Assembly Budget Subcommittee No. 4 on Climate Crisis, Resources, Energy, and Transportation

Good morning, folks. Welcome to budget sub 4, the March 11 meeting. We have six presentations planned today, seven other proposals that will only hear presentations if it's requested by a Member of this Committee. Members are still welcome to ask questions regarding those proposed proposals regardless of a formal presentation.

After all the items are heard, we'll take public comments. Public comments will be limited to one minute. I will ask my staff to please call the roll.

[Roll Call]

All right. And before we get started with our first issue, we have two Assembly Members here who have other committees that they need to get to. And so they would like to make their one-minute comments like the other public members. And so we're going to let them do that right now at the beginning of the hearing.

So please give us your name, position and your comments.

Okay. Glasses aren't going to work. Thank you, Mr. Chair and Committee Members. I appreciate the time and the promptings to allow us the opportunity to speak. Assembly Member Anamarie Avala Farias representing Assembly District 15, which is the heart of energy here of California. 60% of California's refineries are in my district.

California has committed to a transition from fossil fuel to renewable energy and we have asked private companies to invest their own resources to make this happen. A number of refineries, including the one that is critical union employer in my district, made significant investments to meet the climate action goals.

As a result, it is now one of the largest renewable fuel production facilities in the nation. However, these investments were made at a time when the federal initiatives were available and when low CARB fuel standards pricing was projected to remain higher than it is today in 2026. These facilities are now on the brink of closure.

Allowing these leading, these leading edge facilities to close sends the wrong message to the entire energy sector. Most importantly, California would lose countless union jobs and set back its efforts to address climate changes. We must stand by the industry partners who have made the choice to embrace renewable fuels.

And I'm sorry, I must stand by. Everybody gets the same one minute for this. So it's just. I'm going to catch it.

Well, thankfully I was done. Thank you.

Wonderful. Thank you very much.

Thank you, Mr. Chair. And thank you for allowing us to come out in front of you first before everybody else. As you know, we have to go to other Committee hearings. I have been part of the legislative group which has worked on this issue for many months.

Sustained aviation fuel and renewable fuels are important for so many reasons. There is only one way to decarbonize the emissions from aviation, and that is through sustainable aviation fuel. And yet we have heard reasons why we shouldn't move forward with the governor's proposal. But these benefits and proposals keep getting ignored.

We have not heard talk about the reasons why we should not consider this proposal, and there are many. The proposal we have in quality benefits for frontline communities and residents who have who live near airports, for instance, up to 38% reductions in sulfur oxides, 11% reduction in carbon monoxide, 62% reduction in hazardous exhaust particulates.

These proposals will mean jobs for workers, jobs that as we have seen disappear over the past year. These are family wage jobs that provide a means of raising a family, putting kids through college. There aren't many jobs like that anymore, and we want to do everything we can to protect them.

I'm a proud supporter of union labor and I'm committed to continue fighting for union jobs in state. And that's my cue. Thank you, Mr. Chair.

Thank you very much. Appreciate it.

I realize we have many people in the room today. We've had lots of interest in two of the proposals that we have in front of us. I want to emphasize that what we do at these budget hearings a little bit different than what we do at the policy hearings.

At budget hearings, we do allow people to have one minute of testimony at the end. At a policy hearing, you're only allowed to stand up and say whether you support or oppose the proposal. There's more of a policy debate that goes on.

But what we're trying to do at these budget hearings is collect the information that we need to analyze budget proposals from the Administration. So what we have today are proposals from the Administration. They're here to give us the information that we're looking for about those budgets, the questions that we have.

They're here to advocate about why the Administration is proposing that. We then always have. Legislative Analyst Office always gives us the Legislative Analyst analysis, which is an independent analysis that, that the Legislature has asked the Legislative Analyst office to provide to us.

And we have been very appreciative over the years in terms of the insights that they bring. That's an informational piece of information also for us. And they are expected just like the Office of Management and Budget and the Congressional Budget Office. The Congressional Budget Office at the national level is trusted pretty well bipartisan.

And the same thing is true with the Legislative Analyst Office here In terms of having the trust of people when they bring us their analysis. Then in addition to that, we sometimes have, if we have academic researchers or people that are independent from the normal third House lobbying effort to provide us some additional information.

But we are making no decision today. We're only beginning the process of with two of these items that I'm sure we'll have many more conversations about beginning the process of identifying what are the issues, what are the potential unintended consequences of adopting the action.

And so today is the beginning of the discussion, not the end of the discussion. And the and so we will be, I certainly will be trying to identify what are those critical issues that we need to analyze, get more information on, et cetera, as we go forward.

So again, if everybody will take that into consideration as you're making your comments. We've had lots of people contact us before this hearing. Wanted to try to put this hearing in perspective. Thank you very much. And with that, we're going to go to sustainable aviation fuel tax credit trailer Bill, the Department of Finance.

And if everybody will identify themselves when they begin to speak and if we have all of the panelists come up, give me one minute, we will be ready. Okay.

Who would like to begin for the Department of Finance?

Good morning, Chair and Members, Andrew March with the Department of Finance. So the governor's budget includes a one to two dollar tax credit against the state diesel excise tax for sustainable aviation fuel sold for use in California from 2026 to 2036.

The value of the tax credit is 1 to $2 depending on the carbon intensity of the sustainable aviation fuel, which for ease of time, I'll be referring to as SAF throughout the remainder of this item. The reason why this proposal is in the governor's budget is that the aviation sector is one of the hardest to decarbonize sectors.

Overall. It's widely regarded as it's difficult to use hydrogen fuel or battery electric planes to meet the that you can get from fossil jet fuel. So the Federal Government and the state has acknowledged that sustainable aviation fuel is a key to decarbonizing the aviation sector. This proposal will help decarbonize the aviation sector.

And with that, that concludes my comments. I'm joined by colleagues from the Air Resources Board, the California Department of Tax and Fee Administration. We're happy to answer any questions or clarify any comments made by the my colleagues to the right.

Great. Thank you very much. We have LAOs Office.

Helen Kerstein with the Legislative Analyst's Office. So we're recommending, rejecting the proposal and there are really five main reasons we're recommending this. I'll go through them relatively quickly and then happy to take questions. So the first reason is that according to our analysis, this is a relatively expensive way to decarbonize.

And in general, we think the state should focus on the more cost-effective approaches first and then proceed to the less cost-effective approaches. The second point I wanted to make is that we also think that there's a lot of uncertainty related to the environmental benefits of this proposal and of staff.

And we think that they could be significantly overstated. And there are two main reasons for that. One is that one of the effects of this proposal could be to shift the type of renewable fuel. So, basically shift from renewable diesel to sustainable aviation fuel.

To the extent that happens and it's really just a swapping out of renewable fuels, the net environmental benefit would be smaller. Also, there is a lot of uncertainty in the literature about exactly how beneficial these fuels are. It's very difficult to measure, including sort of what the environmental benefits or costs would be of the inputs.

And there's enough complexity that there's some disagreement in the literature. Then the third point I wanted to make is that there's a lot of uncertainty related to the potential revenue loss. So basically, this is a tax; this is a credit against diesel excise tax revenues.

The Administration estimates that this tax credit could be in the range of 165 million to 300 million, kind of at the upper range. We think that it could be smaller than that, but we also think it could be substantially larger potential, potentially a billion dollars or more per year.

So to the extent that that's the case, certainly that would be a pretty significant hit to diesel excise tax revenues. And then of course, if you have drops in diesel excise tax revenues that significantly impacts transportation. So these dollars would go typically go to a variety of types of projects. They go to local streets and roads.

They go to state projects under the state shop program. They also go to a program that's called the Trade Corridor Enhancement Program. And so the larger these tax credits are, the less funding would be available for those key transportation programs.

And then the final point that I wanted to make is that in our view, this proposal deviates from really the spirit of voter-approved restrictions on transportation dollars.

So the voters have put into place a number of restrictions over the years in terms of those diesel and gasoline tax revenues, generally restricting them to streets, roads and certain mass transit activities. This would basically divert those funds instead to the aviation sector, which we think is not consistent with the spirit, not the letter, but not.

But with the spirit of voter restrictions. So happy to take questions at the appropriate time.

Thank you very much. Our next panelist.

My name is Aaron Smith. I'm a professor at UC Berkeley, and I've worked on biofuels for about 20 years. And I thank you for the opportunity to be here to share my thoughts about SAF. Air travel, as we've heard, is one of the hardest sectors to decarbonize. Batteries are too heavy to be used in long-haul flights.

Hydrogen takes up too much space. And so SAF has been touted as potentially one of the solutions to decarbonizing aviation. We need something that's a liquid fuel that we can drop into fuel tanks just like we do with current jet fuel. I want to say three things regarding this proposal.

The first, I believe the SAF tax credit would lead to substantially more SAF being brought into the state than being projected by the Administration. SAF is expensive, and therefore bringing in that SAF would come at high cost both to the state budget and potentially to purchasers of gasoline and diesel at the pump.

And number three, the net reduction in carbon emissions would be small and expensive. So to elaborate a little bit, what is SAF? SAF is chemically very similar to regular jet fuel, except it's made from vegetable oils or animal fats. So it could be like the vegetable oil you buy at the grocery store that you use for cooking.

It could be recycled cooking oil that's been collected from restaurants or food processors. It could be beef tallow or corn oil that might have otherwise been used for livestock feed. It's produced at large facilities that much like oil refineries. In fact, some of the existing SAF facilities used to be oil refineries.

So to my first point, that the tax credit would lead to high SAF production, there's a lot of potential in this industry for SAF production. There are currently six facilities in the country that are equipped to produce SAF from vegetable oils or animal fats.

If these facilities were to produce saf, they would produce six and a half times the amount at capacity. They would produce six and a half times the amount that's been projected by the governor's office. Now, of course, they might not do that, but the potential and the capability is the there.

Additionally, as an alternative to oils and fats, you can make SAF from ethanol. There's only one facility that I know of in the United States that is using that technology.

There's uncertainty about how ready that technology is to scale up, but we have to be thinking about that possibility that that technology could also scale up if appropriate incentives were there. So to project the actual amount of SAF that would be induced by the proposed tax credit.

My colleagues and I have developed a model that incorporates this tangled web that we have of federal and state policies. And our model projects SAF production at least double that projected by the Administration and up to seven and a half times the administration's projection, depending on how quickly SAF from ethanol would scale up.

So that's my first point. A lot more SAF production is costly for the state budget and for drivers. The SAF tax credit would reduce diesel excise tax receipts by between 20 and 75%. Given that large increase in the amount of SAF produced.

These lost taxes represent money, as we've heard, that would not be available for road construction, maintenance and repairs. In addition, drivers would likely pay more at the pump for gasoline and diesel. To understand why, we have to dig into state and federal policies, and I'm happy to expand on that later.

But we should expect through the state's low carbon fuel standard to have higher obligations for petroleum diesel, because a large part of what would happen under this tax credit is production that is currently going to renewable diesel, which is a very similar product to saf, except we're using it in trucks in California, which shift that to aviation fuel, thereby essentially raising the costs of compliance under the low carbon fuel standard, potentially raising gas and diesel prices by 10 to 15 cents.

My third point is that the net reduction in carbon emissions would be small and expensive. To understand why, remember that this proposed tax credit would cause substantial diversion from renewable diesel, which is currently being produced, to SAF. SAF is more expensive to produce, but has similar emissions.

So we'd be introducing a lot more cost, but only getting small emissions reductions. We have only so many resources to spend on climate change mitigation. Choosing expensive policies to reduce emissions means that we are choosing to reduce emissions less than we otherwise could with more efficient policy.

So, in summary, SAF is expensive to produce and would generate few benefits for the climate. Promoting it only makes sense if it creates a clear path to future cost reductions, future emissions reductions, and if we carefully manage the unintended consequences. Thank you.

Thank you very much. So I want to kick this off for the Administration, and for supporters that have already spoken, Assembly Members that have already spoken in support of the proposal, and that is that these are arguments that are being made because we're asking questions about them.

Does it mean that we are not open to rebuttal arguments to exactly what they've made? So today is the opportunity for us to frame this issue and give the Administration time to come back with responses to these arguments. I'm going to try to identify the arguments that I would like to hear rebuttals to as we go forward. And that same thing is true.

We invite anybody in the public to contact us, send us letters, send letters to our Committee staff in terms of rebuttals consistently, for the five years that I've been here as a Assembly Member, what I found most satisfying is to take the strongest argument from one side and let the other side knock it down and then take their response and give it back to the other side.

Then after you do that a few times, you usually figure out what you think about a particular issue. So this will be an ongoing back and forth. And today the goal is to identify what the Committee Members are concerned about and would like to have rebuttals to, et cetera.

We, for the benefit of everybody, the public and everybody, all the other stakeholders involved, we actually identify the questions that we have before this hearing started. And so in anticipation of that, we hope that the administration's been able to potentially be prepared for some of those things.

I would also like to point out that this won't be the last of higher pressured budget hearings.

And I think we're going to have higher pressured budget hearings this year because everybody knows the budget is getting in a more precarious position each year and that a structural deficit is likely down the road, that we have some beneficial revenues right now, but that projections are we have some real challenges.

So with each of these items, you're we're going to see somebody once and somebody who's going to get cut is going to be unhappy about that. And that is what exactly what we need to be able to hear in terms of what are the relative benefits and disadvantages of any proposal, because all proposals have that.

So with that, I'd like to start with questions for the Administration. Is the is this tax credit going to be limited just to California producers?

So the answer is no. So it's it applies to staff sold into the state. And the reason is that 1988, the U.S. Supreme Court heard a very similar sort of tax credit structure for ethanol produced in the state of Ohio.

The supreme the US Supreme Court ruled that that tax credit was not was in violation of the commerce clause and that states could not in effect, discriminate against out of state production. So that's why the tax credit structured as it is because of a decision by the U.S. Supreme Court.

So do you have any response to people's concerns that this will be leading to importation of SAF fuel rather than the fuel being purchased here.

Yeah, so a couple things. So one, the proposal relies on the existing low-carbon fuel standard program, and it requires a carbon intensity that's 50% less than fossil jet fuel. Much of the renewable fuels that are produced in the Midwest use crop-based, so soybean oil or corn oil, those are unlikely to qualify for this tax credit.

So we can sort of assume that maybe some of that production won't be brought into the state. Two in LCF, and my colleague from CARB can also speak to this, it examines the life cycle emissions. So if staff is being imported into the state, that's also included in the life cycle emissions of that.

Three, in order for a company or a firm to be eligible for this tax credit, they would also need diesel excise tax in the state. So it's not a transferable tax credit.

So it's unlikely to our knowledge that there are any firms that currently would meet that criteria where they would be producing SAF in the state and have diesel excise tax liability that they could then offset.

Thank you. So that answer both deals with whether they can. And then the second question that we have here about leakage, basically it's the same answer that you're not going to get much leakage because you don't think we'll get much in the way of imports. Right. All right. Any response to that?

Yeah, I have a couple of responses. So the first one I think about, and Matt can correct me if I'm wrong, but almost all the renewable diesel produced in the United States is consumed in California. Two thirds of that is produced from renewable or waste feedstocks that are eligible for this tax credit.

So that's a really big pool of feedstock to use to produce these fuels that could produce SAF that could come into the state of California. My other point is it's correct that you need a diesel tax liability in order to be able to claim this credit.

But if there are firms out there with tens of millions of dollars of diesel excise tax liability, and there's other firms that are generating SAF and have this tax credit, I believe that they would find a way to set up a business structure where they could potentially claim it.

Response, I would just note, so there are other state diesel or state SAF tax credits. So in the state of Washington, they have a SAF credit, SAF tax credit, and the state of Illinois, we haven't seen that happen in those states.

For example, in the state of Washington, there's actually a trigger on where a company would need to be able to produce 20 million gallons of SAF in the state in order to trigger that tax credit to be on. There are renewable diesel facilities that produce renewable diesel in the state of Washington that haven't shifted over to SAF.

So we haven't seen this happen in these other states. So certainly one can speculate that these firms would change their behavior. But we haven't seen that happen in these other states that do have in some cases, more generous tax credits like the state of Illinois.

All right, thank you. I'm going to go on the

Chair. Would you mind if I probe into something that was just said?

Assembly Members, I'd like everybody to feel free to enter into the back and forth so that. So I love it. So that we really. I want to narrow use this opportunity to both get responses and have everybody try to clarify an issue. Then we'll go to another aspect.

Thank you. To the comment that you made about other states doing this already and even more generous, how, how does our what you all. What the Governor is proposing, how is it different than what other states are doing? Are you modeled after any particular one saying that you were saying you didn't see that happen in other states?

So how closely aligned are we with other states in this policy?

Yeah, so it's similar to the state of Washington's as far as how it's structured, based on a dollar to $2 based on the carbon intensity. The state of Illinois provides $1.50 at 50% carbon intensity. So 50 cents more than what California or Washington would provide at that same carbon intensity.

So I think those are the two largest sustainable aviation fuel tax credits in the nation. There are other ones in other states that have various caps or limit the type of feedstock or production that they provide the tax credit for.

And I think just one point of context there. Oh, sorry. Okay. I was just going to say state of Illinois does not yet have a low carbon fuel standard.

So what we have to do is think of all the policies and you can stack up subsidies from all of these policies in order to cover the excess cost of producing SAF. So Illinois does not have a low-carbon fuel standard. Washington state has a clean fuel program that's relatively new.

And so you maybe will see evolution there. But I mean, as I said, almost all the renewable diesel that's used in the country is used in the state of California and many of those facilities are ready to be able to switch over to SAF.

Will you move your microphone so it's right in front of your mouth when you're speaking. Yeah. Thank you.

So to clarify what I just heard. So the governor's proposition is that other people are doing this in other states and we're not seeing any gaming of the system.

But I think what I hear you saying is our ecosystem is different in the sense that we also have additional program LCFS which combined with this program could allow for some of the changing of the behaviors of companies to maximize.

That's exactly right. Yes.

Okay, thank you.

And this is an invitation for the other three panelists that haven't spoken. If you have something you want you think is important or germane about any one of these topics, put your hand up to. And so we want to be able to continue to do that.

All right, I'm going to move on to what's the rationale for paying for this out of the diesel tax excise tax. Why not some other, you know, some other sources? Why? I mean we're the perception is this is robbing Peter to pay Paul. Right. Why take this out of diesel excise tax which has all these other implications.

Yeah. So our understanding is that many of these firms are not profitable and may not have corporate income tax. So providing a tax credit wouldn't necessarily be beneficial to them. It'd also be a General Fund tax credit. So given that many of these firms their largest liabilities tax liabilities are in the motor fuels area.

The diesel excise tax was the tax we selected. But certainly there are other taxes. There are other ways to structure this. There could be, you know, you could include a proposal to backfill the diesel excise tax. That's not included in our proposal. But that is something that could be considered.

Go ahead.

I have a follow up question, but you said something at the end that I'm more intrigued about to understand. You said to backfill that you could backfill the diesel excise tax. Are you talking about from the general funds or whatever's lost from. Well, let me let you say.

Yeah, that's certainly one option you can use General Fund, the greenhouse gas reduction fund. Those are all options that the Legislature could choose to backfill the lost revenue.

And so with the in consideration of taking out of the diesel excise tax. So you would be capping them the amount of credits they could receive based on the liability related to how much they contribute.

Exactly. So if a firm only has $100 million of diesel excise tax liability, yet they produced a sustainable aviation fuel above and beyond that, they wouldn't be able to claim it in that calendar year; there's no refund.

So it only be they would be able to carry that forward and be able to claim that credit against future diesel excise tax liability. But they can never go negative on their diesel excise tax liability.

Okay, and then how many companies would actually in this, in our state would be eligible for that?

So right now at this moment there are four companies that have certified pathways through the low carbon fuel standard that would meet the criteria. However, we don't know those firms diesel exercise tax liabilities. So we wouldn't know whether they would be able to take take advantage of this tax credit or not.

So the universe is for just those that have a certified pathway. But of those four, the governor's office is not aware of what their liability relates to diesel excise to know what the exposure is of how many actually could actually take advantage.

Yeah, we've heard from some of those firms that they do not have diesel excise tax liability. We don't necessarily have a way to verify that because it is is private information. But at least two of those firms have confirmed that they do not have diesel excise tax liability. Which would leave only two left

Only two potential. But wouldn't know until they file their taxes basically and then back to the backfill. So it would be taking money out of this pot that is used for transportation infrastructure and things of that sort, which is extremely important.

I wear the chair of transportation hat and talking about the fact that we don't have sustainable funding for our transportation system. So it does give me cost concern using this particular pot.

And I think I've heard some arguments say as it relates to diesel excite tax that if this wasn't done then those resources wouldn't be there because those companies wouldn't be able to produce, they wouldn't be able to stay in California so to speak. Can you speak to that as it relates specifically to this diesel excitize tax liability?

And I don't know if LAO has any comments on that.

Yeah, you know we haven't sort of assumed that understanding that certain stakeholders that, you know, that could be a valid argument that if there's a firm that views this tax credit as being sort of make or break and that they would then leave the state, then that production would similarly leave.

However, I think maybe the LAO would note that diesel demand may is. Is not as would necessarily go away overnight. So some of that diesel excise tax may. May be made up by other firms.

Yeah, if I may. So diesel excise tax is paid on any diesel that's used in the state, it's not just produce diesel that's produced in the state. So even if we were to see a change in the refinery structure in the state, that would necessarily translate into.

You know, a commensurate change in Diesel Excise Tax revenue. So I think, I think one of the things to think about here is that, you know, this is money now that is going to our transportation system and it's going to our streets, it's going to our roads.

Under this proposal that would instead go to subsidize sustainable aviation fuel. And likely a lot of what would happen is some of those producers, some of those refineries that are currently producing renewable diesel, maybe they would shift to producing somewhat more sustainable aviation fuel, maybe there'd be some additional importing.

But I don't think that absent this, we would see a decline in Diesel Excise Tax revenue because of a decline in refineries in the state. Because that's just, that's not what's driving Diesel Excise Tax revenue.

I would note though that there are other taxes that refineries pay. So although you may not see a diesel excise tax revenue, you may see impacts both locally and to other taxes that a refinery would pay.

So it's not sort of this zero sum game that the Diesel Excise Tax revenue would be made whole and the state would be fine.

Assemblymember Wilson.

Just one more follow up just in this vein because I wanna make sure I understand the point. As I understand this conversation started in the fall at the end of session, kind of run out of time to deal with and address it.

And some of it, a lot of the conversation was around jobs and making sure our producers can stay in the state and keep economy afloat. And I didn't hear the Members comments earlier who are working on this Bill or supporting it.

So I don't know what their vein was, but if I could hear from the governor's office the problem trying to solve, given that we have LCFs and all of those other things, what is the exact problem trying to solve?

So I think number one is to help the aviation sector decarbonize. Sustainable aviation fuel is two to three times more expensive to produce than fossil jet fuel. And as you heard from my colleagues at the table, sustainable aviation fuel is largely considered the only way to decarbonize the aviation sector right now.

Additionally, as we've heard from stakeholders in previous hearings, is that this could help certain firms stay in the state and, and lead to continuation of jobs of prevailing wage union jobs.

Can I just add one thing? Assemblymember Wilson, thanks for the questions. Matthew Botill with the California Air Resources Board.

So in thinking about the history here over the last few years, we've had kind of rollercoaster of incentive policy that have established at the federal level with federal tax credits originally being established up to $2 a gallon for SAF and then being pulled back by the more recent administration down to a dollar a gallon.

And so what we've kind of seen is this whipsaw effect happening with some of the producers as they've been trying to make plans about bringing staff into California or the rest of the country for that matter, on the federal tax side, making it challenging to have the economics pay out on the production.

And the structure right now in the market is that it is more attractive to produce renewable diesel on the incentive side. And so that's why they're, they're moving into more renewable diesel production. When we think about our long term climate goals and as my colleague Andrew March mentioned, decarbonizing the aviation sector, we're looking for pathways to decarbonize.

The aviation sector is one of the few sectors where we actually see fuel demand growing over time, not declining. For light duty and for medium heavy duty, we have strategies to decline demand in those sectors. But on the aviation side we actually see growth in fuel demand over time. So we've got this mismatch.

We've got incentives that are kind of pushing liquid fuels into the heavy duty sector and away from the aviation sector. But we've got a growing demand in the aviation sector for more fuels. And so we're trying to figure out how do we align these things. Thought we were going to be there with the federal tax credits not.

And so now there's this other option.

I'm just going to say you mentioned demand and as we know it, we're, you know, because of the war in Iran, there is a jet fuel shortage looming. And so couldn't the market manage this as it relates to sustainable aviation fuel, as it make it more appealing when you're declining on the other side.

And then I really am going to be done, for now.

Of course, demand and supply are inextricably linked. What the economics suggest would be that this would just result in more fossil fuel to meet that demand and so it's cheaper to produce, you know, trying to meet that demand with, with fossil production. Obviously as those price dynamics change, the economics change.

But the history here bears out that without equilibrium on the pricing, you're going to see more fossil fuel into the system over time in a fossil jet fuel, which is counter to our broader decarbonization goals.

Assembly Member Rogers.

Yeah, but I think that the point that the Assemblymember was making was that if there's a shortage, you're not going to see that being able to make up that difference, which would then change the price point for folks in the private market that are producing this.

I mean, these are short term trains too, so possibly, but hard to predict what's going to happen anytime.

We hope it's short term. Yeah.

Assemblymember- Go ahead.

Yeah, yeah. So I just want to clarify what I heard because. Because I've heard the two arguments in favor of this proposal are one, the environmental benefit of decarbonizing a hard to decarbonize industry, which I understand the other one is keeping the jobs in California.

We obviously, we heard our colleague who represents Phillips 66 in her district, I think she said about 500 jobs that are dependent on this work as well. The flip side of that is I hear from the environmental community, yes, decarbonizing a hard to decarbonize industry, but it's only 1% of our greenhouse gas emissions. And we are-

There's a huge trade off in what we can do with that money to reduce greenhouse gas emissions elsewhere that might be more effective or from the economics perspective of our streets and our roads that our cities and our counties are dealing with.

And then also on the jobs perspective, what I just heard from you, and I'm hoping you can clarify is we actually don't know if Phillips 66 is one of those entities that would even be able to take advantage of this because we don't know if they have a diesel tax liability, which means that it could in fact not have any impact on their jobs.

Can you clarify?

Yeah, so maybe I'll take the last question first. Yeah, please. So our understanding is that Phillips 66 does have Diesel Excise Tax Liability. They have. They're one of the firms that have confirmed. So there are two firms that said that they do not. And then this firm has said that they do.

I think I heard that as we know that two don't. And we don't know about the other two, apologies.

So. Yeah. So Phillips 66 has confirmed that they do have Diesel Excise Tax Liability. So they would be able to benefit from this proposal.

Okay.

Regarding. I think there are two other questions. One about the general cost. Is this, as LAO mentioned, compared to other strategies.

When we're looking at some of our other strategies that we have in the state that are funded by the Greenhouse Gas Reduction Fund, the cost of about $170 per ton of GHG emission reduction is not necessarily out of the ordinary.

For example, one program that this Committee has heard before is the Low Carbon Transit Operations Program, which is funded by the Greenhouse Gas Reduction Fund. It's around $165 a tonne. Overall, our GGRF investments average around $110 a tonne. So there's quite a, there's quite a variety of sort of how, how we're looking at that.

As far as a cost perspective.

Yeah.

And then as far as the point, about 1% of aviation fuel or 1% of greenhouse gas emissions. I think I'll tee it up for my, for my colleague from the Air Resources Board. But as we see greenhouse gas emissions shift over time, we would expect to see that dynamic change.

We're going to go, we're going to go to Ms. Kerstein. She wants to respond to that comment. You're still on.

You could respond one second. I will express my frustration that this wasn't part of the discussion around the Greenhouse Gas Reduction Fund last year. We had a working group that worked on it for an entire year. And I think throwing around averages of how much it costs per tonne in GGRF is misleading.

When you have programs that are in it like the High Speed Rail that takes up a fourth of the Greenhouse Gas Production Fund, but it has not yet produced a single greenhouse gas production, that's part of that calculation.

And then you also have programs like Sustainable Land Management and Sustainable Farming Practices that reduce a significant amount of greenhouse gas productions much more than this program per tonne at a much smaller dollar figure.

We were able to look at all of those in their totality and determine a package of things that we thought made sense for California. So I'm a little bit wary of taking a one off from, away from that discussion. I understand you've identified a different Fund and I, and I can appreciate that.

But when we talk about how we structured the Capita Invest program, it was looking at it in its totality. I'll go ahead and come over here.

All right. Ms. Kerstein.

Just a couple comments. I think one thing is, I think just fundamentally, just because we're doing other things that may be not the most cost effective, I think it's perhaps not the strongest argument for doubling down on that approach. And many of those other programs have a lot of potential co benefits to which have to be considered.

And so we certainly want to think about the co benefits of this as well as those other programs. But also just on the numbers, that $170 number assumes all, that this program actually has all of the assumed benefits that really we're measuring them correctly.

We're not having this switch of the fuels, it assumes all of that and it assumes that they all come just from this program, not from any of the other programs that we're using, but both at the state and federal level to subsidize this fuel.

So we've got the lower carbon fuel standard, we've got the renewable fuel standard at the federal level, we've got all of these programs that are stacking. And when you think about all of those programs stacking, number one, probably the cost effectiveness is significantly less.

And then if you think about those other issues, about potential overstatement because of the shuffling issue, And I think Dr. Smith did some work on this as well, so he can speak perhaps to that. But the cost effectiveness would be much, much less potentially under that kind of scenario.

So we could be talking very, very ineffective from a cost effective perspective.

Dr. Smith. And then we're going to go to Assembly Member Gallagher.

Yeah, so as we heard, you have to think about how this would stack on top of all of the other programs that we have. And so the sort of the easy way to think about it is that jet fuel is three times as expensive to produce as SAF is three times as expensive produce as jet fuel.

So it's going to cost a lot for us to use that instead of jet fuel. Our modeling indicated that the incremental carbon emissions you get from adding this tax credit on top of everything else, 1 to $2,000 a tonne, depending on what kind of production comes in.

Assemblymember Gallagher.

Yeah, thank you, Mr. Chairman. I mean, start off, I want to just completely agree with my colleague from the north coast. Why didn't we have this discussion in GGRF last and especially with how we're allocating these monies and how are we getting the biggest bang for our buck?

I'll add to that wildfire mitigation fuels reduction that we could be doing in our forested lands, the LAO has pointed this out many times, is one of the most cost effective ways to reduce carbon. Why aren't we doubling down on that, on those efforts? I think we could be doing that. That's something we should be discussing.

But you know, I think it's interesting that you're here today on behalf of the Governor concerned about the loss of refinery blue collar union jobs and another refinery, you know, going out of the state when we all know the history.

You know, I've been here a long time and I was here two years ago when your boss said I'm going to jam the Legislature, you know, with his proposals to stop the oil companies from gouging us. That was the word that was used. Right. And we fast tracked these policies through the Legislature. I opposed them.

We fast tracked them. And the workers came in here and said, don't do that. That's actually really bad. That's going to hurt refineries. There was a whole long, long list of them who came in here. But nonetheless, your boss said, nope, this is what needs to happen. I'm going to jam the Legislature. And you know what?

Unfortunately, this institution let it happen. And what's happened since those policies have been passed? Two refineries have closed. We've lost 18% of our refined gas. Jet fuel is not down because of the Iran War. It's down because of these policies and the shutdown of those two refineries.

1.2 million gallons of jet fuel that is not here today because of that policy. But now you come here today and you say, well, we're really concerned about the loss of refineries and jobs. Where was that two years ago? And this is where I'm going to get to my question.

What discussions were done on behalf of the Administration, with leadership to stop the closure of refineries, to talk about this GGRF Fund. Where was that effort even last year to make sure that this wasn't going to happen? Because it's kind of- it's a little bit too late.

We've already lost two refineries now, and gas prices are going up and we're losing jet fuel supplies. So I think they should have to answer that. What have you been doing before this day?

I'm going to intercede before. I'm going to intercede before we. It's the number one focus here is try to get the information about the administration's proposal and counter arguments about that. To the extent that you can answer the question that that was asked, feel free.

But it's perfectly fine for you to say you weren't involved in that part of it. We have people from. From the Department of Finance are just specifically focused on this tax credit. So do you have information in response that's responsive to Mr. Gallagher's question?

Unfortunately, as I remember Gallagher, I do not. Those weren't discussions that we had regarding the budget sort of over the last couple of years. Happy to take those questions back, though, and see if we have a response for you.

Thank you. And I just want to emphasize we have. This is going to take a little bit of time today, and the next item is going to take a little bit of time also. So for everybody, we have a number of you that have come in since then. At the beginning of this, I said the emphasis here.

We're not making a decision today. We're trying to get the information that we need about this as we try to create budget priorities. So if we can try to stay as focused as possible on pulling out questions that they can be responsive to that, that they have information about that will help us clarify.

This is what I'd like to do. So I'm going to jump to the

yes, just to look, the gentleman here today, he, he, he works for the Governor. Right. But I understand he wasn't involved in those discussions. I do think that we can't really talk about the subject matter here today if we don't talk about the history of how we got here.

So and so that's why I do think eventually I would love to have someone from the Administration come and report to us about what they've been doing since that time.

Fine request to make that request today. But there are tens of thousands of people that work for the Governor and they all can't answer all those questions about what happened then. But that's, that's, that's a fine request as we do that.

So I want to go back and try to make sure we're, we're getting to these questions and this is a healthy, robust. Real quickly, you talked about life cycle analysis. That's true. On the low carbon fuel standards, but is this tax credit going to have a life cycle analysis also? Yes.

So to rely on the low carbon fuel standard.

All right. So I just want to get that on the record in terms of whether that was, was going to be the case for this. What a frame the big, this question in the big picture. I think there's strong support amongst the Legislature that we don't, we want to try to make sure refineries don't close prematurely.

So we're interested in trying to do that. There's strong support for. We want to try to decarbonize all the hard to decarbonize areas. The questions being raised here today are is this the most efficient way to do this? Does this have unintended consequences doing this this way? What's, what's the, what's going to be the impact?

So I want to come back. I appreciate you saying it doesn't have to be this way, but right now it is coming from the diesel tax and it will have an impact on that. And the Administration right now with this proposal is comfortable with the impact, the decreasing of the funding for transit transportation.

They feel like this is, this is an appropriate tradeoff?

Yes. I mean, when you're looking at overall the amount of funding that goes towards transportation, at $165 million, this would be a small decrease in the overall amount.

Great. Thank you. And then there's some, there's been some, some statements and arguments made by LAO and Dr. Smith that this can potentially increase diesel prices.

And at a time when we're focused on the product, I mean, the cost of living issue, how can, does the Administration have strategies to make sure this doesn' have a negative impact on diesel prices and gasoline prices? Because there can be a shift in refinery capacity.

So I believe the analysis that UC Berkeley relied on is assuming this sort of shuffling between renewable diesel and sustainable aviation fuel and decreasing the number of low carbon fuel standard credits that are produced.

That sort of hinges on the assumption that there, there wouldn't be, from our perspective, that there wouldn't be additional biofuel capacity in the nation. Over the last five years, we've seen biofuel production increase steadily.

So we would anticipate that additional SAF would be additive to renewable diesel and that there could actually be additional low carbon fuel standard credits that would be produced, which wouldn't have that sort of impact that others have been claiming.

Dr. Smith.

So, I mean, I wouldn't characterize it as an assumption. I mean, we were modeling the cost curves for these different fuels. And so the argument there is to say we're producing in the nation a certain amount of renewable diesel.

If we incentivize SAF, we're going to produce it on top of what we're already doing using these waste fats and oils. So my question is, are those waste fats and oils just sitting there not being used right now? Because if they are, why aren't these companies using them to make renewable diesel right now? They could be.

So that suggests to me that those fats and oils are not just sitting there waiting to be used. And so in order to be able to use them to make SAF, you're going to have to bid up the prices, and you bid up the prices, and that's going to be raising costs. And so I'm not-

And that's what we sort of have out of our modeling, that if you want to use more of these fats and oils to make biofuel, you're going to have to drive up the price in order to do that because someone else is going to have to give up their use of it.

And so, and so it's not so much. We're assuming that there'd be substitution. But that barrier of if you expand, you're going to be raising costs means that you'd be more likely just to see a switch from what's currently be used to make renewable diesel instead used to make SAF.

Any response? Look like Air Resources Board, Mr. Botill.

Yeah, just a couple of additional points. You know, it does appear that there is a fair bit of additional capacity in the existing biofuels refineries to increase the amount of renewable diesel and SAF production as well.

He says it does appear that way? You have data on that?

Total announced capacity versus the amount of volumes that are that are coming to California. And I will say, kind of going back to my earlier points, that some of the changes in the federal tax code did inject a lot of chaos into the situation.

And one of those things that one of those changes was limitations on the amount of imported feedstocks and how those get credited under the tax credit program at the federal level, which has kind of created a situation where some of those imported waste oils now, you know, may have a harder time finding a home.

And so, you know, there may be additional ability to import waste oils to be able to increase the overall total capacity. And, you know, just I heard from Assemblymember Gallagher about thinking about the history of this.

I mean, we have seen over the last 10 years the total production capacity of renewable fuels go from almost zero to now what's around 4 to 5 billion gallons nationally.

So there was a lot of predictions when we first rolled out our programs about the inability for fuels to be able to be produced, renewable fuels to be able to produce that haven't come to pass. And so this is something that we could see potentially continue in the future as production grows.

So if you have data on the potential excess capacity out there, I would appreciate being able to see that. The question I have for the-

I was going to say, and there's two things here. There's do you have the excess capacity in your refinery to produce more? But in order to actually take advantage of that capacity, you've got to buy the feedstock, you've got to buy the waste oils and fats to put in there. And so that's-

And that's what I'm hoping to find out. Yeah, if they have information about the excess feedstock that is out there. Is it is it out there? Question for the Administration. And that is why not do this, do this tax credit against these other taxes instead of just renewable diesel? Why not against corporate profits? Why not?

Our understanding is that many of these firms are not profitable and don't have a large corporate tax liability unless there was a sort of a refundable tax credit made. So that's, that's certainly an option. It would, it would introduce some additional complexity to the system versus what we proposed.

Okay, Assemblymember Rogers.

Thank you so much. Actually, I want to ask a question about the flip side of this proposal, which is the loss of revenue in programs. Three specific programs. The SHOP program, the local streets and roads, and the Trade Corridor Enhancement programs. When I was on a city council, we utilized those programs.

And I seem to remember SHOP in particular being very over prescribed, that the amount of projects that come in for that funding far exceeded the amount that we had in the account.

So if those are the three main programs that are going to be impacted by the cost, the potential shift of this funding away, can you tell me what the status of those programs are? Have, what level of requests are you getting in those programs?

I know we've got the League of Cities in CSAC who have waited on this proposal. As a result of that, how will it impact our cities and our county's ability to access those programs?

Yeah, I have a colleague from my transportation unit that may be able to answer some of those questions for you. Assemblymember.

Great. Time for the big switch. All right, so we have somebody from LAO that can also help answer that question. And so you could. No, first, first, we want the Administration to be able to answer the question. Right. There you go.

You're on.

Like in a hockey match when they switch. The shift switch.

I'm down for it.

Good morning, Ted Dillon from BPA Finance. I can speak.

Oh, you got to pull that microphone really right up to your mouth there for a break. We have fans on here that we, we can barely hear over.

Yeah, can you repeat your question so I can.

Yeah. So for the, for those three, the three identified, and I know that there's probably more than that, but the SHOP program, the State Highways Operation and Protection Program, the local streets and roads, and the Traffic Corridor Enhancement programs that could potentially see a reduction in funding if this was approved.

Can you talk about how many proposals are coming in from local jurisdictions for money from those pots? How much less would be available to them to do projects? Can you help us to quantify what the impact on local government operations could be if that funding is not available to them?

Yes. So assuming we use 165 million reduction, you know, based on this proposal, so from our calculation, local would be the impact to the local side, would be about 77 million. So that's to go to local street and road. And then the remaining 88 million would be for all of the state investment in transportation.

So that includes SHOP. So SHOP, we would be looking at 47 million. So that's go to Caltran and that money go to SHOP and then you have 47 million plus 23 million to SHOP and Caltran and then for TSAP with 46 million dollar. And then you have RMRA as well, these.

But anyway, the state would be 80, 87 million in total and then local with 77 million in total.

Did you say Caltrain was one of them?

So Caltran, that's the money that go to the state highway account for Caltran operation.

You said Caltrans right, not Caltrain?

Caltrans. Yeah. Okay, thank you. Department of Transportation.

Yeah, yeah. So for each of these programs, you know how many in the last funding cycle, how many applications came in and how many were funded?

Do you have like a specific program, that application? What program are you referring to?

So when funding is made available specifically for local government, when funding is made available, available and local governments put together their RFPs and they applied for the funding, how many proposals did you get versus how many were you able to fund?

So unfortunately I don't have that information, but I'll, you know, happy to, you know, work with, you know, Caltran and be able to provide that information for you.

Is it safe to say every dollar was used?

Every dollar, yes.

LAO

Yeah. Just to provide additional clarity, Frank Jimenez with the Legislative Analysis Office. So there are three impacted programs. There's SHOP, which is Caltrans major rehabilitation. So that's not local governments applying to Caltrans for funding. This is Caltrans going out doing work on the state highway system which go through many local communities.

So there's no like application there from. From locals for that funding. There wouldn't be any immediate impacts in the near term based on the reductions that are estimated by the Administration. Caltrans would continue with its current workload.

But that would mean less money in the out years, ultimately less projects being done over the long run on the local streets and roadside. That's funding that the state sub allocates out to cities and counties. So they're not applying for the state. A lot of that money goes out by various formulas, mostly driven by population.

So that's less money going to cities and counties across the strait, the state that's going to their local coffers. So it's not necessarily that there's less application, but less money going out. So there will be very disparate impacts across cities and counties across the state.

And then TCEP, the Trade Corridor Enhancement Program, that's a competitive program, so that's less funding available to allocate to local governments. I'm happy to work with your office in getting back how many local communities apply to that particular program and how many awards.

But generally all the money that's provided to that program on an ongoing basis is used every year.

Right. So just to clarify, the first two, however much comes in by formula, is allocated out. Okay, great.

That would be correct.

Assembly Member Petrie-Norris.

Thank you, Mr. Chair. Okay, so I think we're focused really on two questions. So number one, is this a prudent investment relative to other choices that we have before us? And I, you know, hear the LAO saying that your assessment is no.

And I guess my, my key question there is I think I need to better understand where we are with respect to, I guess what I would call the innovation curve for sustainable aviation fuel. So California, the state, we've set very ambitious and aggressive decarbonization goals.

We have a long history and actually I would say a very successful history in making state funded investments in early and emergent technologies, that is rooftop solar, when the costs are here, and then over time the cost goes down and the subsidy is not needed. So is that what we're talking about?

Are we making an investment that we expect to stabilize an industry and pay off over the long term? Are we just supporting an industry that we're going to need to support for the next hundred years?

I'm going to kick it to Department of Finance first or anybody from the Administration to answer first. And then I'm going to go to Dr. Smith to answer and LAO

Yeah. Matt Botilla with the California Air Resources Board, happy to take a first shot at this. And so I think you've heard from a number of our panelists about the challenges in decarbonizing the aviation sector. When we did our 2022 scoping plan, we looked at what are the technology options for decarbonizing aviation. We identified three main strategies.

Sustainable aviation fuel, battery electric aviation and hydrogen combustion aviation. The hydrogen and battery electric side, very nascent industries. There's a lot of technical challenges and engineering challenges to overcome there.

So because of those potential challenges and the availability, the availability of sustainable aviation fuel, the production pathways that exist, we put in place in the scope and plan a target that we would have 80% of our aviation fuel demand be met with sustainable aviation fuel by 2045 as the primary strategy for that sector, knowing that battery and hydrogen combustion was going to be a big challenge.

That is not true for some of the other fuel demand sectors like the heavy duty space or the light duty space, where they have a much clearer path on innovation, innovation on battery, electric and hydrogen fuel cell electric vehicles.

So if we're going to get to those 2045 objectives of carbon neutrality, we need to make investments in the types of long term approaches that are necessary to get there. Sustainable aviation fuel is one of those. As I mentioned earlier, there seems to be a mismatch in the incentives to get us to that 2045 objective.

And this would be one way to kind of equal the playing field.

And Dr. Smith.

Yeah, you're asking exactly the right question. And so, as we've heard, sustainable aviation fuel produce using current technology with oils and fats three times as expensive as jet fuel. It needs a lot of subsidy support to be produced. It's also a relatively mature technology.

So I don't see a pathway for potentially lower costs over time for this kind of fuel. In terms of scalability, I mean, we're talking a pretty small fraction of California jet fuel use.

If you expand that out to the rest of the country, we'd pretty soon run out of waste fees and oils and we'd have to plant the entire United States with soybeans in order to produce enough fuel to be able to replace whole jet fuel in the United States. So I'm pessimistic that it's sustainable, economically sustainable there.

And so I'm optimistic that 20 years from now we might have E fuels where we have super cheap electricity, where we can, we can manufacture hydrocarbon liquid fuels. But, but I don't see a huge learning curve for this particular technology.

So you said, sorry, you said that it is a mature technology, which is why you're pessimistic about the ability to drive down the cost curve. All right.

Can I add just one piece? And I think Dr. Smith made a couple of points here that I just want to also.

You got to get to your microphone.

Yes. So in terms of producing sustainable aviation fuel from oils and oil based feedstocks, that is relatively mature. He did mention E fuels. This is being able to produce sustainable aviation fuel from renewable or non renewable electricity, for instance, or alcohol to jet technologies.

These are more costly and while the production pathways are known, they are even less economical than producing sustainable aviation fuel from waste oils or virgin oil feedstocks, you know, making it even harder to get to those technologies. When you have the incentive stack that we currently have.

So even less kind of reason for a producer to go into those later stage SAF production technologies. I just wanted to clarify.

Yeah, I just echo some of the comments that Dr. Smith made. So it's in our assessment, it seems likely that this would probably basically fund the existing technologies and the existing sort of relative.

Even though in general SAF is not as cost effective, it would probably be the more cost effective of the SAF, which is the sort of using those tried and true approaches rather than the innovation.

And so I think another way to think about this, because we do think that that is exactly one of the times we might want to do something that's not cost effective, is if we can really change the sort of structure and get innovation so that we can build what we need for the future.

And we just don't see that built into this structure also, because this is basically just subsidizing likely in our minds, existing technology. Again, we don't feel like you need to do it right now.

You could do the more cost effective approaches and then later on when this is really your last thing that you need to do, you could do this kind of approach. But again, if you want, you could structure it differently and maybe really try to focus on that innovation curve. But we don't feel like as structured this way it would-

Assemblymember.

I guess I would just say I'm gonna definitely listen to the Chair's guidance and stay focused on this topic. But I think that there, some of the conversation we're having does speak to a larger and more important truth that we have goals. We need to align investments to support those goals.

If we look at those goals and say, oh, that's literally impossible, then we need to have a bigger conversation. But my understanding is that this is kind of an existential moment for SAF in California.

So I don't know that we have optionality to say, oh, if we don't do this today, we're going to do it in five years. So I think that's also important for us to acknowledge because I do think that if we don't make this investment now, we're never bringing SAF back to California.

I would disagree with that. I think there's a lot of these facilities that are already producing renewable diesel that's a very similar product. They could pivot. And a lot of refineries already are ready to pivot if necessary to produce SAF.

So they're similar enough that I think that if we're continuing to use renewable diesel, and the Federal Government is incentivizing that even more, as is California through the LCFS, then that renewable diesel capacity is going to be there, and that could be pivoted to SAF I think at any point.

Mr. March, I'm going to let you be the last one.

So I have another. So I think because there's two questions. That's the first one. The second really is like the unintended consequences.

I'll let you do that question. Let me let him respond and then you can do that next question.

Thank you, Chair. I would just note this. This notion that renewable diesel production could easily shift to SAF, I think is maybe a little bit misguided. It requires significant investments in order to shift the refinery from renewable diesel to produce sustainable aviation fuel. Significant capital investments, and it takes time to do that.

Additionally, the process itself is. Is more intensive. You receive fewer, less yield for your feedstock. It also requires significantly more hydrogen to produce. So I just want to make that very clear that it's not necessarily that I'm producing renewable diesel today. Tomorrow I can easily produce sustainable aviation fuel.

There is a long, longer lead time to be able to make that transition.

Had some interesting conversations about that in my office, but I will keep those myself for right now and go on.

Okay, so as I said, it's yes, we've got kind of two keys questions before us. The first being, is this good use of our investment? What's the ROI? The second and equally important, are there unintended consequences and are we somehow going to unwittingly drive up the, you know, the cost of diesel and gas?

It seems like you all are working off of very, very different assumptions regarding the scarcity of the, I guess, necessary ingredients in the market.

I guess that one that feels like that should be knowable for, for the Committee, that we should be able to get to one version of the facts and one version of the understanding of the market scale.

So I guess just as a follow up, can you send to our offices kind of the, you know, the market data that supports your perspective? So the Berkeley study is predicated on an assumption that there's a scarcity of ingredients in the market if I understand.

Whereas CARB perspective has or DoF's perspective is that there's actually a lot of market capacity and therefore won't drive up the price.

Just to clarify my point, I think the question about, like, how much fuel production capacity exists is relatively knowable because that's, you know, based off a refinery size and refinery throughput.

The question about how much feedstock, how much inputs into those refineries is available is a much more challenging question to actually hone in on and say it's knowable. There's definitely ranges. There's been lots of studies that have been done.

And it does rely on kind of what your approach is to understanding the market dynamics of the availability of that feedstock, how much could get produced based on certain pricing.

So happy to share information with you all, but I just will say that that is one of those areas where there's going to be quite a bit of a diversity of views on it.

Okay.

And a document was just delivered to your. Right there. All right, thank you so much. And I think that Assemblymember Wilson has a question. I think that this was an invitation from Assemblymember Petrie-Norris.

If you're going to set to send us your assumptions about this feedstock question in particular and capacity questions, but if you'll send that to the Committee so that all the Committee Members have that. Assemblymember Wilson. And we're going to narrow start to narrow this down. Right. Okay. This could, yeah. Oh, you don't have a question any longer.

Oh, great. Well, let me, let me, let, let me, let. All right, I'll wrap this up then. And that is, I mentioned earlier, but I would mention again, I think there's strong interest in the Legislature to keep our refineries that are operating here in California operating.

We need that certainly, and we're trying to be supportive of that happening. We're also trying to keep jobs here in California. We also want to try to decarbonize hard carbonized sectors. Assemblymember was asking those questions.

Is this the moment, is this the, is this the moment where we're, this investment is going to help jump us to new technology that is, is going to do that.

So we want to accomplish all of those things, and that is the one place where I think we have pretty strong agreement is that is if we can make technological improvements, those are good investments to make, if we can do that.

The question that is being raised by the LAO and by the Berkeley study, et cetera, is not just is this a good investment, et cetera, but are there unintended consequences or are there consequences that are out there? So a real concern for me is I want to keep the jobs in California.

And I'm not, I need to be convinced that these jobs are not going to go to production facilities outside of the state who are going to say, hey, we can, we can collect this tax credit in California. Will we be incentivizing.

Because in my mind, the real what we're really trying to do is we have one refinery that is probably the focus of this effort that we're trying to try to get some help to. I'd like to get help to that refinery without necessarily creating a program that may end up having the benefits spill outside of the state.

If I'd like to be more creative, I'm not opposed to getting the money to that refinery. But let's get the money that refinery if that's what we want to do. We simply are trying to subsidize that, not necessarily again, getting it out of the state.

The second thing is I'd like to do that in a way that doesn't cost jobs in the other sector that is going to be receive less funding. So just as we're making arguments, these are refinery jobs that are being protected.

If we decrease the funding for SHOP and all of these other programs, that is, that creates fewer jobs in those industries that are out there. So for me, the jury is still out in terms of these unintended consequences. I think we had a very healthy and robust conversation here today. This is an invitation to continue the conversation.

This obviously has lots of interest and so again, no decisions going to be made, but let's continue the conversation. Everybody is invited to keep funneling it to Committee staff and Committee staff will make sure the other Committee Members get this as we go forward.

And if we have to have another conversation about this, we will have another conversation about this here if we have to. Right. Because it's important to get these kind of things correct. And with that, I really want to thank the panelists and I want to thank everybody.

This was a very, I want to say, appropriate and professional conversation that everybody had. And a lot of times political conversations aren't real professional nowadays and stuff. So it was very healthy for us. So thank you all. Thank you very much.

And I appreciate staff for making sure everybody knew in advance what the big questions were so that we could have such a healthy debate. We're going to go on to issue number two, Zero emission vehicle incentive trailer Bill.

You got questions on this one, too? How about you? You got big stuff? Yeah. You want to go first? Yeah. We'll start you off, right. Okay. Members have priority. Okay. This is issue number two, zero emissions vehicle incentives trailer bill.

And before we get started with the Department of Finance starting, we have an esteemed Assembly Member who has another place that she has to be and has asked to make her comments right now.

Thank you so much, Mr. Chair, for the flexibility. I have the opportunity to speak to some students and they came all this way to the Capitol. I want to make sure I get a chance to honor that request. And so I think, you know, this need to inject 200 million into our zero emission vehicle progress is extremely important given the fact that what happened at the federal level in terms of withdrawing funds. So I'm very supportive of it.

I am very supportive of it being towards light duty, as that's where I think the injection needs to be and can be deployed quickly within this next year. I recognize that there has been desire from those, and I'm looking in the room because I see them, who want to see some of these funds go to medium and heavy duty. Although I primarily would like to see the injection into light duty, I recognize the need for that, and I look forward to the conversations surrounding that.

And I would say that when looking at medium and heavy duty, I think we should lean towards the medium duty space versus the heavy duty space and look for other ways to ensure that we're able to fund HVIP and things like that because that's extremely important.

But as it relates to this 200 million, I think it's better suited to that direct injection. And I think there should be three things that I'll add that, for our new vehicles, having that split between the OEM and this type of incentive I think is beneficial.

I think our cap, our MSRP cap should be raised on the price of a vehicle and it including just like the base model. I think if you upgrade your stereo, it shouldn't matter when it comes to these types of incentives. So I think there's a difference between what's eligible as it relates to the cap versus not.

I don't think we should do income caps at this stage. In terms of the used vehicles, I do think we should have a portion to our used vehicles. There is a lot of used vehicles and that is an opportunity for someone of low income or lower income to be able to get into the EV market versus buying a new vehicle. And we've had a lot of those come onto the market because of the lease requirement. So that's extremely important.

And then last but not least, I'm going to stay on subject because I see to the Chair, I think it's for his flexibility, that we still have to address this issue as it relates to multifamily homes. 40% of our folks live in, across the state live in multifamily home.

And so we really want to advance on this zero emission progress. We're going to have to work on infrastructure and multifamily. This money is not to be deployed to that, but it's in the greater context we need to be considering that. And I look forward to continuing to discuss. And thank you for the flexibility, Mr. Chair.

You and I will have more conversations about this, I'm sure. All right, Department of Finance. Again, if everybody will identify themselves before they begin.

Good morning. Brandon Merritt, Department of Finance. And actually I'm going to turn it over to my colleague from CARB to present this item.

All right. And you can, those microphones are mobile. You can pull them nice and close. There you go.

Well, good morning, Chair, Members. Courtney Smith, California Air Resources Board. As you know, earlier this year the Governor proposed a one time $200 million appropriation to the California Resources Board. And this is to establish a new incentive program for zero emission vehicles. And it's focused on helping keep California's ZEV transition moving forward.

Especially in the wake of the federal administration's cancellation of the federal tax credit. This proposed program is very much focused on helping more residents become first time buyers by providing incentives that are at the point of sale focused for first time purchases or leases of new and used light duty zero emission vehicles.

And the reason we're focusing on first time buyers is because research shows that once you go electric, you don't go back. For someone that once owned a zero emission vehicle, the chance that their second vehicle is electric is 82%.

So by limiting it to the first time buyers, this program will really help focus on expanding the ZEV market in California. Importantly, the proposed program would require for one to one funding match with original engine manufacturers that participate. So this effectively doubles California's investment.

With the expiration of the federal tax credit, we are seeing that consumer demand for light duty zero emission vehicles has slowed. And so this is creating a critical moment and a need for us to take action so that way we can maintain momentum of that transition.

And I think most folks know that addressing pollution from mobile sources remains critical, as they are still the largest contributor to ozone and particulate matter pollution in this state. So this program would help fill in a very important gap that exists in our current ecosystem of clean transportation investments. So with that, I'm happy, I think we're all happy to answer any questions you have and look forward to the discussion.

Great. Thank you. Anybody else from Department of Finance, administration? We'll go to LAO.

Helen Kerstein again with the Legislative Analyst Office. So we're recommending rejection of this proposal and there are three reasons I want to highlight for that. The first is that in our view this proposal doesn't meet the really high bar that we're recommending the Legislature apply to new proposals this year.

And that's really, as I think my colleague last week spoke to the committee about this. That's in light of the significant budget challenges that we think that the state is facing, not just this year, but really on an ongoing basis given the structural deficit facing the state.

We think certainly that GHG reduction is important, but the state does have other programs that are aimed at that. And so we think that funding this new program in light of that is less of an urgent and critical health and safety need.

Secondly, we would note that it's hard to evaluate this program because there's not a lot of details at this point. A lot of those will be worked out through the regulatory process that CARB is expecting to undertake. So it's very difficult to assess. But just given the amount of money available, we think it's unlikely this is going to make a big difference in ZEV sales.

So 200 million one time, you know, that's not probably going to move the marketplace in a, in a huge way just because, even if you assume about half of the vehicles qualify, we're still talking about maybe $1,000 rebate per vehicle. So in context of the cost of vehicles, still relatively modest.

And then third, we would note that this could result in duplication. The state has supported other programs and currently has some other programs in place related to zero emission vehicles. Some of those are running out of money. And so thinking about how does this interact with those, I think would be important.

We don't have those details yet because they're still to be worked out. But really understanding like does it make sense to add a new program? How does that, does that affect administrative costs? How does that affect how we can analyze which program is having which effect? Those types of things would be really important. So happy to take questions at the appropriate time.

Great. Start off with Assembly Member Rogers.

Thank you so much. And I think that that's one of the fundamental questions I did have is, can you walk us through what current support networks or incentives there are in the light, the medium, and the heavy duty space?

Yes, absolutely. Yeah, appreciate the question. As I mentioned earlier, this proposed investment is really intended to fill a gap in our broader ecosystem of investments.

So on the light duty side, we currently have Clean Cars for All program as well as the DCAP program which is statewide that is very much focused on providing assistance and incentives for light duty vehicles for low income disadvantaged communities. So we do have programs that exist.

Money is still flowing. There are some programs, as LAO noted, that are slated to run out of money this year. In addition, on the medium and heavy duty side, last year the Legislature allocated 132 million from the Hino settlement to go to our HVIP program which is focused on medium and heavy duty.

In addition to that, we are, we have between last year and this year's fiscal year, 70 million in the Air Quality Improvement Program pot of money. So we plan to focus that. We need to decide, but it'll be in the medium heavy or off road vehicle space.

There's also $130 million proposed as part of the Governor's budget for the Carl Moyer program, which focuses on scrapping and replacing polluting vehicles. And then in addition to that, we also have 177 million proposed as part of the CAP program.

This is not directly intended to support. This is the Community Air Protection Program. It's not directly a vehicle program, but oftentimes communities, through their community emission reduction plans, decide to invest in infrastructure, cleaner buses. That's another pot.

On the medium, heavy duty space, in addition to those programs I mentioned, we also have the Clean Fuels Reward, which is part of our Low Carbon Fuel Standard Program. That is anticipated to be available this summer. And it very specifically focuses on providing supplemental support for Class 8 heavy duty trucks. So as you're hearing, we have a broad ecosystem of incentives.

What you didn't hear me say is that we have an incentive program that's focused on supporting the ZEV market broadly. And that is what this proposal aims to do is to be able to support it in a time where we're seeing, I would argue, an unprecedented decline in market demand that we've seen since and as a result of the federal government stepping back from the federal tax credit.

And I appreciate just to dive into the data a little bit. You've got a great chart in the analysis about zero emission vehicle sales. How is that relative to all auto sales? Is the loss of the incentive at the federal level, do you see that in the data or is there an overall decrease in folks purchasing vehicles?

So since about 2022, we have seen the portion, so the percentage of sales in California going towards zero emission versus internal combustion engine counterpart be within the range of about 20%. And it's ratcheted up through time. At the highest point it was 29%. And that was the third quarter last year.

And that was the result of folks running to take advantage of that tax credit before it expired. And so you've definitely seen in California a upward march towards more and more of the proportion of purchases being zero emissions until now. And so in the fourth quarter of last year we saw sales decline to 19%.

But it's important to drill down into that number because I think it masks a little bit the severity of that decline. October remains high, and that's hangover from the surge that we saw in that third quarter. Vehicle registration data takes a minute sometimes, so that's reflected in that October number.

But when you look at November and December, those sales rates are 13 and 15% respectively, a significant decline. Numbers we haven't seen since 2021. So this is what we are seeing is that more folks are choosing internal combustion engines when they go to purchase a vehicle than they had otherwise. And that's the problem we are hoping to help address with this proposal.

That was really helpful, thank you. And then I think my last question for the now. One of the criticisms of many of these types of programs is that it tends to subsidize folks who have a higher income. I appreciated your explanation on how this was geared towards first time electric vehicle purchasers. I think that that's a really good thing to highlight, and I'm supportive of that.

But are there any additional metrics that or mechanisms that you can put in place to make sure that this is incentivizing folks who otherwise would not be able to afford an electric vehicle to get into an electric vehicle as opposed to just helping pay down part of the cost for folks who already can afford it?

Sure. No, I appreciate the question. Anytime you have an incentive program, there's always the risk that you aren't changing behavior. Right. That someone would have purchased it anyway and you're just making it cheaper for them. Fortunately, we have really good data that suggests this does change behavior.

There's research out of MIT that suggests that for every thousand dollars that you incent, you actually can increase demand to 6%. So we know incentives work. In terms of trying to limit the instances in which we're not changing behavior, they would have done it anyway or we're incenting folks who could otherwise afford it.

A few thoughts on that. First, typically when you talk about market transformation, early adopters for technology tend to be middle and higher income. They've already had an electric vehicle, so by that point alone they would not be eligible for this program since it is focused on first time buyers.

In addition, the MSRP cap ensures that we are not incenting electric luxury vehicles, which also tend to be higher income folks who are pursuing that option. And ultimately the focus of this program is very much about expanding that market.

The reality is affordability remains an issue for middle income folks as well. And so the sooner that we're able to deploy this money, the sooner we're able to get Californians out on the lot, experiencing this technology, and being able to have a more affordable, clean transportation option.

Right. I'll just see if the LAO has anything to add or any comments.

Yeah, I think not much to add. I mean, I do think how you structure this program is going to be really important. Right. Because we don't want to just encourage folks who would have already gotten zero emission vehicles. We don't want to just pay them for what they would have done otherwise.

And I think there is some other, some other work that's been done that suggests in some cases our past programs have done that, including a state audit and that talk about how it was difficult to piece that out.

So I think really thinking about how that's done is important and thinking about how again this stacks with other programs because there are these other programs that are in place. And then also sometimes utilities are providing programs that are funded by LCFS as well.

And how that all comes together I think will be really critical as you think about if you want to do this, how do you want to do this, and what bang for your buck are you going to get. But again, you know, I think our perspective is also that, you know, there are many, many calls on your limited budget and so you're gonna, so trying to make sure you're really targeted could make a lot of sense.

Thank you. Assembly Member Lackey.

Yeah, this is kind of an in the weeds question, but I'm hoping that you might be able to give me some kind of answers, Department of Finance. As part of the 2025 budget, the Motor Vehicle Account is very important to me for a number of reasons.

And it's my understanding that almost all of the money that was slated to go to the Motor Vehicle Account, 166 million. And it's been described as headed towards insolvency. And I don't know if you know that, but I'm sure you do. And that worries me.

But almost all that money, GGRF funds, 150, 115,000 from GGRF funds now that was going to go to that Motor Vehicle Account, is no longer going to go there. So I'm wondering if you can answer or either validate my concern on that front.

Sure. I'm going to turn it over to my colleague who is more versed in the MVA. Thank you.

Good morning. Matthew Macedo, Department of Finance. That is correct that the 2025 Budget Act included the transfer of GGRF to the Motor Vehicle Account. But with the updated revenue forecast for this Governor's budget, it was determined that the fund had sustainable balances for the current year and the budget year. So those transfers were proposed to be pulled back.

Okay, that scares me. Anyways, but thank you for the information.

So I'm going to follow up on that question. What changed? What do you mean? When we were told they were on the brink of bankruptcy if we didn't put GGRF funds in, are we now going to be a year from now hearing how the Department of Motor Vehicles is on the brink of bankruptcy again? What changed? Did some new revenue source show up?

No, it was just simply that the fund brings in $5.1 billion or so in revenue. And so a change like 166 million or so is really in comparison to that total number, it's not a large percentage. So the forecast, you know, moves up and down, and it moved up enough to where the, we did not believe that the transfer was needed.

So basically we're saying they have to, they have to adjust their budget and deal with a lower budget amount than we, than we projected?

The fund does, yes.

LAO.

So I think fundamentally, yeah, there's just maybe the forecast was off a little bit and it is difficult to forecast these things. But fundamentally, I think the structure, the issue in MVA has not gone away. That's a long term issue of sort of a structural imbalance that has faced that fund for many, many years.

And so, you know, there is, the administration's determined that we don't need to do this, that approved transfer this year. But I think there is a high likelihood that we will be back to talking about the fund condition of the MVA in pretty short order because the issues that have been driving the challenges with that fund are still there.

So we have a structural, we have a structural issue that we really need to deal with. Exactly. Right. So that actually gets me to, you know, one of my questions which is pointed out. There are all kinds of programs that have had federal cuts, and certainly Health and Human Services, enormous cuts in Health and Human Services.

The administration not backfilling those programs, but has chosen to backfill this program. Could you give us the rationale for why this program and not the other programs?

I'm sorry, I didn't hear the last bit of that. Why the administration...

Give us the rationale for why are we backfilling this federal cut when we have tremendous... This Budget Committee is not designed necessarily to advocate for Health and Human Services, but it is the question that I'm going to get asked by my Sub Chairs and by my fellow colleagues saying why are we putting this money, you know, putting money into this when we could be helping with Health and Human Services?

Right. And I would just say that this area, specifically ZEV, has a historical record of success being funded out of GGRF. And in particular, given the federal withdrawal from this area of investment, it's designed to fill the near term affordability gap by providing a small, relatively small, but meaningful targeted support to stabilize the ZEV market and encourage continued growth in that absence of the federal withdrawal.

So the second question is, you know, the devil's in the details, as the LAO has pointed out. The challenge, there's two challenges, as my colleague pointed out. You know, wants to try to make sure this is really going to people that really need it and not just having high income people. The identification, The dealer is not going to know whether you're a first time buyer or not.

So it seems that there are many ways, and the dealer's going to have an incentive to make it easy for somebody to identify as a first time buyer. What do you anticipate being the procedures that you're going to follow? Is it just going to be that they have to sign some affidavit of it saying they're a first time buyer?

Yeah. So as program administrators that care about accountability, this is certainly something that is a priority for us to address. How we see this playing out is entering into contractual arrangements with the original engine manufacturers.

Any dealer that wishes to participate will also have to agree to certain terms and conditions. In terms of ensuring that those who benefit from this program are in fact first time buyers, we do have a, I will say we do have a workshop March 24th where we are planning to have and get more input on program design.

But one of the ways that we are thinking about addressing that is to require that beneficiaries of this program sign an affidavit under penalty of perjury that they are in fact first time buyers. There are, of course, other more onerous ways that we could go through, you know, to try to attempt to do that.

But I think ultimately the beauty of this program is and its innovation is the fact that it is designed in a way to get the money out there quickly and make an impact quickly. So there's always a trade off.

Anytime you try to put more additional application requirements and income verification and first time buyer verification, your program becomes more and more full of red tape. And so we are trying to strike that balance here to make sure that we're getting this money out quickly.

So I think it's acknowledged that this isn't a lot of money given, given the federal cutbacks and, you know, what we'll be able to do. You haven't determined what the, you know, which, what the, what the amount of the rebate will be, how many rebates will there be, you know, what manufacturers will receive the rebates.

Or how will you decide, you know, which manufacturers are going to be this sort of enormous demand relative to the small amount of money that we have here. So can you help me? What's going to be the size of the rebates? How many rebates do you anticipate?

Yeah, so as I mentioned, we are planning a workshop on March 24th. And just for context, because we, you know, presuming that the Legislature agrees with the Governor's proposal, we want to be prepared to roll out this program, you know, a month after the leg session ends.

So we are doing the work now to be in that position, including having conversations with manufacturers and going through a public process that we anticipate will be wrapped by that time. And so many of these things are things that we plan to discuss through that process.

But what I can share with you is that in terms of incentive amount, we are envisioning the incentive amount to likely be within a range of 1500 all in to 7500 all in. So the California portion of that would be 750 or 1750. And through that public process, we'll be able to narrow in.

We do have research that suggests that 3500 might be a sweet spot in terms of being able to really change behavior while also balancing with that with making sure that the money translates into as many rebates as possible. And then in terms of what that means for like, well, how many rebates are there?

If the incentive were 1500 all in, that's with the OEM match, we could expect around 260,000 rebates, and those would be again for first time buyers. So there's still folks who will be purchasing zero emission vehicles because we know once you go electric you don't go back. But those will be focused on those first time buyers.

If we ended up in the higher end of the range, 7,500 as a maximum, let's say. You're looking at closer to 52,000 rebates. So we look forward to getting public input on what that sweet spot is. In terms of your question, Chair, around manufacturers and who will benefit, as I mentioned, we're in conversation with manufacturers.

One idea that we will discuss further in a couple weeks is manufacturers who are interested and eligible, that we divide that money up among them. So that way there's an equal opportunity for them to be able to offer the choices that we know California consumers are looking for.

Two areas that are of concern. And one is manipulation of the rebate so that it doesn't actually translate into a rebate. It translates into greater profits for either the dealer or the manufacturer. Without going into all of those details, I just want you to know those are details that will be important to me as I look at this program and whether we decide to move forward with this program.

So I hope you can really come up with some ways. I know one of the things is, you know, the MSRP and the reason you put a max on that is so that you can try to make sure that it's actually getting to the customer and not just being absorbed by somebody in the, in the process. But on the first time buyer.

I think there's lots of ways for people to manipulate this, and one of the ways is just the husband and wife set up. I think if we already have somebody who's purchased a vehicle and now this is a second, this is the second electric vehicle that they're purchasing. I'm not interested in subsidizing that. So can you, is it possible to make the affidavit be that it is this is the first time for the household?

Yeah, that's a great suggestion. Definitely take it back to the team.

Great, thank you. I know that we have manufacturers out there that we've worked with and I think that have been supportive of the fact that California's been very ZEV friendly, and I think we've welcomed that partnership with them. We need those people to continue to feel that.

I feel like this is certainly more of a symbolic statement to them that we care about trying to keep this market moving and we know that it was a tough time. I would like to have us not make the mistake in my mind of thinking that it's, that it's the rebate is the only thing... That we're going to get there. I'm a little worried that we've been plateauing, that we may plateau out at 25% or so and just have other people.

Those are people that don't have range anxiety. Those are people that like being first adopters. But we need more creativity and we need lower priced options before we're going to get to that next level beyond that. And this rebate is almost like, hey, keep trying, all right?

But in China they have so many models and they have so much lower prices that they're adopting like crazy over there. Until we get to that point here where we're going to have trouble. And we should just recognize that as we go forward. So thank you very much. If there are no other questions, I think... Oh, Assembly Member Connolly.

No, appreciate the conversation. And coming from a district where there was relatively high adoption, and I can say that from everything I've heard, I think the subsidies and credits do make a difference in those levels.

That having been said, we have been talking about, you know, as we increase funding in this direction, how that's impacting existing programs like Clean Cars for All. You mentioned that as another program. But the fact is, according to the analysis, funding will run out of that program this fiscal year.

So if you can talk a little bit more about why the decision to go this direction versus supporting that kind of program, let alone increasing funding for that kind of program or medium and heavy duty incentives as well, so those trade offs.

Well, I'll certainly acknowledge that our clean transportation needs are important and broad. I think the idea with this program, as I mentioned, is to fill a gap that there is nothing to currently fill. It also, though does help benefit in some ways our equity needs. This would absolutely be available to low income communities through California, presuming it's their first time buying an electric vehicle.

Importantly, we're also trying to include provisions to allow this to be used for used vehicles because typically low income folks are not purchasing new off the lot. So this very much is a more expansive approach to affordability. It's absolutely available to low income folks through California. But as I mentioned earlier, we recognize that affordability is also a middle income issue.

And then on medium and heavy.

Yeah. So in terms of medium and heavy duty, as I mentioned, we have a lot of programs right now and money right now through AQIP, through HVIP. How many more acronyms can I do? Clean Fuels Reward, which is going to be coming on this summer.

And so it is not to say that continued investment is not needed in those areas, but we appreciate, you know, it is a challenging budget year. So really being able to be strategic in how we're filling the gap we see at the moment.

Thank you very much. And it did appreciate you asking a question because I had one other question and that is could you give us the rationale? There's all kinds of things that need zev, you know, infrastructure, all of those things. What's the rationale for not doing charging stations? What's the rationale for.

Or not doing medium and heavy duty trucks? And, and that. Why this?

Well, I think as I mentioned earlier, you know, there's a lot of needs that we have in order to support our clean transportation transition. Ultimately, when you're thinking about California breathers, we have to get to 100% here.

And so to see such a significant and unprecedented backslide in demand for these vehicles as a result of the federal actions is alarming.

That's, that's the primary answer. And I wanted to let somebody else.

Yeah, Aaron Carson, Department of Finance just reiterate that the 2025 Budget act in the fall appropriate 40 million to the Energy Commission for medium and heavy duty ZEV charging infrastructure. So that funding is in the 2025 Budget Act.

And then over the last seven or so years the state has invested approximately $4.2 billion in medium heavy duty zero emission vehicle related investments. So just reiterating the fact that human heavy duty.

But you said that 40 million was in the 25 since 2019. Yeah, but 40 million the 2025 budget. Ask. But this is the 2026 budget ask.

Yes, so just reiterating that, you know,

why. No. Why not funding again for medium and heavy duty in 2026.

I think reiterating comments from our colleague from CARB. We've invested 132 million in HVIP in the last budget. Additional funding for medium heavy duty charging at CEC 25 million GGRF to CARB for clean cars for all.

And you know, we would, we would say that the Administration is still prioritizing being heavy duty, but given the rescission of the federal tax credit in the fall, this was the highest priority for the 2026 budget.

I appreciate that. I guess we're trying to keep momentum moving everywhere in spite of inappropriate Federal Government cuts. And that's all I'm really trying to focus on is making sure that we keep momentum going in both areas.

And so that's why I question should we do 200 million here or should we do some portion of 200 million going to medium and heavy duty? Because they're both. And I think from a technology standpoint, the medium and heavy duty feels like it's closer to an inflection point in terms of adoption.

Whereas as EV we've moved past that initial inflection point. We've got, we've got, we've got it out there now. It's sort of like trying to keep the momentum going.

So that's why I think I still have questions in my mind as to why we didn't, shouldn't make sure we have something in the 2026 budget specifically designed for the, for the medium and heavy duty as we go forward. But with that, thank you very much. I just want to ask one quick question. Sure. It's very quick.

Do we know what the average cost is for an electric vehicle?

Yeah. So obviously the cost of vehicles range wildly depending on whether it's an SUV or a light duty truck or a sedan. I would say on average it's in the 50,000 range. As the average. I think importantly here though is the differential that you have between an internal combustion engine and its electric vehicle counterpart. Right.

Because right now the cost of ZEVs have come down quite dramatically, but they still, the upfront cost is still somewhat higher than their internal combustion counterpart. We hope and anticipate with this investment that we will move towards parity or cheaper when you're talking about upfront cost.

But that differential is in the couple thousand dollar range depending on the make or the model. And so that's why this money is so important because it helps bring down that upfront cost, nudging consumers to choose a clean vehicle over a fossil fuel vehicle and maintaining that market momentum.

I appreciate you sharing that figure. Thank you. Clean Cars for All is going to run out of money this year projected. There's no new funding for that, but 200 million here. Can you respond why we should let Clean Cars for All run out?

So last year 42 million was provided to Clean Cars for All. Just last year 42 million was given to Clean Cars for All. And money is still flowing through that. But it will run out this year for some regions. That's correct. It's administered through AIR districts. Obviously demand is different and how they administer their program is different.

And so that is the case. There is also the statewide program that has money available that can be also a backslide to those regional programs. I think here what we're seeing is a program that absolutely continues to support low income and disadvantaged communities. Plus. Right. Opening it up to more folks.

You saying Clean Cards for All supports or. I'm sorry, this proposal.

Proposal.

Well, this proposal only does that if you have. It's hard for me to say that it supports low income people plus when we, when we're not looking for income requirements because we think that's too onerous and we're only. The only thing that's helping us realize this goes to low income people is first time buyers.

There are a lot of high income people that are going to be first time buyers that are going to benefit from this program. Whereas Clean Cars for all would really be benefiting low income people. We'd be much more certain that it would benefit low income people. Am I correct that it.

Yeah. I appreciate, appreciate your perspective and the points that you're making. As I mentioned earlier, one of the things, you know, we have trade offs when you make program design. Right. The more requirements that you put on it like income verification, the more onerous.

You gave me that. I know there's more requirements. I understand why we, you know, we don't want to put too many requirements on but because it's, it has the challenge of we don't want to put too many requirements on.

We're probably going to let number of high income people get this subsidy because they're first time buyers and if they're first time buyers and they're high income, they're going to qualify for the subsidy. If we go clean cars for all we do do the income check and so we're certain.

So we're going from a program, for example, we'd be funding a program that could certainly benefit low income people to a program that may or may not benefit low income people. So offer that and have my colleague, semi Member Rogers and just to piggyback

off of that a little bit, can you talk a little bit about the difference in how long it would take to deploy the money if it was put into the Clean Cars for all Program as opposed to creating a new program?

Yeah, I appreciate that. The application processing time varies from region to region but as I understand it, it takes months for folks to go through and benefit from that program. Here we're talking about an on the hood incentive. So it would literally be when you purchase the vehicle, you benefit from the program.

Of course there's, you know, the likelihood when you have a very streamlined results oriented fast program that you may be incenting folks who, you know, you, you're not is not your ideal target. But that comes, that is the cost of having a rapid results oriented program.

And I think here, because we are focused in the purposes market transfer information, increasing that demand, rapidity, the speed at which we get this money out is a priority for us.

Okay, thank you very much. We're going to move on to item, item number three, we need, we, we don't anticipate those being long items, items three and four, but we know that staff has prepared some mostly we're going to do questions from Members and, or comments from Members about items 3 and 4.

Are you guys same the same folks here. All right, good. Item 3. Want to give us the quick, the very quick rationale for the change?

Sure. And same with last item. I'm going to hand it over to my colleague for this presentation.

Great. Thanks so much, Brandon. So with this item, the California Air Resources board is requesting $1.1 million in fiscal years 2627 and 27-28 from the Air Pollution Control Fund. And this is to be able to support four positions that will help us implement the initial requirements of proposed amendments to Senate Bill 59.

So this would make CARB the lead agency for making a determination on beneficial use cases for bidirectional charging and adopting any vehicle requirements that may be appropriate based on that evaluation.

Anything.

Helen Kershe with the Legislative Analyst Office. So we haven't raised any specific concerns with the proposal, but we would highlight, as your agenda notes, that this proposal would undo a change that was made during the course of the policy process on the Assembly side.

And so to the extent that's a concern for the Committee, we wanted to make sure you were aware of it.

And that's what I wanted to point out is that is, I think we take serious that the Appropriations Committee actually pushed this to be with the CEC and you're undoing that. So it's not something we're going to, I think, take lightly, it's something we're going to look into. Your rationale here is that it avoids duplication of regulation.

But. Give us a 60 second answer as to.

Sure. Happy to. So yes, we are proposing for CARB to be the lead agency instead of the Energy Commission. And this is because the Administration believes that our agency is the most appropriate agency to be able to not only evaluate vehicle technology, but if needed, to develop vehicle standards.

So my question is why did the Administration sign the bill last year if they thought it should be in CARB instead of a CEC?

I don't know if I can speak

to that, but yeah, I shouldn't ask you to say that, but that's what's going to be a question legislatively is that Appropriations Committee thought they had worked this out. The Administration thought they had the administration's buy in with the signature. And so now to have this be a change, it's it's no small thing.

I just don't want it to be a small thing. zero, yeah, well, we just can reverse legislation that that was done. So that will, that will be the question that will, will, will remain. And that's going to remain open. We're going to jump on to issue number four, please.

Again, let's keep this very brief and so we can open it up to questions of Members if they have it. All right. Okay.

Good morning. Brandon Merritt, the Department of Finance and I'll be presenting the overview of the Greenhouse Gas Reduction Fund budget as detailed in issue 4. The governor's budget assumed revenues of 3.77 billion in 202627. The governor's budget proposal for the 26-27 cap and invest Expenditure plan reflects the updated structure as reauthorized in 2025 by SBA 40.

The new structure includes three tiers of expenditures with tier one fully funded first, followed by tiers two and three. Tier one includes the manufacturing Tax Credit, State Responsibility Area Fee backfill and the Legislative Council Climate Bureau. Tier 2 includes $1 billion for the High Speed Rail Authority and $1 billion for other discretionary items.

Of the $1 billion in discretionary funding, 250 million is reserved for various investments identified in SB 840. The remaining 750 million from the 1 billion in discretionary funding supports the Cal Fire General Fund backfill.

Tier 3 funds, previously percentage based continuous appropriations will now be capped dollar amounts beginning in 26-27 with proportionally related allocations that adjust downwards as necessary to ensure tiers one and two are fully funded in addition to state operations appropriated in the Budget Act. At the Governor's budget, there is 1.4 billion estimated for tier three.

The governor's budget maintains the 2025 budget act agreement to support Cal Fire operation costs with 1.25 billion GGRF in 26-27, 500 million in 27-28 and 500 million in 28-29. Finally, as discussed in issue 2, the budget includes 115 million one time GGRF to support the 200 million zero emission vehicle Incentive proposal. That concludes my presentation.

Happy to answer any questions.

Thank you. Anybody else from Finance? Lao?

Helen Kirstine, Again, I just, I want to start with just a couple very quick points there to give a little bit of context and then I'll provide some brief remarks. So the additional context I wanted to make sure that everyone had was that the Legislature has committed some of this GGRF in past budgets.

So particularly in the 202425 budget as I think many Members on this Committee may recall, the Legislature actually adopted a multi year expenditure plan for GGRF and that included a whole variety of programs. They're nicely detailed in your agenda. I won't go through all of them. I wanted to highlight two specifically because they were related to legislation.

One was the Clean Energy Reliability Investment Plan program that was related to the Diablo Canyon deal that the Legislature made with the Governor. And there was also funding that was provided for transit and that was related to SB125. And there was money slated out in the out years for transit.

Also last year, as the Department of Finance mentioned, there were two kind of intent language pieces that were included. One was NSB, that was $250 million for a variety of programs. And then there was money in the budget bill.

There was intent language about this Cal Fire backfill, which is a General Fund basically to offset General Fund costs. So in terms of our comments, we note that we think the proposal in General is consistent with legislative intent. It includes that Cal Fire backfill, It includes that 250 million from SB840.

But we think one way it's it's perhaps less consistent with intent is that the Administration no longer plans to Fund that GGRF expenditure plan from 2425. So it no longer plans to Fund that transit money, SARAP money, or any of the other programs that you see outlined in your agenda there.

Instead, the Administration is now proposing to use some of that money to partially Fund that zev, the new ZEV program we just talked about. So some of how they're funding, that is the Fund is funding here. So that's a policy choice.

We also just think generally given the General Fund condition, the Legislature is going to want to use GGRF for its highest priorities across the budget. This is a flexible source. It's available to you.

Given the state's condition, you could look back and think are those previous commitments still your high prior highest priorities or not and really evaluate this as a helpful tool in your budgeting.

Great. Thank you Members. Questions or comments? Take a moment.

So under the tier one expenditures, what what is state operations?

Brandon Merritt so the state operations is by and large a result of previously approved budget change proposals going back in time that the Legislature has adopted for ongoing expenditures. And then as part of this proposal there is 31.2 million in additional budget change proposals moving forward.

But if you look on page 2029 of the of the agenda, you'll see kind of that white and brown chart. And so that breaks down the, the universe of the departments who are involved with the state operations that you see on the, on the expenditure plan.

And if I may just clarify, this is the administration's interpretation of state operations. SB840 identify state operations as appropriated in the Budget act, which could, which is a very broad term which could include much more than just this 118 million.

And I think we're going to discuss that in the next issue as far as what that interpretation is and best use of that.

Okay. I'm sorry, can the leo, can you just. I want to make sure I understand the point that you made regarding the fact that this proposal shifts some of our spending, spending commitments, what we understood to be our spending commitments from the 20. You said the 25-26 period.

Sorry, from the 2425. So if you look at page 30 of your agenda, there's a really nice table that your staff have included, which includes the expenditure plan, the out year expenditure plan that was agreed to in that year. And you can see all those programs that were slated to receive GGRF funding.

So under the governor's proposal, none of these programs would receive funding. And again, some of their variety, some of the ones I mentioned just to Highlight were the SB125 related programs because those again were those transit programs and also the Sarah money. But there's other ones as well.

I would also note that many of these programs were ones that originally were proposed to be funded by the General Fund in previous years.

And then as part of our budget solutions, one of the things that the Legislature Governor agreed to do was to switch the funding source to GDRF and kind of move the funding into later years in some cases as well. And so now these would not be funded under the governor's proposal.

11.0 of additional context is that this isn't new to this proposal. So as part of the May revision last year and in relation to the Cal Fire Fund shift, the Administration proposed to 0 out that 2425 proposal that was discussed in Subcommitee. It was approved as part of the budget.

So it's new to this proposal as the LAO may be indicating. As far as the Administration making new policy decision in the governor's budget to not Fund these proposals. It was a decision that was agreed to last year.