come at significant costs and financial risk, making banking and repurposing credits for current and/or future work. The San Joaquin Valley’s permitting program, including the accompanying ERC program, ensures that new emissions are controlled, prevents the permitting of any operation that will cause a significant health impact, and assists the District more expeditiously and effectively achieve attainment.

“AB 985 would dismantle this ERC program and require all existing and future emission reduction credits in all banks to expire as of January 1, 2024. Per the conditions noted above, the Air Resources Board has reviewed the District’s ERC program and determined that further changes are unnecessary. AB 985 is also a substantial overreach, eroding local control offered to jurisdictions, including the District, to take meaningful, locally approved steps to improve air quality. It also sets a dangerous precedent that can be expected to apply in the near future to all other air quality districts. Finally, the impact of dismantling the District’s ERC program cannot be overstated—in short, it will be extreme. The ERC expiration requirement would eliminate nearly all credits in the Valley’s registry, and in proposing to value the credit at the time of use for all sources and projects, AB 985 would serve as a de facto prohibition on all permitting projects for a wide array of projects and service industries such as wastewater management, composting facilities, and renewable energy projects.”

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 985

Author:(Arambula)

As Amended Ver:May 18, 2023

Majority vote

SUMMARY

Requires the Air Resources Board (ARB) to conduct an analysis of the San Joaquin Valley Unified Air Pollution Control District's (District) emission reduction credit banks for specified air pollutants by January 1, 2027. Requires the District to revise the regulation establishing its emission reduction credit system to require existing and future emission reduction credits to expire after a specified time period.

Major Provisions

1. Requires the District to revise its regulation to specify a time period by which future and existing emission reduction credits in all banks will expire. Requires the revision of the system to be subject to disapproval by ARB within 60 days after adoption by the district.
2. Requires ARB, building on the June 2020 report, to conduct an analysis using the same statistical sampling methods, of all of the District's emission reduction credit banks, other than the banks for oxides of nitrogen (NOx) and volatile organic compounds (VOCs), to determine if any credits for those pollutants were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance. Requires the analysis to be completed no later than January 1, 2027. Establishes conditions on the ARB analysis.
3. Requires ARB, upon completion of the analyses, to submit a report to the Legislature summarizing the results of the analyses. Requires the report to be submitted in compliance with state law, as specified.

COMMENTS

The U.S. Environmental Protection Agency's health-based limits for particulate matter (PM), ozone, NOx, oxides of sulfur (Sox), carbon monoxide (CO), and lead require states and local governments to take steps to reduce emissions to attain the standards. Geographic areas within each state that do not meet a standard are called non-attainment for that air pollutant. The designation of an area as non-attainment triggers the regulatory requirements for banking and use of emission reductions credits.

All air districts in California are authorized by the federal Clean Air Act to operate emission reduction credit programs within their jurisdictions. These programs function similarly to cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be "quantifiable, enforceable, permanent, and surplus." These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit. Credits are stored in "banks" managed by the air districts. There are ten credit banks at the District, each comprised of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.

The San Joaquin Valley is prone to one of the most challenging air quality problems in the nation and is designated as an attainment area for the federal Lead (Pb), Nitrogen Dioxide (NO2), Sulfur Dioxide (SO2), and CO NAAQS, but the Valley is designated as a nonattainment area for the federal 1997 annual and 2006/2012 PM2.5 standards and the federal eight-hour ozone standards. The American Lung Association's 2022 State of the Air report gave the Valley an 'F' for Ozone, an 'F' for particle pollution in a 24-hour period, and a failing grade for particle pollution annually.

On January 24th, 2019, ARB conducted a review of the District's Emission Reduction Credit program. The resultant report discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.

The author states concern that it is likely that a similar analysis of the other major banks, which are for particulate matter below 10 microns (PM10), CO, and SOx, may reveal similar errors and should be reviewed. Thus, AB 985 would require ARB to analyze the District's emission reduction credit banks for specified air pollutants by January 1, 2027.

According to the Author

Issues with the District's credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District's credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action. The state must require the District to address the disproportionate burden on vulnerable communities it has allowed under its watch.

Arguments in Support

The Central Valley Air Quality Coalition writes, "The [District] has been mismanaging their Emissions Reduction Credit system for decades, resulting in more pollution concentrated in environmental justice neighborhoods allowing the oil industry and other major pollution sources to use old credits that were overvalued or never should have been issued instead of cleaning up their pollution on site … To restore clean air to the Valley and address the disproportionate burden on communities of color and low income communities, issues with the credits, banks, and permits used by the oil industry and other major pollution sources must be fully assessed and addressed."

Arguments in Opposition

The League of California Cities writes, "AB 985 would create an effective moratorium on permitting projects for a wide range of essential public services. The significant time, staffing, and costs required to meet the provisions of this bill will not provide improved air quality and could instead be better invested in other activities like providing incentives for much-needed reductions in mobile source emissions which make up the majority of emissions in the San Joaquin Valley and other parts of California."

FISCAL COMMENTS

According to the Assembly Appropriations Committee, this bill would result in estimated ongoing annual costs for ARB of approximately $6.2 million for 27 positions and legal, administrative, and legislative costs (Air Pollution Control Fund).

VOTES

ASM NATURAL RESOURCES: 8-3-0

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

NO: Flora, Hoover, Mathis

ASM APPROPRIATIONS: 11-4-1

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

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: May 18, 2023

CONSULTANT: Paige Brokaw / NAT. RES. / (916) 319-2092 FN: 0000930

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 985

Author:(Arambula) – As Amended Ver:April 10, 2023

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

SUMMARY:

This bill requires the Air Resources Board (ARB), by January 1, 2027, to conduct an analysis of the San Joaquin Valley Unified Air Pollution Control District’s (District) emission reduction credit banks for specified air pollutants and requires the District to revise the regulation establishing its emission reduction credit system to require existing and future emission reduction credits to expire after a specified time period.

Specifically, this bill:

1. Requires the District to revise its regulation establishing its emission reduction credit system – subject to disapproval by ARB within 60 days after adoption by the district – to require existing and future emission reduction credits in all banks to expire after a time period that is equal to, or less than, the shortest expiration period in effect as of January 1, 2024, for emission reduction credits issued by any state or any other air district.
2. Requires ARB, by January 1, 2027, building on a previous report, to conduct an analysis of the District’s emission reduction credit banks for particulate matter below 10 microns (PM10), carbon monoxide (CO), and oxides of sulfur (SOx) to determine if any credits for those pollutants were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance.
3. Provides that ARB is not required to conduct the analysis if it requires the District to value at the time of use all current and future emission reduction credits in the banks for PM10, CO, and SOx.
4. Requires ARB to conduct a stationary source analysis, as specified, for all permits in the District that use a credit for oxides of nitrogen (NOx) or volatile organic compounds (VOCs), and requires ARB, upon completion of the analyses, to submit a report to the Legislature summarizing the results.

FISCAL EFFECT:

ARB estimates ongoing annual costs of approximately $6.2 million for 27 positions and legal, administrative, and legislative costs (Air Pollution Control Fund) to conduct an analysis of the district’s PM10, CO, and SOx banks, train new staff on permitting and emission reduction credits (ERCs), evaluate an unspecified number of ERCs, evaluate approximately 8,000 permits, and conduct an analysis of each permit that used VOC or NOx ERCs, and complete reporting requirements.

ARB notes that in its original ERC review, ARB reviewed 54 projects, and with 11 staff (three full-time and eight half-time), it took an average of 10 days to evaluate each ERC. Based on this previous workload, with six staff, ARB could review 216 projects per year, totaling 864 projects in four years, which is the majority of the 1,077 ERCs currently in the bank for CO, PM10, and SOx.

For the permit review requirement, ARB notes each permit includes control equipment at each facility, permitted emissions, and information on credits used. ARB notes that requiring each staff to complete one permit review each day results in 260 per year per staff. With 12 staff reviewing permits over four years, ARB could review approximately 8,000 permits.

COMMENTS:

1) Purpose. According to the author:

For the San Joaquin Valley, data suggest that PM2.5 exposure is responsible for 1,200 cases of premature death in the Valley each year. However, the distribution of premature deaths is not equal as disadvantaged communities are at a disproportionately higher risk…Issues with the District’s credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District’s credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action.

2) Background. According to ARB, the San Joaquin Valley has the worst particulate matter pollution in California — and the worst in the nation for annual federal standards. Fine particulate pollution, or PM2.5, exposure is responsible for about 1,200 cases of premature death in the Valley each year. Despite progress, PM2.5 emissions are expected to rise as the population in the region grows.

Emissions Trading System. The federal Clean Air Act and state law authorize every air district in California to operate ERC programs. These programs function similarly to cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be “quantifiable, enforceable, permanent, and surplus.” These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit. Credits are stored in “banks” managed by the air districts. There are ten credit banks at the District, each comprised of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used, it is permanently removed from its bank.

Federal law requires a credit to be valued at time-of-use, meaning that if a regulation would have reduced emissions from a source granted a credit, that credit must be discounted when used as an offset to reflect emissions after required controls from the regulation. The value of a credit will always be the same or lower at time-of-use than at time of issuance. The current District credit bank contains nearly 11 million pounds per year of NOx credits when valued at time of issuance, more than 80% of which were generated more than 20 years ago. However, over the years, the District’s regulatory program has become more stringent, and the District estimated in 2016 that these NOx credits, when valued at time-of-use, were worth about 18% of the time of issuance value. This reduction in time of issuance value is directly related to the stringency of the District’s regulatory program.

In 2019, the Central Valley Air Quality Coalition (CVAQC) petitioned ARB to conduct a review of the District’s ERC bank. In support of the petition, CVAQC included a report prepared by Earthworks, which questioned the validity of selected older ERCs, the annual federal offset equivalency demonstration, and made a number of recommendations, including that ARB review the ERC program. In June 2020, ARB released its review of the District’s ERC program, which documented a number of issues with the program. For example, in 15 of the 52 ERC projects reviewed, ARB found that the District granted credits, generated by facility shutdowns, in which emissions ceased more than 180 days before submission of the credit application. In addition, in four of the projects reviewed, ARB determined that it was unclear whether the emission reductions were surplus of every federal, state, or district law, rule, order, permit, or regulation. This benefitted the applicant by providing a greater face value to the credit. But, as a result, the District had to find additional reductions to cover the non-surplus credits.

The author contends it is likely that a similar analysis of the other major banks for PM10, CO, and SOx may reveal similar errors and should be reviewed. This bill requires ARB to analyze the District’s ERC banks for specified air pollutants and requires the District to revise the regulation for its ERC system to require existing and future emission reduction credits to expire after a specified period.

ARB notes this bill requires a review of the ERC bank that is redundant to its previous review, in which no ERCs were invalidated. It is unclear to ARB what an additional review would provide with respect to the integrity of the program or federal Clean Air Act compliance. ARB notes the District already has a rule to address the banks’ failing of an equivalency demonstration. If such a failure occurs, the ERCs must become time-of-use.

ARB does not have the authority to require the District to value ERCs at time-of-use.

Generally, ARB believes neither ARB nor the District have the authority to invalidate or change a permit based on the bill's retrospective permit analysis.

Writing in support, a coalition of organizations states:

The health-related impacts of air pollution in California’s San Joaquin Valley drains the region’s economy of $6 billion every year…Despite these dire circumstances, the San Joaquin Valley Air Pollution Control District (Valley Air District) has been mismanaging their Emissions Reduction Credit (ERC) system for decades, resulting in more pollution concentrated in environmental justice neighborhoods allowing the oil industry and other major pollution sources to use old credits that were overvalued or never should have been issued instead of cleaning up their pollution on site.

Writing in opposition, a coalition of organization states:

ERC use does not negate the responsibility of the project seeking a permit to use the best available control technology, conduct an Ambient Air Quality Analyses, conduct public noticing, and comply with the California Environmental Quality Act and all state and District rules. Meeting all of these standards and exceeding the District’s current emission standards come at significant costs and financial risk, making banking and repurposing credits for current and/or future work critical. The San Joaquin Valley’s permitting program, including the accompanying ERC program, ensures that new emissions are controlled, prevents the permitting of any operation that will cause a significant health impact, and assists the District more expeditiously and effectively achieve attainment.

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

Date of Hearing: April 24, 2023

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Luz Rivas, Chair

ABPCA Bill Id:AB 985 (

Author:Arambula) – As Amended Ver:April 10, 2023

SUBJECT: San Joaquin Valley Unified Air Pollution Control District: emission reduction credit system

SUMMARY: Requires the Air Resources Board (ARB) to conduct an analysis of the San Joaquin Valley Unified Air Pollution Control District’s (District) emission reduction credit banks for specified air pollutants by January 1, 2027. Requires the District to revise the regulation establishing its emission reduction credit system to require existing and future emission reduction credits to expire after a specified time period.

EXISTING LAW:

1. Establishes the Federal Clean Air Act to regulate, reduce, and control air pollution nationwide, including national ambient air quality standards for major air pollutants, hazardous air pollutants standards, state attainment plans, stationary source emissions standards and permits, and enforcement provisions. (42 United States Code 7401)
2. Designates ARB as the state agency with the primary responsibility for the control of vehicular air pollution and air pollution control and air quality management districts with the primary responsibility for the control of air pollution from all sources other than vehicular sources. (Health and Safety Code (HSC) 39500 et seq.)
3. Requires the board of every air district to establish, by regulation, a system by which all reductions in the emission of air contaminants that are to be used to offset certain future increases in the emission of air contaminants be banked prior to use to offset future increases in emissions, except as specified. (HSC 40709)
4. Requires ARB to develop and adopt a methodology for use by air districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and area-wide sources when those credits are used interchangeably, consistent with certain requirements. Requires ARB to periodically update the methodology as it applies to future transactions, if necessary. (HSC 40716)
5. Establishes the San Joaquin Valley Unified Air Pollution Control District and vests it with the authority to regulate air emissions from stationary sources located in the San Joaquin Valley Air Basin. (HSC 40600)

THIS BILL:

1. Requires the District to revise its regulation adopted pursuant to Section 40709 to require existing and future emission reduction credits in all banks to expire after a time period that is equal to, or less than, the shortest expiration period in effect as of January 1, 2024, for emission reduction credits issued by any state or any other air quality management control district.
2. Requires the revision of the system to be subject to disapproval by ARB within 60 days after adoption by the district.
3. Requires ARB, building on the June 2020 report, to conduct an analysis of the District’s emission reduction credit banks for particulate matter below 10 microns (PM10), carbon monoxide (CO), and oxides of sulfur (SOx) to determine if any credits for those pollutants were issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance. Requires the analysis to be completed no later than January 1, 2027.
4. Requires ARB, as part of the analysis, to ensure all of the following:
   1. An emission reduction credit issued in violation of state, local, or district laws, rules, regulations, or procedures in place at the time of original issuance shall be deemed invalid;
   2. If an emission reduction credit is deemed invalid, the credit shall be removed from the bank; and,
   3. If removal of credits from the banks for PM10, CO, or SOx leads, or would have led, to failing an equivalency demonstration for any of these banks, current and future credits in the bank or banks with the failed equivalency demonstration shall be valued at the time of use.
5. Provides that ARB is not required to conduct the analysis if it requires the District to value at the time of use all current and future emission reduction credits in the banks for PM10, CO, and SOx.
6. Requires ARB to conduct a stationary source analysis for all permits in the District that use a credit for oxides of nitrogen (NOx) or volatile organic compounds (VOCs). Requires the review to identify all of the following:
   1. The amount and source of emissions of NOx and VOCs;
   2. The type of pollution control equipment currently being used at each source; and,
   3. The emission reduction opportunities at each source, including the availability of a retrofit using best available retrofit control technology, and the cost.
7. Requires ARB, upon completion of the analyses, to submit a report to the Legislature summarizing the results of the analyses. Requires the report to be submitted in compliance with state law, as specified.
8. Defines the following terms:
   1. “June 2020 report” as the report published by the state board on June 4, 2020, reviewing the District’s emission reduction credit system.
   2. “District” means the San Joaquin Valley Unified Air Pollution Control District.
9. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning the California Constitution because of the unique need to address air pollution and environmental injustices in the San Joaquin Valley Air Basin.
10. Provides that no reimbursement is required by this act pursuant to the California Constitution.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author’s statement:

The San Joaquin Valley is home to some of the most disenfranchised people in the state. These people live adjacent to transportation corridors or stationary sources of pollution with extremely localized and severe pollution levels.

For the San Joaquin Valley, data suggest that PM2.5 exposure is responsible for 1,200 cases of premature death in the Valley each year. However, the distribution of premature deaths is not equal as disadvantaged communities are at a disproportionately higher risk. People of color additionally are more likely to be exposed to air pollution and more likely to suffer harm to their health from air pollution than white people.

Issues with the District’s credits and banks have allowed the oil industry and other major polluters to release more pollution over the past decades than should have been allowed. This must be fully assessed and addressed. Local, state, and federal regulators have admitted to these and other issues within the Air District’s credit banking system. To restore public confidence and to stop harming vulnerable people for economic benefit, the state must take corrective action. The state must require the District to address the disproportionate burden on vulnerable communities it has allowed under its watch.

1. Air quality standards. The federal Clean Air Act requires the U.S. Environmental Protection Agency (US EPA) to set health-based limits, called National Ambient Air Quality Standards (NAAQS), for six dangerous outdoor air pollutants: particulate matter (PM), ozone, NOx, SOx, CO, and lead. The NAAQS identify what is considered a safe level of each pollutant to breathe based on the most recent health and medical science, including an adequate margin of safety for those most at risk. These standards require states and local governments to take steps to reduce emissions to attain the standards.

Geographic areas within each state that do not meet a standard are called non-attainment for that air pollutant. The designation of an area as non-attainment triggers the regulatory requirements for banking and use of emission reductions credits.

1. San Joaquin Valley air quality. The San Joaquin Valley covers an area of 23,490 square miles, is home to more than four million people, and is prone to one of the most challenging air quality problems in the nation. The San Joaquin Valley Air Basin is approximately 250 miles long and is shaped like a narrow bowl. The sides and southern boundary of the "bowl" are bordered by mountain ranges. The bowl-shaped Valley collects and holds emissions caused by the activities of the Valley’s residents, vehicular traffic on Highway 99 and Interstate 5, and weather conditions that are conducive to the formation and retention of air pollutants.

The Valley is designated as an attainment area for the federal Lead (Pb), Nitrogen Dioxide (NO2), Sulfur Dioxide (SO2), and CO NAAQS, but the Valley is designated as a nonattainment area for the federal 1997 annual and 2006/2012 PM2.5 standards and the federal 8-hour ozone standards. The American Lung Association's 2022 State of the Air report gave the Valley an ‘F’ for Ozone, an ‘F’ for particle pollution in a 24-hour period, and a failing grade for particle pollution annually. The report also indicates that 13,971 kids and 52,942 adults in San Joaquin County are at risk of developing asthma, and it reports that San Joaquin County has experienced an increase in dangerous “high particle days” every year since 2014, culminating in a record 25 high particle days in 2020.

Despite these successes to reduce criteria air pollutants with more stringent source-specific regulations, the San Joaquin Valley continues to face major air quality challenges with the worst air quality in the nation.

The District was formed in 1992 as a public health agency to regulate regional air quality by the unification of eight individual county districts and is made up of eight counties in California’s Central Valley: San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings, Tulare, and the San Joaquin Valley Air Basin portion of Kern.

1. Emissions trading system. All air districts in California are authorized by the federal Clean Air Act and by the state to operate emission reduction credit programs within their jurisdictions. These programs function similarly to cap-and-trade. If a polluter reduces emissions beyond what is currently required, they can earn a credit. In order for a credit to be issued, the qualifying source emissions must be “quantifiable, enforceable, permanent, and surplus.” These credits can then be sold to polluters that need to offset anticipated future emissions in order to obtain a permit.

Credits are stored in “banks” managed by the air districts. There are ten credit banks at the District, each comprised of a list of credits that are available for sale to offset a different criteria pollutant. Once a credit is used by a permit, it is permanently removed from its bank.

Federal law requires a credit to be valued at time-of-use, meaning that if a regulation would have reduced emissions from a source granted a credit, that credit must be discounted when used as an offset to reflect emissions after required controls from the regulation. The value of a credit will always be the same or lower at time-of-use than time of issuance. The current District credit bank contains nearly 11 million pounds per year of NOx credits when valued at time of issuance, more than 80% of which were generated more than 20 years ago. However, over the years, the District’s regulatory program has become more stringent, and the District estimated in 2016 that these NOx credits, when valued at time-of-use, were worth about 18% of the time of issuance value. This reduction in time of issuance value is directly related to the stringency of the District’s regulatory program.

1. June 2020 report. In November 2018, Earthworks released the report Undeserved Credit: Why emissions banking in California’s San Joaquin Valley puts air quality at risk, which was a catalyst for ARB’s 2020 review. The Earthworks report made the following findings and conclusions, among others: “a significant proportion of [credits] in the District’s bank appear to be invalid;” “ARB should audit the District [credit] system;” “equivalency should be questioned;” and, “ARB should not allow [credits] to last forever.”

On January 24th, 2019, ARB conducted a review of the District’s Emission Reduction Credit program. The resultant Review of the San Joaquin Valley Air Pollution Control District Emission Reduction Credit System discovered errors that invalidated some of the credits within the banks for NOx and VOCs. This caused the District to fail the equivalency demonstrations for these two banks and triggered the federal requirement that all credits in these two banks be valued at the time of use.

Specifically, ARB found that the District should make adjustments to how it implements its rule for the timeliness of credit application submittals, and could be more rigorous in its determination of surplus reductions in individual credits. For example, in 15 of the 52 credit projects reviewed, the District granted credits, generated by facility shutdowns, in which emissions ceased more than 180 days before submission of the credit application. In addition, in four of the 52 credit projects reviewed, ARB determined that it was unclear whether the emission reductions were surplus of every federal, state, or district law, rule, order, permit, or regulation. This benefitted the applicant by providing a greater face value to the credit. But, as a result, the District had to find additional reductions to cover the non-surplus credits.

Additionally, ARB identified issues in the District’s equivalency demonstration. The District relies on electrification projects, generated through the Agricultural Internal Combustion Engine (AG-ICE) incentive program, to demonstrate NOx equivalency with federal requirements. In calculating and claiming credit for these projects, the District used an incorrect load factor, resulting in an overvaluing of reductions in the equivalency demonstration. While the reductions are real, they were not sufficiently documented to have resulted from a permitting action nor could ARB identify documentation showing that they were permanent and enforceable. ARB also concluded that potentially half of the credited projects appeared to be funded in part through the Carl Moyer program.

ARB notes in the report that many of their findings - regarding the issuance of individual credits, the time of issuance valuation of credits, the use of electrification projects from the AG-ICE program, and others – “relate to decisions made decades ago. Since these decisions were made, conditions have changed. Air quality has improved substantially, but ambient air quality standards have increased in stringency. Even though these decisions were made decades ago, they generate implications for air quality today.”

The author states concern that it is likely that a similar analysis of the other major banks, which are for PM10, CO, and SOx, may reveal similar errors and should be reviewed. Thus, AB 985 would require ARB to analyze the District’s emission reduction credit banks for specified air pollutants by January 1, 2027.

1. Revising the District’s credit regulation. The bill also requires the District to revise the regulation for its emission reduction credit system to require existing and future emission reduction credits to expire after a specified time period that is equal to, or less than, the shortest expiration period in effect as of January 1, 2024, for emission reduction credits issued by any state or any other district.

Per federal and state law, new source review rules must include a no-net increase stationary source control program, which is satisfied through the use of offsets. This requirement can help ensure that emissions continue to be reduced over time while still allowing for the construction and operation of critical public infrastructure like hospitals, public safety facilities, wastewater treatment plants, landfills, and power plants, which will be needed as the state transitions to a zero-emissions future.

The author argues, however, that “many of the credits currently held in the District’s credit banks are decades old because the District’s credit system does not include expiration dates in issued certificates. When compounded by the facts that the District doesn’t discount the volume of emissions represented by older credits at the time they are used and the discovery by ARB of VOC and NOx credits that should never have been issued, the beneficial impact of older credits on actual air quality conditions should be questioned and reevaluated.

“There is also an important distinction between local pollutants and greenhouse gas emissions. A ton of PM 2.5 reduced 30 years ago, for example, doesn’t do much to help local communities now who will then be faced with the currently released emissions allowed because of the old credit. A credit for a greenhouse gas, for example, could be argued to hold its value for longer because the real-world benefit of that surplus emission avoided also last much longer in the real world. These distinctions, both between pollutants and between pollutants and greenhouse gases, should be considered when determining an expiration standard for each of the credit banks.”

The District expresses concern that “AB 985’s requirement for [credits] to expire after an arbitrary time period that is based on other states’ or air districts’ rules will likely result in very few if any [credits] being available so that the critical infrastructure mentioned above cannot be permitted. Layering a misfit expiration requirement that is based on another air agency’s unique and highly specific control strategy will not result in additional emissions reductions and instead impede the Valley’s ability to build critical infrastructure or provide jobs for its residents.”

Air districts develop their regulations based on the unique characteristics of their jurisdictions (i.e., meteorology, geography, industry, transit, etc.), and comparing the expiration of credits to another air district might not be a workable copy & paste.

The author may wish to consider striking the reference to emission reduction credits issued by any state or any other air quality management control district from Sec. 40714 to avoid frustrating the District’s credit system with timelines that don’t work for the Valley.

REGISTERED SUPPORT / OPPOSITION:

Support

350 Humboldt
Ban Single Use Plastic
California Environmental Voters
California Environmental Voters
Central California Environmental Justice Network
Central Valley Air Quality Coalition
Clean Water Action
Climate Action California
Coalition for Clean Air
Elders Climate Action Norcal Chapter
Elders Climate Action Socal Chapter
Families Advocating for Chemical and Toxics Safety
Leadership Counsel for Justice and Accountability
Little Manila Rising
Mi Familia Vota
Pesticide Action Network
Public Health Advocates
Santa Cruz Climate Action Network
The Climate Center
Valley Improvement Projects

Opposition

California Air Pollution Control Officers Association
California State Association of Counties
City of Avenal

County of Fresno
County of Merced
County of Stanislaus
Madera County
Rural County Representatives of California
San Joaquin County Board of Supervisors
San Joaquin Valley Air Pollution Control District
Urban Counties of California
Vector Environmental, INC.
Western States Petroleum Association

Analysis Prepared by: Paige Brokaw / NAT. RES. /